Weekly Wrap

I'll be positing a lot more this weekend, here's a basic video that explains a lot, especially my last post of the day. I remember the days of watching the market and depending on indicators like MACD ti try to determine reversal points. 3C is a real leap forward, we can see what is happening as it happens and before the turn in the market, even better, we not only see smart money, but we can start to better understand the behavior of Wall Street, this is a huge advantage. So many people are stuck in the past, following the thousands of technical analysis books that have each laid their claim to fame with some new indicator or set up. I've back tested so many of these in StockFinder only to find out that they rarely even give you the same return as the market, many actually under perform, but before back testing, any author could easily cherry pick a few examples and base a system on it that a generation of traders follow blindly.

This week we saw something very new in 3C, we saw risk aversion from smart money and the reasons seem to be clear as you will see in the video. We are on the right track, we are a step ahead of the crowd as I read the message boards, so many are blind to things that are right there in front of them-human bias is a hard thing to overcome. Understanding in advance that there will be a bounce, that it is likely to be brutally scary, but that in the end, it's just a bounce, gives us confidence and allows us to make trades that our logic would never consider.

I believe what we are doing here, for those who can stick with the risk management and overcome the fear that the market intentionally instills in us, is ground breaking. I look at the typical trader, someone I advise with a lot of money in the market, and count how many times the account would have suffered devastating losses if it were not for my ability to show him proof that what he was about to do would be a huge mistake, and I am reminded of how Wall Street prays on our emotions, of how manipulated Wall Street really is and how they have a number of plays that they run over and over again, you can almost catch the routine.

This week was enlightening, it adds more to the experience bin and leads to a better understanding. When the market started moving up today, I'm sure there were a lot of people trying to buy calls that would expire worthless. I see the huge open interest in the SPY calls at $110-$112 and we now know who the seller was and who took it on the chin, it wasn't smart money's loss. Again, they pinned the market below the strike price and collected a lot of premiums.

I'm getting some great feedback and comments and I think this group is growing together, myself included. Your questions lead to new discoveries. Your insights are confirmed in analysis and ultimately your participation adds value to what we are doing.

I hope you enjoy the video and have a great weekend. It looks like we may really get that bounce after all, but it's just the cherry on top. The daily accumulation of positions is helping I believe, to set you up for an unprecedented opportunity as this market moves against every human instinct and emotion, it will just mean more gains for us.

Have a great weekend and check back for updates.

Click on the video for a bigger picture.

Last Update for the Trading Day

 There accumulation remains, the pattern is out of context with the rest of the week, but as I said, I think that had to do with fear Israel would hit the new reactor in Iran, that window is just about gone now, so maybe we are back to the usual accumulation patterns, in which case, it would suggest a possible bounce next week after  letting the SPY $110 calls expire worthless today.

So make your plans accordingly and as you see fit.

I was just wondering

If that inverse H&S was a bit too obvious on the charts, remember what I have said about technical analysis being used against technicians. The retail T.A. crowd went for the bait, the volume confirmed that, and a break at 2:20 back below $107.50 saw some volume so some stops were hit-another lesson, don't place stops with your broker if at all possible, it's like showing your cards in a poker game before you bet. In any case, there's been a few shakeouts already, and false moves lead to fast moves in the opposite direction-in this case meaning down. Although we also have to view resistance as a zone, not an exact number, it's all connected to emotions and emotions don't care about a few pennies. So now we are on the watch also for a breakdown.In that case, you want to probably consider having a reasonable short position in place, you have plenty of room and time to build it, but remember, it's only a few days in a downtrend that contribute to the major losses, most other days are up or lateral and you don't want to miss that one day that is a serious break to the downside.

Right now, overall, we still have that positive 5 min divergence in place, so with what we know, I think the assumption has to be there's accumulation in the area. If in fact smart money is not the owner of the calls, then they'd want them to expire worthless which at this point it seems as if they will with 30 minutes left, which brings us back to accumulation today. The obvious answer is they wait for the calls to expire worthless and then we get our bounce next week, early on. That's just a theory but pretty plausible considering what we are seeing thus far. So if you go short, you may want to leave some room in the position in case we get higher prices next week.

And There it is

Resistance at $107.50

The two long upper wicks of the candles in the orange box effectively can be considered probes of resistance, they have established the neckline of the pattern at $107.50. Be on watch fro a breakout above that level, I would not be in a hurry to take action as it should comes close to yesterday's highs. Do watch for any signs of trade programs kicking in, they will have a fairly vertical ascent with few if any pullbacks and you should see them in all of the major indices.  If we see this behavior, you can probably count on a move above yesterday's highs, whether they reach the $110 level? I don't know The big open interest is still at $110-$112 on the SPY August Calls.

DBO

As you might expect, as the dollar typically moves inversely to oil, a falling dollar is bullish for oil prices. Just look back to the Bush administration's "weak dollar policy" and recall what it did for oil.

DBO seems to be faring well too

Afternoon Update

I showed you the UUP chart with distribution, hinting we'd see accumulation in the market as they tend to trade inversely. Now we have solid accumulation into an inverted H&S bottom pattern, the target seems to be yesterday's highs. The exact trendline to the right is a bit hard to determine, but you should see an increase in volume when it is broken or if it is broken to the upside. The price pattern alone is bullish, remember we are talking about an intraday basis here.

There's a lot happening

3C is going in a lot of different direction, I believe this is due to fast transaction occurring, perhaps algo-traders are now heavily active. Algorithmic traders, specifically "Sharks", use a system to look for "Iceberg" orders in what they call a "dark pool" which is where orders are anonymous and usually hidden from view, in a manner similar to how 3C is used to look for accumulation patterns. However, instead what they do is send small orders or pings, and when those orders are filled, they know that there is an "Iceberg" order or suspect there is a "Iceberg" order, which is a much larger order being filled a little at  time. This is one of many algo trading strategies, but bases on what I'm seeing, it appears as if something is happening out of the ordinary.

The best tell on the market right now is UUP in a 5-min negative divergence

The SPY is now moving up off lows where volume was quite low, this is a typical accumulation area. $107.40 is an area on the SPY we want to keep an eye on. As I told you in the video and for over a week now, the trading strategies have been "a day at a time" which is strange behavior for me, but the market's are ever changing and the systems out there are ever changing. This is why it is often good to step back and take a look at the bigger picture. UUP on a 1-min chart does not show the same level of distribution, so stepping back a little gives us a clearer picture.

Remember, we are in a bad, bear market. Long trades are counter trend and I can think of few at this point that I would enter, at this point!. Strength is often a great way to enter your shorts, so I'd take a look at the trades I've provided, hopefully you set some alerts.

I will continue to update as things develop.

Update

Thus far there's all kinds of news as to why the market is down today. Perhaps it stays down, we saw a couple of short term divergences rolled right over, when they are 1 minute divergences that means they are typically market makers/specialists trading, either accumulating or distributing, toward the close we saw accumulating. While market makers can account for 30% of the volume in a stock for the day just trading their own account, many times their actions are a signal as they are relied on to fill large orders for institutional money in many cases.

From yesterday's close, this is not the open that I expected, but we are seeing that short term accumulation again right now.

As you can see we have another leading divergence into a small double-bottom-type formation. Lets see where this leads. $110 is going to be quite a climb from here.