TRADES ARE UP

Ok, what I did tonight was provide you with some long trades. These trades all have very high short interest, I went through about 200 and looked for the ones, that I personally would be scared to hold if I was short and then I looked at 3C and made sure they showed the tell-tale signs of accumulation. For many of these the accumulation is recent, there's high short interest for a reason, they probably aren't the best long trades in the long run, but we don't care about that because they are for THIS bounce. If I used a limit order it was because there's a chance of an intraday pullback in my view. If I used a market order it's because they closed strong with 3C. However, when thinking about these orders, if you see the market will gap down, you have to consider whether you want to take it at market. Stocks that closed strong today and look as if they will gap up, I would be more inclined to take them at market. A lot of the time, a stock that starts strong in a high momentum atmosphere, will never look back and it will close near it's highs so those , even though they are gapping up at higher prices, often tend to be the ones that just run and don't look back.

You can modify the stops any way you like, if you want them really tight that's fine. Just remember, these are trades that are short term and remember-gifts-double digit moves are worth considering taking some or all of the profits off the table. In an ideal world, you take your initial investment so you are guaranteed a profitable trade and let the rest run. You can also use leveraged ETFs like SOXL which I think is one that should do well or just a market exposure ETF like UPRO.

When you are planning your trades, don't just take for granted or assume that yes we will have a bounce, always think in terms of worst case scenario for risk management. I never consider the gains I might make in a trade at first, I always consider what I have to lose.

If the bounce is strong, start looking for the shorts you want to short INTO STRENGTH, you don't want to wait to get your feet wet until they are already in decline, that is when you want to think about adding to them.

Now, I'm going to spend a little time with my VERY patient wife.

All my best Pack!

The Market That Made No Sense

If one thing is certain, it's that the market is like a box of chocolates in the words of Forrest Gump. Luckily 3C is like that little map of what's inside the box you find on the lid. Think about yesterday, seeing accumulation, the news yesterday alone, then the news today, both for the market and oil, yet 3C kept saying accumulation.

One could argue the market was oversold and die for a bounce, but what argument can be made for the advance we saw in oil today? A horrible Inventory report that was way off base and suggested no reason for a rally, but in fact a sell-off, the only other thing that could really move oil was the dollar if it fell and it actually closed up a bit, how can this rally that 3C has been calling possibly occur?

Like I tell you and show you whenever I can, the markets are heavily manipulated and it is a rare occurrence that anything happens by accident. These rallies, in the face of overwhelmingly negative sentiment could only take place by institutional manipulation. Tomorrow we have more reports, the rest of the week and I just can't see any of them being good for the market, so why this bounce?

I learned a long time ago to stop arguing with what I see on the charts, it took me even longer to actually stop doing it. I think the last time I argued with the chart was when 3C was showing a reversal in the dollar as early as October of 2009. I argued that there was no reason whatsoever for the dollar to gain, but it did, it reversed and rallied to my exact analytical target. I first saw this in October, I didn't call for the reversal, but I saw the makings of accumulation-the dollar reversed in December. The point I'm making is that it wasn't by accident, it was by design. Months into the rally reasons started coming out. Since then, I've tried not to argue with a chart, even at times like yesterday where it seemed impossible and like this morning when it seemed even more impossible, but it happened.

Now we face the management side of this. I don't see this as a one day event but in my mind there are two distinctly different kinds of bounces. One is a pure oversold bounce and short sellers are taking profits, some long swing traders jump in and we have a little bounce and resume our trend. The second is a malicious bounce, it's meant to squeeze shorts, lead enthusiastic bulls back into the market and then slam the door in their faces and use their losses to propel the market lower in a fast and frenzied sell-off. I don't know what the intention is, I figure it's probably the second, but we won't know until we see the character, the length and the intensity of the bounce. I want you to see what some of these bounces look like so you are prepared.

This is USO and you can see a down trend has started. The first bounce in red nearly makes new highs, this is what I would consider an orchestrated malicious bounce. It squeezes out the shorts as they start to become unsure, they see prices nearing new highs, longs thinking the same are drawn in and when it's done, we get a pretty mean drop over the next 3-4 days.  The second bounce in the yellow box is just a correction, it is partially through a small price advance and partially through time as the trend is a little lateral. It threatens no new highs, no resistance levels, it doesn't have any real energy behind it. As of today, we saw a pretty fierce move which created a few bullish engulfing candles.

