I Feel Like Sherlock Holmes Tonight

OK, there's a lot of thinking out loud here so bear with me as I try to put the pieces of the puzzle together.

In looking at the charts tonight, I'm reminded of what a properly read chart can show you, human emotion. The market moves because of human emotion, it's called sentiment and Smart Money is not even immune to it.

While I know for sure there will be stocks that are up huge tomorrow, I'm finding it very difficult to find that obvious accumulation that makes for a good long call and even more surprising, given today's events, I'm finding it hard to find negative divergences that are out of line with what the market in general put in. 3C tonight, on the shorter timeframes shows a listless, almost lateral trend in so many stocks. It is something I'm not sure I've ever seen, at least I've never noticed it to this degree. What is my interpretation? The same as how I described Ben Bernanke's statement about the market, “unusually uncertain prospects “-SHELL SHOCKED. I think the market was looking for something, scratch that, let me restate... I think the market was “EXPECTING” something particular to flow from Mr. Bernanke's lips. When that didn't happen, I believe the market's big players almost felt a sense of betrayal. They had gone through the trouble of accumulating a position as I mentioned before the rally ever took place, and now they are faced with a position they don't know what to do with. The words that rang around the financial globe today, “unusually uncertain prospects” did damage, but as a reader points out, CNBC had read those words before Bernanke opened his lips. I do not doubt that Wall Street would have been aware of that statement or aware at some point today. This is why I posted on Trade Guild the question, “What time did he say it” because I wanted to see when the distribution began vs. when the words were uttered.

It's pretty clear when the public first hear the words as this chart demonstrates, around 1:58 EDT as Smart money rarely responds like this when it comes to distribution and the chart below makes it clear why they don't respond in this matter-the huge volume puts downward pressure on prices and they want to distribute, just like you want to sell, into higher prices.

At 11:09 this a.m. I posted an update that showed two negative divergences in two timeframes.

At 1:15 p.m. Today I posted this , “ Here is the long term 3C on a ten minute chart in a leading negative divergence-this is very powerful”

Here is the continuation of that same chart-notice the negative divergence never let up.

So we went from a gap up, which is what we would expect to see from a strong day like yesterday, we expect to see follow through which confirms the validity of the move. Here's what solid follow through looks like.

This may all seem a little forensic, but you can't determine which direction you need to go until you determine where you are.

Speaking of which, it is all too easy to get hung up in daily moves that in the big picture, really mean very little. Sure you can plan for “Plan B” and you should, but there's no sense in worrying over something that hasn't happened. So every once in awhile, it's good to step back and see the big picture, see the forest.

Here we see a clear stage 3 top. Almost all stocks/markets go through this cycle. On a scale this large and an index this big, this is not trickery, it's institutional emotion/sentiment. The only thing I did not notate was the very last candle in this 5-day chart which is showing a failure at resistance. There is nothing strangely unusual about this top, this is what we see and have seen for over a hundred years of charting.

The Bottom Line-

Tomorrow will be what it will be. From what I see today, the institutions that accumulated a position that I initially thought was large enough to take several days to distribute, seem to have begun that process WAY before Bernanke's testimony, Whether they got wind of that phrase that I will not utter again or they got wind that something they expected to be in his remarks was not and will not be there, or if it's something else like insight into some major earnings that will take a cumulative toll, I don't know, but what I do see is institutional money running scared early on today, the little guys jumped off the cliff later in the day-that makes some sense doesn't it? If you have smart money connections and you know that the little guys will be runnng scared and making it difficult for you to unload your position into high prices, wouldn't you tell your people, “Start moving that inventory out”? I would.

So the very last question is, this: Prices took a big hit, if smart money wants to run up the market a little higher, wouldn't they take the opportunity to pick up a few things on sale? So back to the charts.

As I told you this am, the blue 3C picks up on signals the fastest and it is showing about an hour of light accumulation on the 1 minute chart-BOP and MS seem to confirm this.

