TRADES ARE UP

Place these along with the others on alerts. there are a few there that say "Market" which means market open/market price.

Just be careful no to over-correlate because I was looking through specific industry groups so there are several trades which will all be in the same group. You don't need more then 1 in a group unless you treat the two trades as one n terms of risk management.

Moving Forward With Plans

Many technicians say "Wait for the market to show you". In having 3C at our disposal, we can see a lot before the market actually moves. Waiting for confirmation is a wise thing to do before you commit too much, but you must remember that we are engaged in a zero sum battle. You are paid to take risks, the risks must be high probability, but as I say, if you wait for the "sure thing" you will have surely missed the move.

We must also plan for contingency scenarios, the more you can imagine and how you will react to them, the better off you will be. There's only one time in which you can plan without the burden of the emotion of a trade which hurts our objectivity, and that is before the trade. Sometimes we forget that the market is like a child, it over reacts in both directions so when you first enter a trade, it is usually a decent idea to give the trade a wide enough stop for it to work, it may take days or weeks. You must also consider the time factor, a trade that hasn't done anything in months is pure opportunity cost because there's a train every minute on Wall Street.
So when taking on wider stops, which can be tightened once the trade moves in your direction, according to the risk management that I have provided you with, it also requires you take on fewer shares. There's no use in having a big position with a tight stop as you are more likely to get stopped out-even if you are right on the trade-remember the market's temper tantrums.

Looking at the chart and 3C (tonight at Trade guild you can see a closer section of where we are compared to the last H&S pattern in 2008 and on a relative basis, we are at the same spot, which is to say very close to the end which saw the market plunge 50%) I can not tell you honestly that I have a bullish bias at this time. There's simply too many pieces of the puzzle that have fallen into place. This doesn't mean this market won't go higher (see the section at Trade guild's post tonight about the false breakout in the wedge) and set a potential trap. OR perhaps it ruins this H&S and starts a new trend up, all I can say is that this chart of the 2009 rally showed very obvious signs of accumulation.

The blue arrows indicate accumulation and the second one a huge leading positive divergence before the breakout of the bottom formation. The rest of the time was distribution into higher prices, it took awhile, but now we are seeing very negative readings with no such signs, so bearish, 80% yes.

Now, it is essential that you read and understand the risk management concepts. I am going to work on a calculator that will be linked to the site that helps you determine a number of shares that are appropriate while following risk management principles. I do believe and have believed even before we broke down, that this market will see lows that will astound you. I believe we have a very good chance of entering a secular bear market, but I reserve the right to change my mind just as smart money may change theirs. We work with what we know now. I try to be objective as possible, but we do have to make some assumptions when we see a chart like this, the same as I did when the rally of 2009 took shape early on.

So I'll be listing more trades, they will have a bias to the short side because that is what I see the most of, but any good trade, long or short I will list for you. Please just make sure you are familiar with the risk management concepts.

The TRIN closed at 1.41 which leans toward a bullish close tomorrow, but is not in the range where I would say it is highly likely, just there's a bias toward that as of tonight's TRIN. The volatility index is still within the 22 area, which is low enough to spark a decline. At these levels a new leg up rally is unlikely.

 The tick indicator did end with a positive divergence-this is every tick of the market though and doesn't carry  lot of weight being it's so short term, but it did put in that last blue arrow and prices on the last bar of the day responded. It is a hint of a higher open in the morning, but a hint only.

The 3C chart below is the one I find most useful in calling the next few days, it is a 15 minute timeframe and is certainly a period in which institutional money almost exclusively moves. It's too long to show market maker activity.

Again-red=selling pressure, blue=buying pressure. It is interesting to note the post Fed rally showed selling pressure.

As of now, indications are for a lower start, but those can change quickly with the overseas markets. So, I'm going to continue to use limit order trades, several triggered today and market orders where appropriate. I'm running scans now so the candidates will be up shortly.

