Tomorrow

Take a look at the charts on Trade Guild tonight. As I said, we have an important day in the books today, if we get follow through, I'd say the market's fate is sealed and you won't have to do much other than manage your positions, take in money and play some counter trend moves. The whole point of the CORE positions was to get the work done early, then you'll be able to sit back and reap the returns. We are not 100% at that point yet.

The positive divergences are not surprising. Whatever changed today did it fast and in a big way. Market makers got nailed as they saw the gap, they also saw inventory at much higher levels go into a huge loss, especially after they had been gearing up for an oversold bounce. So don't be surprised to see an attempt to fill in that gap; this is why we don't make decisions based on intraday moves, but rather the close.

Also do not be quick to panic, this would be a very normal occurrence and even though it may lead to some upside, it's not highly likely to. Even if it does, we already know where this market is headed, the only thing that will change is a few tactical decisions to reduce drawdown and protect our positions.

Be patient, be calm and make sure you have 25% or so in cash. If you have questions, feel free to email me. If you have time to watch the market tomorrow, you can probably make a quick buck buying something like UPRO and holding for the a.m. bounce, unless it turns out it should be held longer. In any case, that position could probably generate a nice little gain in the a.m.

By the way, the internals today were astoundingly bad. There was no hiding what  money was doing today and it was borderline panic.

Congratulations!

I must say, whatever "really" triggered today, I didn't see it coming, I believe Wall Street did not either. The one min divergence that was very unclear last night was the head leading the body. The 5-min and longer positive divergences were like the tail which takes a little longer to turn, but just as we saw a positive divergence develop quickly, we saw it deconstructed equally as quick, maybe even faster. Smart money reserves the right to change their mind and today and late yesterday, it appears they did exactly that.

Today, with an exception or two, 3C did not find hidden accumulation or distribution, it tracked pure, open distribution and worked as a confirming indicator. The selling was not hidden it was plain as day, right in the sunlight. Something big appears to have changed and if you watch TV or read websites everyone will have a reason why. We have known for months that this market's fate was already sealed, this is why we strategically built up our "CORE" short positions. Let me warn you though, all of the reasons you will hear tonight about why the market did what it did are probably almost all wrong. It will become apparent at some point in time why today specifically acted as it did, but by the time the truth of it comes out, it will be too late for the late-comers to act on.

It really doesn't matter why today was the day that our downside trigger was pulled, we've known for months through charts like this that institutional money was planning for this day.

Although I'm proud of you guys and today was a big day, WE CAN NOT GET TO AHEAD OF OURSELVES. The truth is, the S&P carries the most weight, it closed below the H&S neckline which creates massive overhead supply / resistance. However, the DOW did not break today. The Q's took out the neckline lows, but they didn't take out the 5/6 lows. The IWM has not taken out the June intraday lows, we still have some doubts as to the move, although if there's an index you want to see break, it's the S&P and it did so.

Tomorrow we will see if we get follow through, if so then we are well on our way to a profitable quarter and then some. If we see a bounce, we'll play it by ear and hedge appropriately when needed, that is why we left at least 25% in cash.
As you can see below, we have a 1 min positive divergence, so I'm expecting some upside tomorrow, how far that reaches remains to be seen. What I do feel very strongly is if it isn't today, it will be very soon.

Lets wait and see what happens tomorrow.

Looks like time to fulfill our plan

Unless there's a monster rally in the next 10 minutes, you should go ahead with our plans and expand your short positions. Volume picked up as $104 (SPY) was broken. Most of the divergences deteriorated into confirmation. This is the analysis we've been planning for months, this is what we have been waiting for. I think you can move forward and load up the rest of the shorts. Make sure you do not go into a portfolio leveraged situation and have at least 25% in cash.

I'll update tonight, but this is what we have been waiting for... GO!

Correction of the last post

We only want to add the shorts with an SPY close BELOW $104.30

Here's why we are waiting

The 1 min has gone positive, the 5 min has been positive, so we ar watching for late day strength, we only want to add the rest of our short position (bring us to the 75% short area) if the SPY CLOSES above $104.30, otherwise this may be another volatility false breakout. Don't worry if you miss a few points waiting, it greatly enhances your risk / reward relationship

Update

We are under our trigger, try to wait until the close (as close as possible to the close), if we are under the trigger or $104.30 go ahead and fill out the short positions using either shorts listed or the core positions mentioned earlier today. We want to wait a bit and see if the late day rally materializes, if not, then we complete our top plan.

Update

As of now, the 1-min hasn't showed any real divergences other than the one I mentioned earlier, for the most part it has been in lock step confirming today's price trend, however, the 5-min chart fell and quickly recovered in 4/5 charts. As I said last night, I was looking for strength later in the day, so it appears that is what we have as of now. I will continue to update, we should get a 1-min positive divergence before any move up, when it appears or "if", I'll let you know.

Update

It's way too early to say, I have to admit the size of the gap may is big and this may not be the best time to update a it may be effecting my analysis as we're still somewhat blind. The 5 min is moving down, which is expected, it's not in a negative stance yet, but could be. It looks like a very short term bounce is brewing. The trend could continue down after that, this is why I want to wait until late a.m. to decide with more clarity. But you may want to take advantage of any short term move up to reposition anything you may want to.

Clear my Eyes

It's always interesting to wake up, see a huge gap on the charts and keep rubbing your eyes until you are convinced what you thought you saw is really there.

I said last night that I didn't think we'd see strength in the a.m., but this is a whole different ball of wax we are looking at. This is why I had an ambiguous tone last night to my charts and analysis here and at Trade Guild, not because I foresaw something like this, simply because in the short term, I had no visibility whatsoever. That can happen for a couple for reasons, one of them can include as I mentioned last night, the Byrd passing may have totally changed the game, I didn't think so, I'm inclined to not think so, but maybe it did. In that case, if that is what happened, then Wall street is deconstructing the position they took last week as fast as they put it together, thus we have short timeframes following them in the other direction and the longer ones are like a tail or a ship with momentum, it takes them longer to turn.

Another scenario.... we are back to the crazed volatility game in which we see a huge gap down and then a rally back up, this would be one of the bigger volatility moves we've seen and we've seen some big ones.

The final scenario is kind of the same as the first (although there really is no end to the scenarios), the market is not bluffing and this market is ready to move down. In this case, we do the same as we have been planning on doing since we established the core short positions which are on the list 6/3/2010. We are at 50% of portfolio in these positions, (if you have been around awhile, were bought long before 6/3 at much better pricing) but the idea has been to add the final 25% and leave 25% in cash, as the market moves below the $104.40 area on the SPY. So be ready for either scenario. If you are long any stocks from yesterday, you should also have core shorts in place as those are the priority, so you should be largely hedged and not be in need of desperate action, meaning I would not just sell on this gap opening. Try to wait and see if this is a shakeout, if it continues down, then you have to do what you feel comfortable with, but if it goes below our bear trigger then be quick about adding the rest of the shorts to your position.

If visibility returns, then we'll have a good idea of which way to play this, I would guess it wouldn't be until late morning before we see what the 2 min chart will do.

Stay tuned today. Checkout any of the limit shorts that have been on the list that have not triggered as well, and even longs if they do trigger (some may).

I'll update as soon as I see something definitive.

Aren't tops fun?