However, when we move to the 5 min scale, which would show a stronger degree, we don't see anything more then confirmation

When checking another 3C on the Q's, we see the same thing

And checking the DIA-same thing. One thing does become apparent though and it does make a little sense. There's a Bear Flag formed.

As you can see, the volume for a bear flag is correct-it should diminish and it's actually a rather well formed bear flag. If we are seeing some 1 min positive divergences, is it possible/probable that we see a move in the a.m. (perhaps a gap up to the upper line of resistance) and then see the flag broken somewhere around $101 which is also a significant support/resistance level if you look back on a daily chart and a whole number where stops and orders are bound to congregate.

Being everything we've seen, being we are certainly in the Bermuda Triangle, this is my best guess.

This would mean it would probably be a decent time to add shorts or establish your position for new members. Being that it is earnings season, I would recommend going to the June List (June 3^rd) and look at the shorts available there. The reason I mention those shorts, especially now is precisely because earnings season is still underway and this is a market of stocks, meaning that stocks can buck the market trend or it may take a day or two for a stock to realize it's potential after earnings which can be misleading. If we are indeed going to break that bull flag, the measuring implications/target put us around $105 which is very close to the trigger for another break of the H&S top and I strongly doubt we see another upside breach of the top.




Remember our main strategy is still in effect so abide by it and as ALWAYS, RISK MANAGEMENT FIRST!

ANOTHER PERSPECTIVE

PLEASE WHAT I POSTED AT TRADE-GUILD.NET BEFORE CONTINUING WITH THIS POST.


As I have said a few times, there's only one person I really have taken the time to read and listen too and it's because of his unbiased analysis and his depth of experience. Don Worden, as I have mentioned previously, can pretty much be considered the father of modern (computer) technical analysis all the way back into the 1950-60's and in this post you'll here him tlk a little about one of those indicators which is the great, great grandfather of indicators like 3C. I don't agree with Don on every point, we are each using different tools and have different views or vantage points, which is ok. It's like 5 people seeing a car accident, all from different angles. However, by and large, this is about the only report I will read and consider seriously. So until I'm done with tonight's post, I'd like you to hear from Don on Today's action.  I find myself in agreement on a number of issues which I will place in bold. Enjoy!


The Worden Report (Wednesday, July 21, 2010)





"Unusually Uncertain"

