Another Day of the Same

Last week I mentioned that the game was to take the average higher into the close and distribute shares or sell short-I can't tell which, but they did that a lot last week inside that zone of resistance. We're still in that zone although today the S&P-500 closed at a new high-exactly .05% higher! On declining volume too! In fact the lowest we've seen since April! So the dominant price/volume relationship shouldn't surprise you, Price up/Volume down-of the Dow 30, 19 closed that way, that's dominant! And.... it's also the most bearish price volume relationship of the 4 possible combinations-yes, even on an up day. We also formed a Doji day on the SPY, which shows a total loss of momentum and as such, it is a fairly good sign of a reversal-the Japanese have been using this system for over 200 years trading rice.

Whatever our mystery rally was about and I think it was about , well I'll tell you in a minute, the market is still doing nothing! Sure they are waiting for the Fed, and here's where I tell you my observation.

There have been about 5 events in the news, starting with Bernanke's Senate testimony in which the Fed has been leaking to the media or telegraphing what they are thinking and presumably what we can expect. Why? Remember the days of Greenspan's "Greenspeak", where he could say 10,000 words and you still had no idea what he was thinking and now we have the Fed right before a meeting tomorrow watering down expectations. Are they going to pop us with an early October surprise? I'm not sure if this economy has enough room to play politics. I wouldn't be surprised to hear they're going to warm up the printing presses, but then why does the dollar look so bullish? The only thing I get out of this is that they are trying to let us down easy so there's not another flash crash.

Look at Trade-Guild tonight, check out the Head and Shoulder's post, there's a point to be made there. We have exactly the same situation now as we did the last major crash, we're in almost the exact same place with the same price formations. There's that ascending wedge that we have seen develop the last few weeks and because it is so obvious, I'm going to say there's a decent chance smart money makes one final push-a false breakout just like they did with the last ascending wedge which marked the top and the start of a 50% decline in the market.

For new members, there's a lot of short limit orders, but there's some great short positions on the June list at June 3rd.

Maybe tomorrow they pop the market. One thing that almost always happens is the initial reaction to Fed policy is almost always reversed within a matter of days, so if we do pop up tomorrow, I for one won't be in a bull mode. There's good longs out there, but there's a lot of shorts as well. I noted last night how many ascending wedges I saw scrolling through about 500 stocks.

Tonight there will be no new trades as tomorrow is an uncertain day. As the TRIN index predicted today's close higher last night, it's now at .87, below .70 and the market usually closes lower the next day. Above 2 and it closes higher typically, last night it was 1.56 and that's why I expected a close higher today, but make no mistake, there was no accumulation driving this market, here's the proof...

The 60 minute 3C chart, besides the daily, it's the most influential, but the daily is not sensitive enough to pick up on the daily action in the wedge, If you look, you will see that 3C called every reversal up or down on this chart and it is now in a nasty negative divergence in the Ascending Wedge. I wanted to see how today traded, not the close, the underlying institutional investment, there was none besides market makers occasionally pushing a play on a 1 minute chart.  I do believe this is manipulation, there's selling/short selling inside that wedge into higher prices, someone needs to give enough support to keep prices stable or rising, but in the background, institutional or smart money seems to have hit the exits pretty hard.

So get those limit orders set up. I thank heaven someone actually did catch the SPRD trade today-remember-lock in those profits and make sure this doesn't turn into a loss. I prefer to take part of my investment off the table with a quick gain like that and let the rest ride with a tight stop. You can always buy back at the next pullback, but the markets are uncertain right now.

So that's it for tonight, I am going to sort through a couple hundred charts I have picked up on some of my TC scans and if anything jumps out as cash on the floor, I'll post an update tonight.

New members, welcome and I say it every night RISK MANAGEMENT-that is the key to your success and I know it sounds boring and you'd much rather get rich with a few incredible stock picks, and that's the way it happens, but your going to have to sort through some losers too and to get to those incredible stock picks you need to survive-risk management is what allows you to do that. I have a link on the top right to a nice article I wrote. If you have questions about it, send me an email, I don't care if it's midnight, it's that important.

Tomorrow should reveal a lot of the stuff we've been seeing. The nice thing is, we see a lot that the market doesn't. Look at the 3C chart above. Isn't that great? Every major turn is right there.