Here's USO today, the highest volume we've seen in months, new lows that completely devoured yesterday's entire range and on bad news. This has to have oil shorts worried.

This is the QQQQ-the NASDAQ and the Russell 2000 have been hardest hit in this decline, shorts are likely thick in both averages or the derivative ETF's . This is a picture perfect Bullish Engulfing Pattern in the red box, it completely swallows the entire range of the previous day, it opens at new lows and closes near the highs and even more impressive, it does it on rising volume. There were very few days since the March 2009 rally that we even saw a solid up day on rising volume, to see it here and now, with this market's sentiment, has to be striking fear in the hearts of shorts in either average.

In any case, they come in all shapes and flavors. We could see a down or neutral day tomorrow and then a roaring 2.5% gain the next day. It's difficult to say, but the more important aspect of all of this is what it does to our big picture which if you don't already know, is solidly bearish. The important, market trend divergences have this market in tons of trouble. As I mentioned last night, my short sale list is around 200 candidates strong, plus leverages ETFs. A good bounce will put us in fantastic position for high probability, and extremely low risk trades, the same trades I believe Institutional money is looking to set up. 

Understand that there's a bubble being created in treasuries, it's just the Fed's law of.... (I leave out unintended because I'm not so sure) consequences. Junk bonds are soaring at auction as investors flock to anything with a higher yield-this is particular is extremely dangerous because it sets up a whole new round of a new kind of default and one that will have a severe impact directly on the companies that issued them. You think unemployment is high now.... These companies are creating their own version of the home-owner, extreme leveraged equity line mess that started all of this. IT won't be external influences of the economy that hit these companies, it will be their very own actions and the investors flocking to them, I have a feeling probably include pension funds that count on an 8% rate of return and are severely underfunded as is, from public companies, to municipalities to the States. 

I think smart money sees this and where is the action going to be? The downside in the market. That is why I said, I think being able to trade short and effectively is probably one of the few recession proof jobs left and why we have an unprecedented opportunity before us.

One last thing I want to address. If you have followed Trade Guild for awhile, you know that I was able to call the top of a 5+ year mega-uptrend in oil within 1 week of the crash. That same week, Cramer was on Mad Money telling the public, ....(I  can barely contain myself still) that the next time we get a bad Oil inventories report, to go long(and this is the part I can barely type without laughing) and he told millions of his viewers that they were going to be doing this as a "Contrarian Trade"! To be contrarian is to go against the main stream view and here he is telling the mainstream that they will be contrarians! Millions of Americans all doing the same thing, yet they are contrarians! (OK, I'm smiling). 

But it gets better! Within about a week of that call from Cramer, oil collapsed and never recovered and guess who got to hold the bag?  So yesterday when I heard that Cramer doing his "Stop Trading " segment and was telling millions of Americans how bad the market was, I couldn't resist and had to tell you that those words alone could be reason enough to believe we'd see a bounce today. How many of his viewers put in limit sell orders today before heading off to work? And you saw as it happened, the accumulation at today's lows.

Think about these things. Who is really on your side? 

OK, enough for tonight, I just want you to take more away from your experience here at Wolf on Wall Street then trade ideas. I want you to understand how the market really works. I want to see the little guys win.

Off to my scans, but I think today was proof enough for you to get out there and put these trades in a system that allows alerts. 

One last thing-sorry, I think I talked to every member today. I'm here to help you in any way I can so emails are fine, but if the market is moving fast and your email is really important or time sensitive, please put "URGENT" in the subject line, otherwise I'll do my best with my two fingers to answer your emails ASAP.

Chart Request

A daily chart won't pick up on bounces like this so looking at the charts of 3C intraday timeframes, it appears to have started around $34 on USO

That doesn't really imply a target though because we don't know what the average price really is and we don't know what the purpose of this bounce is. It could be a quick run for some cash or it could be a scare bounce which is akin to a false breakout or a bull/bear trap. The idea of a scare bounce will be to squeeze shorts, bring in buyers, then take it down. Buyers sell, shorts jump in and you have a serious imbalance between supply and demand. With a market flooded with supply, prices move down quickly. If it is that kind of bounce and we'll only know by seeing how far it swings, then it would set up a good short sale trade. It's kind of my "Judo-Market Theory", use your opponent's momentum against them.

I'd guess we'll see at least $34 in USO.

Q's update

You can see a little positive divergence sent the Q's higher, tech got beat up pretty bad so it seems it may outperform. Maybe an ETF like SOXL would make for a nice bounce vehicle?