Fed Chairman Ben Bernanke







    
       Everybody knows, of course, that the market hates uncertainty. It has almost become a Wall Street cliche.
       The concept of uncertainty in the market usually goes hand-in-hand with the structure of the market's constituency. When I first tried defining the meaning of "technical analysis" I described a "typical market technician" as an "evesdropper:" someone who spies on "those in the know" for hints on what the "smart money" is up to.
       That definition remains valid and useful in my mind. The market's participants consist of a minority of those with "special knowledge, judgment, and unusual financial resources (the group I often referred to as the "smart money" or the"big money.") The other side was the hoi polloi of Wall Street, sometimes referred to as "the masses" or the "little guys," who base most of their opinions on tips and vague guesses.
       "Tick Volume," was my first and most successful market indicator. It consisted of a daily tally of large transactions versus small transactions in individual stocks. The daily net score was the difference in total uptick volume (buyers) and total downtick volume (sellers). The net difference was assumed to separate the action of the "smart money" from the hoi polloi.
       To make a long story short, it worked. We consistently were able to find probable cases of "big-money accumulation" or "big-money distribution." After a couple of decades, as institutions grew to be the market's main participants, Tick Volume developed a negative bias. Finally, it became highly unreliable and even misleading. I had to develop other indicators and techniques for getting a feel for "smart money" activities.
       Of course, in the ideal world of "Tick Volume," we were actually able to view the chronic uncertainty of the hoi polloi versus the informed certainty of the "smart money." I have always visualized the market's basic game consisting of the "smart money" taking advantage of the "little guy's" naivety.
       It wasn't until recently that I realized there could be times when there simply was no really "smart money." The market and economy for the past couple of years have consisted only of unsophisticated "little guys." This accounts for a market that often seems inconsistent and irrational. It is a market that can change its mind on a dime--and then change it back on a nickel. It's most experienced sages don't know how to cope with global economics. We have a government that doesn't believe we are all on the same side. And what do you know? Today we even had the Chairman of the Federal Reserve Board admitting that the economy (meaning everything to do with it) is "unusually uncertain." 
       In yesterday's Report I said, "All four of the Major Averages underwent a "key one-day reversal" to the upside in this session. It is something I find hard to believe both fundamentally and technically... If there is one thing I learned long ago, it was never to argue with the market. I'll argue to the extent that I don't completely trust what I see, and therefore I'm not going to rush to the bull side and feature a bevy of potential longs. I prefer to wait a day or two and make sure this isn't some kind of a fluke."
       I believe now that it was indeed some kind of a fluke. To whatever extent it was for real, today's action in response to Uncle Ben's presentation wiped it out. We are now faced with the reality of building short-term opinions from scratch. Frankly, I feel more comfortable with that.
       Today's stats were about as negative as yesterday's were positive. Which is to say that neither yesterday nor today can be complimented for telling us what the underlying attitude is. Suffice it to say it the way Uncle Ben said it, "Unusually Uncertain."
       The Ten Important Averages were down -1.24% on average, compared to yesterday's +1.31%. Fifteen of the 16 Breadth Groupings were Super-Decisively Negative. The other one was Decisively Negative. Yesterday's ratio was exactly the opposite.
       We had dual Dominance: 1301 PDVD and 1261 PDVU. Neither one tells us anything practical in this kind of market.
       No changes in the Trend Table. -DW"




I have stated in the recent past that this new Global Economy changes everything. I have received criticism for suggesting we could see events that are near 1929 in the effect on the market, not that it will unfold the same way, but that it could be that bad. Globalism has set up a line of dominoes that never existed before. Now you have some insight as to why I'm so firmly planted in the bear camp. What I see on the charts is what influences my view and what the market does daily, although it can hurt from time to time, is often just either misguided bullishness as I think we saw yesterday/today or it is part of the way the market now operates and in that I mean that the market understands what the little guys are all looking at and while all the little guys stand on the beach contemplating the horizon, the big guys are quietly digging a hole and covering it with a beach towel for the masses to fall into. It doesn't mean a huge day up is a historical, sudden shift in opinion, it's just a trap set. While the little guy is struggling to get out of the holes dug on the beach, the "Big guys" are making off with their wallets. This is the nature of the market and ironically, it was computers, cheap online brokers and thousands of books about technical analysis, which all reinforced the same ideas, except each book added their own new indicator so they could sell it, that actually made this market into the meaner machine that it now is.

If you are willing to invest $50 in your future and that money goes toward a lot of work if you notice what time I post at night (and it's not because I'm watching TV or eating dinner) , then in my mind, you are serious about your financial future. I could simply make a spread sheet and list ideas and leave it at that, lord knows it would shave hours off of my workload everyday. However, what use is that? Sure you may make some money and feel good, but what did you learn? What happens when you finally depart Wolf on Wall Street and you are in a zero sum game with the most ruthless knife-fighters in the world? What did I do for you?

So I hope that I am bringing you the understanding and knowledge of how Wall Street operates, even as I uncover new truths. I hope you look at the charts and maybe even make your own discoveries. I hope that you contact me about risk management if you haven't made that priority number 1 and finally I hope you realize that being wrong about the market from time to time is not a weakness, it's life. The only way it becomes a weakness is if you don't learn a lesson from that, or if you don't have risk management in place, because being wrong should never hurt you so bad that you can't recover, it should be a small loss that you can easily take and move on before it becomes a big loss.

OK, back to work, I'd actually like to watch a movie tonight with my wife.