Can Someone Please Email Me and Tell Me They Caught SPRD Today?

This was from last night's Limit order list, it triggered this morning and I sent out the update at 9:36. Assuming a few minutes to get your order together, your 1-day gain in SPRD as of the close would have been 6%!

Today was strong follow through on the breakout, volume was even higher today. This is the kind of bullish confirmation we look for in a breakout and when it is not there, then you have very good reason to be suspicious of the breakout as a false breakout or bull trap.

3C showed a little profit taking into the close, but that is to be expected from a 14% 2-day move. If you are in this trade or if you are not but want to keep it on the radar, I suggest the following method below.

Above is a daily chart of SPRD. I choose this trade because of the triangle pattern you can see in the trendlines, the strong uptrend and the strong breakout. I didn't use this screen in choosing it, but this may be a helpful screen for anyone that likes to use moving average crossovers as buy/sell signals. In the top window in yellow is a 10 day simple moving average in yellow and a 22-day simple moving average in blue. Ignore the red dash line-it is a VWAP and not part of this screen. In the middle window I have a custom formula in yellow and a moving average of the formula in blue, it too is a 22-day moving average. (If you have TeleChart, I can give you the formula, but it is not absolutely essential, it just adds another layer of confirmation. In the bottom window is a Wilder's RSI with a period of 22. A buy signal is given when both yellow lines cross above their moving averages and RSI is above 50 or the center. In this way you are able to avoid many of the false cross over signals that plague moving average trading systems. The green arrows mark buy points.

To enter the trade from here, you simply wait for the first pullback to the 10-day moving average-it can be intraday and you buy there. The first pullback should not go so far as the 22 day moving average so you can use that level as a stop. The second pullback often will be to the 22 day moving average. The idea is to pyramid your winning trades, add to them on pullbacks, but each time you add less shares because the trend is maturing. This is the opposite of the Wolf on Wall Street Cardinal Sin-dollar cost averaging a losing trade.

Another thing to note is the triangle price formation itself, you can see the red trendlines marking it (click on the chart for an expanded view). Whenever you get a breakout before the triangle forms an apex, it is usually very strong. The implied pattern/price target can be measured from rear of the trangle-the highs and lows at $11 and roughly $7.50. The difference=$3.50, simply add $3.50 to the point in which the breakout occurred ($9.75) and you have your target-9.75+3.50=$13.25. It's a rough estimate, but usually pretty reliable.

To confirm any triangle, the volume should decline as the pattern matures, if it doesn't, it's probably a random price formation. Triangles like this are continuation patterns unless they are very big. So the breakout is expected to be to the upside being it is continuing the preceding trend which was up. 

Here's today's intraday chart. I warned to be careful as the pattern of another intraday triangle was obvious. An obvious pattern creates a bunch of stop orders just below the triangle. Market makers and specialists love to hit those stops and get shares on the cheap plus whatever volume it creates, they make the spread on it. So we saw a false breakout, but it wasn't anything to be too concerned over, just to know that it was likely to come.

Now that the trade has moved double digits, you want to be on watch for a pullback, which is perfectly normal, but you may want to take profits or reduce exposure, you can always by them back at the 10 day average. The key is to never let a winning trade like this turn into a loser. When in doubt, get in slowly and get out quickly.

Congrats to anyone hitting this one. This is also why I say, put alerts on all the limit order trades, I use TeleChart to do that.

Here's a link to TC. If you subscribe, be sure to email me to get my custom indicators.

Another Update

So far, we do have higher prices in the SPY into a volume surge in all of the averages. There's one positive divergence in the DIA and one in the SPY at 1:30-ish, but there's also a big volume spike there as well. I think 3C is reacting to the volume spike as the divergence can only be found on the 1 min chart. The 5 min charts remain negative and some getting even worse into new low leading divergences. Whether this is dumb money or was a smart money kick start, I'm not sure, but the longer term charts suggest that this is not being accumulated, at least not in the typical fashion. I think it is a reaction to the Fed meeting tomorrow with expectations from main street perhaps being divergent from Wall Street expectations, but if you are an institutional seller/short seller, as with any seller, higher prices are exactly what you want to distribute into, thus the distribution must be carried out skillfully as to not flood the market with supply and kill the move.