As always, if you have questions, please email me. I'm not getting emails about risk management which i hope means that everyone is clear on the article I have linked on the site. I hope it is not because it is being ignored. This is your ticket to success in the markets, the better you are with risk management, the quicker you will accumulate wealth in the market.

Have a great night and don't forget to read my piece on Today's Fed Policy analysis.

I The Fed Was Passing Around the Chill Pills This Meeting

The Fed took what amounted to a “baby step” today in it's policy action. It will take proceeds from mortgage backed securities they bought and re-invest them into bonds, apparently around 7-10 years in maturity, a small step to hold down interest rates. With rates already near zero, another cut would be like a drop of water in a swimming pool. Given the mounting evidence and even admissions from the Fed that this economy appears to be “possibly” headed for a double dip recession, their actions today were almost of no consequence, yet the bond rally that took place immediately after the decision as I showed in IEF, seems to have been forehand knowledge of two things. One the slight accumulation on a 5 min chart, but really nowhere else of consequence shows they were ready for a quick knee-jerk reaction in bonds. However, their failure to commit more capital to the bond trade (smart money I'm talking about) apparently shows that they understood that this was action of little consequence.

The policy action, in my view is out of lock step with the economic situation on the ground. The numbers are pouring in worse then anticipated. Everything the Fed and the government did before to get 1 quarter of 5% growth and a steady decline from there was 1,000x more aggressive then this step. This makes me think that they are resigned to doing what I said needed to be done way back in 2007 when I did a 5-part video series on economic bubbles and our latest one. I recorded these videos as people were still bullish and talking about the Dow at 20,000. I also gave a target that is substantially lower then where we currently sit. What I said that was important was that our economy had the equivalent of food poisoning and when I'm sick, the last thing I want to do is to lose my cookies so to speak, but that is indeed what this market needed to do to recover, it needed to lose it's cookies, get out all of the bad, take the hit and start anew. It seems the Fed may be resigned to that fact as well. The administration has gone back to aggressively blaming the Bush White House recently for the economic mess, but nearly two years into it with unprecedented spending and debt, it's clear this administration has its share of the blame to take as well, but they don't want voters thinking that simply because they know as we all know, this economy has about a 0% chance of showing signs of real recovery that the administration can take credit for, before the midterm elections, so apparently the Obama White House is also resigned to this fact. There may be some vote buying measures released, especially as it relates to foreclosures, but foreclosures are just 1 part of a much bigger problem.

Mark my words, the next set of troubles for this economy is going to come in the way of deflation, wages will fall, more people will lose their jobs and the cost of goods will have to fall with it. So I would assume there will be some near term downgrades with regard to guidance from a lot of companies.

The world economy has been out of the spotlight for a bit, but it isn't getting much better either. China is now seeing slowing internal demand for imports. Auto sales for instance in China fell by nearly 12% in July. Obviously not a help to any nation's economy. The Chinese have taken other steps to cool their economy to PREVENT a bubble. One of the trades that may be worth looking at is commodities and multinational corporations, especially those that do robust business with China. This would obviously put the Dow components into the cross-hairs. Australian exporters, especially those that export raw materials-perhaps say coal, are also likely to feel the pinch. Keep an eye on the Baltic Dry Index-it's linked at Trade-Guild under “Resources and Concepts”. These are some obvious plays to be on the look-out for.

The bottom line... The White House sold us on something that never materialized and Christina Romer was one behind the economic stimulus plans-of which there were three. Her most ambitious plan of 1.2 Trillion dollars in stimulus never made the cut, apparently Larry Summers knocked that one off the list. However, what was interesting and I always wish I paid more attention in hindsight, was her notice she gave on Thursday, a day before the jobs report. I guess Wall Street doesn't miss these little details for whatever reason. She's headed back to Berkley and the unemployment rate is headed higher. We probably could have made some solid assumptions on that one, but 3C caught it in any case. It's funny, it's little things like this that you have to watch for-(to make money, you must see what the crowd missed). In any case, the Fed obviously wasn't prepared for this, this is not how they saw things developing and now we are looking at a world-wide crisis with the US falling apart every month even more. You would think if they were committed to fighting this, they would get in front of it aggressively. I think the Fed is resigned to finally let the market be what it will be, unless of course Congress has something up it's sleeve? However, it seems to me they are simply looking for “orderly fashion”.