An earnings play

The symbol is SBIB the trade is long. this is very speculative, they report in the a.m.

Another Update

Above the 15 min is in a leading downside divergence and below the 1 min is suggesting an intraday correction with a positive divergence, overall-the market is looking bad

Afternoon Update

Last update we saw the fast 3C on the 1 and 5 minute charts in a negative divergence.

Here is the long term 3C on a 10-minute chart in a leading negative divergence-this is very powerful.

Morning Update

Above are two negative divergences on the fast version of 3C, this where divergences on short timeframes show up first.

There were some good earnings out and some bad today. The news says traders are mulling over the batch of reports, this looks more like a holding pattern waiting on Ben Bernanke's Congressional testimony today this afternoon. We already know that he's going to say that the Fed stands ready to keep the market momentum (or perceived momentum that was thought to exists) alive.

Why is the market not shooting ahead right now? Because they want to hear the tone of his voice, they want to listen for any nuance, subtle contradiction, they want to figure out of the Fed is able to anything. Interest rates are about as low as they can go, the only seeming tool the Fed has to really twist the banks' collective arms is to stop paying interest on reserves and force them to do something with the capital they are sitting on.

As I write this, the divergence has deepened. I will continue to watch for any signs, but it seems as if there's not going to be much known until he speaks.

Correction or?

WOW! Last night I warned about strength today, even in the face of a gap down-that's a hard call to make, seeing a gap down like that and saying, "but we'll see market strength". The only way to have confidence in these calls (How about HOG today? Several members eamiled me today that made money in HOG and a few other trades based on the market call) is to trust your indicators, I trust mine. However, accumulation is one thing, but the strength of today's move can not be overlooked. In Western terms, this is what is known as a "Key One Day Reversal", in Eastern, candlestick charting terms it's known as a Harami reversal (day 3 and 2) and today (day 1) is a "Bullish Engulfing" candle. The volume was up, not on par with the massacre on Friday, but up substantially from yesterday. The price/volume relationship as you can see from the chart below, was Price Up/Volume Up, the most bullish of 4 configurations.

The only thing not annotated is yesterday in the white box, this is the Harami Pattern. Today we got Price Up/ Volume Up, and a strong candle on volume. This is surprising to see as a correction, the configuration usually leads to a more substantial move. Friday did create a one day oversold configuration which is rare, now we are seeing almost equally volatile price action today. This is why earnings and tops are so difficult to trade.

Good thing to remember, the close of the previous day is typically the first zone of resistance/support. Note volume picking up as it crossed through resistance. A couple of things happened, longs jumped into the trade there and shorts covered there. This is exactly why I say to keep your stops in your head, putting in a stop with your broker is showing the market your hand. Typically at 3:30 on toward the last 10 minuted of the day, we'd expect to see day traders closing out positions and a little but of a loss of momentum. With all the new developments including algo trading and prop firms being shut down, day traders don't have the same influence on late day trading. So we saw a very strong close, we also saw a very bullish price volume dominance of Price Up/ Volume Up which is the most bullish. Taken with the successful Harami reversal and the engulfing candle/ Key one day reversal, this was a strong day. I expected strength today, I really had no way to say it would be this strong.

This 5 min 3C ver. 3 was the most accurate in calling today's move. You can see a strong positive divergence toward Monday's close. I find it strange with all of the other apprent strength today that this 3C chart was not able to make a new high with price. This is, of sorts a somewhat weak relative /negative divergence, but it suggests to me that there's some fading momentum, not downright distribution. This leaves the gate open for more upside in my opinion. However, as I mentioned before this move up got started, I anticipated a couple of days of upside.

This 3c ver.1 5 min chart of the SPY shows a positive divergence at this morning's lows and the rest of the day it confirms the price trend. It is rare to see a positive divergence in an uptrend, although they do occur, so this is actually a fairly strong chart.