Here's the latest 5 min chart where you can see not only 3C in a negative divergence, but also Worden's Time Segmented Volume and Money Stream-none of which will follow prices higher.

We also have a tick index divergence

Afternoon Update

I'm updating a lot because today is important. We now have 10 min leading negative divergences in SPY, DIA, QQQQ and IWM with the Q's being the worst. I'm expecting a downside reversal here.

The 3rd Divergence

3C is falling back into line quicker then I thought possible. For new members, understand I have had a bearish perspective on the market, Friday's mystery rally with the Fed meeting Tuesday caused a lot of suspicion, but now we have a 3rd negative divergence on the 10 min chart, which is even more substantial. We still have a ways to go, but it appears this gap up is being sold into. If... smart money has knowledge of the Fed outcome, from today's action, it would appear that they are trying to get out of the market and perhaps even set shorts. Watch those limit orders for triggers. If the market does an all out breakdown at any time and you need shorts quick that give you decent market coverage without a lot of overlap, then check out the June list-June 3rd specifically is full of inverse leveraged ETFs, many of which we hold.

NPD

From 7/29 is looking pretty good here. Apparently they report today after the close. Earnings plays are always to be considered speculative, but it may be worth a shot to try a little.

Update 2

As I said last night, we'll have to wait and see what 3C does, it is still early, but the move higher is not being confirmed by 3C, it's a negative divergence now on a 5 minute chart which is more significant. I'm not going to make any assumptions yet, but the negative divergence and falling volume does not seem to be inspired buying, it seems like something else, but I'm not ready to make any assumptions just yet.

SPRD which triggered this a.m. as a limit trade is doing pretty well. It could pullback from here quite a bit and still be in decent shape. I don't see any distribution, just 3C in line with price action confirming the trend. There in an intraday pullback forming a triangle  which should break out, hopefully to the upside, within about the next hour. Because it is an easily seen pattern on the chart, there's a decent probability that it will break down a bit below the support of the triangle before it breaks out to the upside.

Stay tuned....

SPY 1 min Divergence

This is the first significant signal I've seen today, a leading negative divergence on the 1-min SPY chart.

SPRD has triggered from last night's list

Did you make it through that post?

I hope so, it took me nearly 8 hours to write it, plus research.

In any case, since I posted it, I've been going through charts and listed a bunch of new trade ideas on the link "July/August Trades" at the top right-it will open the GOOGLE spread sheet-scroll down to the bottom to today's date. Limit order trades can be executed intraday, there's one that is on a closing basis, market trades are at market open at market price. Stops and entries are suggestions of course, what you do is up to you. You may want a tighter stop or a wider stop. I try to always stop out at the end of day only if a stop is triggered I want it to be on a closing basis so I stop out right before the bell-never in after hours, you'll get killed on the spreads.

BEFORE YOU PLACE ANY TRADES, I WOULD BE SURE TO UNDERSTAND THE RISK MANAGEMENT POST TO THE TOP RIGHT-LINK.

We can be wrong 4/5 times and still make money with good risk management that limits losses. THIS IS THE HOLY GRAIL OF INVESTING YOU'VE BEEN LOOKING FOR!

In looking at the market, I saw a LOT of ascending wedges, they are price patterns that move up, but close in and narrow to an apex-they are bearish. Many of the limit order shorts are ascending wedges and the limit price is a break of the wedge. If you have a specific trade in mind, feel free to email me and I'll give you details about my view of it. Also with the number of trades I post, it would be good to put in alerts for limit trades so you know when they are triggered. TeleChart which I use, there's a link at the top of the page, allows you to do this. At Trade-Guild.net I have a link to Wordens FreeStockCharts which is a real time platform-no exchange delay. You can set limit orders on those as well. If in a few days you see a limit trade trigger, you may want to send me a quick email so we can double check it for entries/exits and otherwise.

Remember, these are just my thoughts on the trades, you may have a different approach and nothing is written in stone. Some of them would make great day trades, just email me if you want a second opinion.

The news that came out, which I posted tonight was definitely an interesting bit, but the Fed admitting the economy is not looking so hot is like the weatherman saying it's going to rain in the middle of a shower. It does make one wonder what they are up to and the timing of what the Fed will say-even saying what they will say-is very bizarre.

Have a great week.