And on that note-pay attention to the market the next few days. I'd like to see one last blast to new highs and then a failure of that run, it would set up a quick fall in the right shoulder of the H&S top, perhaps though the Fed doesn't that kind of thing happening.

This is a bit premture

However, the first signs of a negative divergence in the SPY are appearing-the 5 min remains in a negative posture and UUP is showing the first signs of a positive 1-min divergence. Bonds also seem to be going somewhat negative, this may have been a knee-jerk trade plan they put together.

This is what I was talking about

There was virtually no hint in bonds before today that they were under accumulation.

Here is the 7-10 year bond fund, note the accumulation around 12 p.m. today

But... don't write off the dollar just yet... This is substantial accumulation on a 60 min chart vs. the 5 min chart above.

The Last Post Was the Correct Post

"looking at bonds, yields, bond funds, do not be surprised to hear the Fed the words Quantitative Easing, but not through the printing press, rather through buying bonds."


The policy statement made obvious that they will re-invest funds from mortgage backed securities into long term bonds.


Now, watch the volatility, it will be crazy today and we should see the market's true feelings about this within a few days. As I said, typically the initial reaction, is the incorrect action.


I'll be watching every tick.

Some very quick observations

looking at bonds, yields, bond funds, do not be surprised to hear the Fed the words Quantitative Easing, but not through the printing press, rather through buying bonds.

UUP is a serious long to consider, a short squeeze there could be a fast move up.

There was also a positive tick divergence and a small 1 min 3C positive divergence around 1:30 in the SPY.

Underlying Tone

This one chart makes me wonder if institutional money is moving out today.It appears they are, but we'll know for sure in a matter of a few days after the Fed reaction stabilizes and we see if this right shoulder breaks hard.

As you can see, the 1-min negative divergence continues,

However, in a somewhat contradictory signal, UUP is also seeing a negative divergence (UUP is a proxy for the $USD which trades inversely to the market)

The TICK index is showing intraday signs of negative divergence and a downward reversal here.

Finally a negative divergence on the 1-minute

This should lead the market down for another leg-the AAPL long may be affected by this

For Day Traders

AAPL looks like it will have a decent intraday bounce coming any minute.

The Divergence is more positive

I'm seeing the probability of a run up to $112.20 or so on the SPY, maybe even higher into the gap. BX should rally as well, which is a good opportunity for a second chance entry on the short. It's a longer term position.

Update

Well the market has dropped out of the ascending wedge, this is considered a break of the wedge if the close were to hold, but if you saw the two H&S tops at Trade-Guild last night, you know that I would first expect a false upside breakout before the wedge truly gives way.

The US Dollar has broken out of it's descending wedge, bullish if it holds for the dollar, but bearish for the market.

The one catch is I'm not seeing an appropriate level of 3C distribution with the sell-off, it should be much lower (the indicator), you could say by it's position that it's building a relative positive divergence. We'll have to see, but I kind of suspect they may be taking this own now to only take it up at 2:15. I'll just have to keep watching.

BX Short just triggered

See the July/August list at the bottom

RAD

I thought I'd bring this one to your attention, RAD on the current list closed today at the limit order level. It's a nice looking chart, you may want to tighten up the stop. Perhaps enter at market and only hold it if it is higher at the end of the day, intraday moves don't count otherwise you'd be stopped out 5x in a day, but make sure to use good position sizing as the risk is still sizable should it fail.

I would personally have a stop around $.98 This is also very speculative because it is under $5.00 so make sure you adjust your risk down accordingly. Otherwise, this is what we have been waiting for. It was listed at the end of July on the current list.