This same 3C chart, except 10 min has been pretty reliable in the past. This is the first timeframe in which we see a negative divergence, which I would interpret as the start of selling into strength, but not an imminient reversal. Of course smart money's not always smart-Lehman Brothers comes to mind, however, I find it hard to argue with the evidence. It seems to me that we are in for at least two more days of upside, unless we see a lot of selling in the 1-5 min charts tomorrow, it wasn't really there today.

Here's something interesting, the SPY 5 min 4C chart, which provided a leading positive divergence Monday, a very pronounced one. In looking at this chart yesterday, there was very little chance of not seeing upside today. It has formed a mild relative negative divergence between yesterday's close and today's close. This is really the strongest case I have toward distribution and it's fairly mild.

Now that I've posted so many charts that seem to not give us much perspective on the market, I will explain why.... The name "3C" stands for "Compare, Compare, Compare"-it's a reminder of what good analysis is all about, comparing, putting together as many pieces of the puzzle as possible. The point I'm trying to make other than, brace for more probable upside , is that we do not see consistency between the indicators like we did yesterday. I call this the fog or the Bermuda triangle, this is a situation where any call is not backed up by high statistical, objective probabilities. IT makes me nervous to say anything regarding market direction as there are a few different doors open and it's most likely because all versions of 3C/4C are written differently precisely so I do not get the same signal unless it is very strong, then they align like yesterday or today's move in HOG which could be seen with quick view.

So lets look at what this could mean

Although the market is good at manipulating price patterns, the bigger patterns such as this Head and Shoulders are very dificult to manipulate. This is a consensus of human emotion. It's a stage 3 top of proportionate size found where it should be expected with 3C daily charts confirming it. People talk about the failure of the Head and Shoulders May-July last year, but they didn't take the time to validate the pattern. It has been said that one of the main attractions to technical analysis is laziness and that is what happened back in 2009 with the H&S, YOU MUST CONFIRM THE PATTERN WITH VOLUME and in this case, we have confirmation. The greeen arrows are pointing down, this is volume n the rallies, the red arrows pointing up is volume in the sell-offs, this is what confirms a Head and Shoulders top. It's difficult for me to believe that this top will be voided. So if the market rallies the next few days, you know what to look for-VOLUME! If it dries up like we have seen in every other rally during the top, then this is not a serious threat to the top and the short position is justified. If it does increase in volume, if it surpasses the blue arrow and most importantly the red arrow above price, then we have a problem with this top.

Many have talked about the "Summer Rally", even people I respect. It's almost a Wall Street cliche now it's so embedded into our technical brain. There have been years, even in Bull markets like 2004 where we didn't see a summer rally. In 2008, at the right edge of a Head and Shoulders the summer rally that started late July was worth about 3.5%-not a very big deal especially considering the fact that Friday we saw a one day move that was nearly equal to the 2008 summer rally. The point is, your analysis sholdn't be based on superstition, but objective data.

Bottom line, we watch carefully tomorrow for any indication of a halt to higher highs, higher lows. We watch for volume, does it increase or decrease? Of course I'll be watching developments in 3C, but to remind you of the most powerful and telling of all the charts,

This is the grand daddy. In the green box, TSV largely confirms the trend, except the orange box within it, we see the distribution start in October-same as the blue arrow on the 3C chart. The red boxes both show extreme leading negative divergences, these would be exceptionally difficult to turn at this point, something amazing would have to happen in the economy. So keep in mind the long sighted view as well.

As fr the next few days, continue to honor your stops, no cheating and moving them up unless you have an exceptionally good reason-you can always short at higher levels and recoup any losses taken by stopping out. Take a small loss and you won't be faced with taking a large loss. Learn to love taking small losses, that's your survival mechanism in the market.

If you have the time and are nimble, you can certainly play some longs. Several members emailed me with long plays they made money on today including HOG as I warned last night we'd see upside. One of my favorites for a quick bounce is UPRO, it;s 3X leveraged, you don't have to worry about earnings or news really and it'll generate a nice little return in an quick pop up.

Now, looking forward to tomorrow's earnings as people have been making money on this new twist I've thrown into the mix.

JNJ did what was predicted in last night's call-it was down on a nice gap and there was downside off the opening, not that it's a high beta stock, but 3C was right on. And b the way, it broke the flag, so watch for the target to be met. GS wasn't much of a call, the biggest thing there was, "as GS goes, so does the market" and that's what we saw in price configurations today. HOG was a huge success, like DAL the day before.

As a quick possible trade of a day or so, because after that it's murky, USO appears that it will see some downside tomorrow-watch for a possible gap up that falls back into the triangle. If that situation unfolds, this may be worth more then a day or two, a false breakout in USO right now will most probably create a downside sell-off that would be worthwhile.

Now please keep in mind what we are doing here with these earnings calls (I NEVER used to trade or recommend trading earnings), we are trying to find possible leaks that the market is acting on before the earnings come out, this is the first time I've used 3C for this and quite honestly it's pretty tricky, so don't go betting the farm. First up in Altria (MO), which I'm ashamed to say that I have contributed to their sales this year, I may have even made their quarter :( Please no emails, I know, I know-but all traders smoke, right?

This 4C 5-min chart has been accurate and honestly I like the stocks that are reporting early because you'd expect to see the final exodus the day before in the afternoon. I think they come out at 9 a.m. Notice the sell-offs around the $21.45 level. There's been about 7 day of resistance there and it seems to be coming from the late April, very early May top that formed right before the sell-off. then we saw a move above in mid-May, it didn't hold and was an obvious false breakout. Why obvious? Look at what happened next, it took a 10% nose dive-false breakouts reverse quickly and violently and in this case, on big volume. Today MO broke out, any other day and I might feel differently about it, but it appears that they used the market strength to perhaps create one more false breakout, one more opportunity to sell at higher prices and set shorts. 4C could not confirm the afternoon close higher. My opinion is that this will not do well whatever the earnings are, the only wild card is the "rising tide lifts all boats" meaning general market strength, still, I feel this is probably a bull trap today. Otherwise it seems to be a decent short on a longer daily basis.

BIDU has negative divergences on 3 different time frames, even MoneyStream in red is divergent. I'm expecting weakness here. Even today as it moved up with the market, it could not muster any volume. It's also in a daily triangle-looking top.

FCX 1 min 4C chart. All 3 3C charts are negative on the 1-5 min as is the 4C chart you see here, price rose with the market, but it seems apparent that there was selling into that gain while the rest of the market at least confirmed. FCX should report pre-market. If you get a chance, look at the last 30 minutes where it actually starts making lower high/lower lows=downtrend on high volume. I think this is a pretty good candidate for a short-sell trade.

Good News?

This is a 10 min 3C chart of GSK, 10 min is pretty substantial and you can clearly see the positive divergence yesterday and today we have a leading positive divergence, the most powerful and on a 10 min chart. I feel that this one is going to respond well to earnings.

Finally, for tonight-this is the one I'd rather skip, but this is one stock that will be or has the ability to be the fulcrum of the market-UTX

On a daily chart, UTX looks remarkably like the S&P-500. There's one difference-this 4C chart does not look like the SPY. We have the positive divergence yesterday, but today toward the close, actually earlier then that, we see distribution. There's also some bigger negative volume and this is what has me a little hesitant. Although the assumption I'm making by putting this chart in this section is that earnings leaked, the volume at the end of the day could have influenced 4C. 4C is meant to pick up on quiet accumulation/distribution, but the anomaly in volume could effect it. The reason I went ahead any way is all the 3C 1-5 min charts are negative and the divergence started before the volume really got heavier at the EOD. So the assumption here is we have a possible leak in UTX regarding earnings and it won't respond well. If that is the case, this one could very well influence the market. UTX reports pre market.

Happy Hunting