Update

A little late-but here's a 1 min neg divergence on the SPY, the 5 min. is solid, I'd guess it's day traders closing out positions for the day

SHMR Long Just Triggered

USO

Being the Dollar is still positive compared to yesterday and this am's report, something is quite clearly driving USO higher. Of course I have little doubt that it is the accumulated position in USO by smart money. On a small scale, we'd call this stage 2 "mark up". At some point smart money starts selling into demand, I don't see that yet and not surprisingly.

As you can see, we are 1 cent (the open) from what is now a bullish engulfing pattern.

Since accumulation was first spotted about a week ago (we have no idea where the main purchases were made so we can not figure out their true average cost), I have set up a 7 day VWAP which gives you the average price paid according to volume over the last seven days. It could be a rough target.

Here's the 1-min chart of the QQQQ-obviously there's a leading divergence so it does not appear as if there is any distribution into the move thus far.

Back Into The Bermuda Triangle...

3C divergences when they appear, are usually followed sometime later, days, sometimes weeks with the real reason that the market was taking covert action, that is what accumulation and distribution is, covert action, it's not easily or readily apparent on charts because that would defeat the purpose of the action. For instance, selling into strength by institutional money is distribution, they sell into higher prices, that is good for them. It's covert because if everyone knew they were selling into strength,( and many technicians believe that it is apparent on charts through volume alone-this is very old school and no longer applies) well then everyone would be a seller and with all that supply on the market, institutional money would sell into lower prices. This doesn't work, just look at GS bonuses, they do what works and they make good money for it.

We are seeing horrible economic news and what seems like systematic accumulation into that news, it's counter intuitive, but most things on Wall Street are. However, it does suggest that there's something in the pipeline that will spark buying that has yet to break, but they know about it. Why else would we see charts like these....

I'm using the Q's because I'm getting consistent results with 3C between the Q's, DIA and IWM, the SPY is not giving the same consistent results today. This is a 1 min. chart, red=distribution and white=accumulation. This is the timeframe that you are most likely to see market maker activity, but market makers often are filling large orders for institutional investors. You can clearly see cause and effect here-distribution and a downside reversal, accumulation and an upside reversal.

A 10 minute chart of the Q's. both charts above show positive divergences at the 10:30 lows this a.m. In an afternoon update yesterday I said to watch for a strong or weak close, a weak close would imply a gap down tomorrow meaning that they were not ready to let a bounce run yet. there could be several reasons for this. 1) 3C shows accumulation/distribution but it can make no assumption on how large of a position they intend to acquire, therefore it can be tricky to identify when they are done keeping the market in their buying range and when they are ready to let it tun. However, we've had two solid days of bad news, other then the gap down, the market has not sold off huge intraday as sentiment would seem to demand, this of course implies that there is an external force supporting the market, the most obvious would be accumulation of institutional money at lows like this am's. Their buying absorbed the supply and when the supply was absorbed, the only thing left are buyers, the market heads higher.

Crude Inventories came out this morning, the number was much higher then anticipated, at least by retail analysts. This is not bullish for oil, why would we see accumulation and a leading divergence this morning off the lows?

Looking at a daily chart from this morning, we see USO is actually trading up on the day? And look at the volume thus far! Compare that to The dollar...

These we taken within a minute of each other, the dollar (as represented by UUP) is trading up as well, not on the same volume. It would make some sense if the dollar was trading down, USO would be trading up, but the only plausible reason at this time is institutional money is driving the prices up-retail (excuse the phrase) or dumb money isn't excited about the report. Remember we've been seeing this pattern of accumulation in oil for several days, maybe a week now.

Looking closer at the dollar...

We can see it gapped up as the market gapped down today-that relationship makes sense, it traded higher as the market traded lower, but the market saw accumulation into the lows, the dollar saw distribution into the highs. Is something coming out, maybe the employment numbers that will get retail behind a bounce?

Here's a 10-min chart-a substantial timeframe (I have seen 10-minute divergences fuel week long reversals)-again, 3C divergence cause and effect can clearly be seen -white=accumulation, red=distribution.

Usually by now a the cause of a divergence will have revealed itself, we had some unexpected events that I doubt-or at least would like to doubt that Wall Street would have no way of knowing about-specifically the Mexico City Stock Market bomb scare. This may have altered the course and the plans of smart money to some degree as the sell-off hit a level of support where stops were piled up, they may have had to let go of some of their accumulated position as they are obliged by law to be the last resort, other-side of the trade at market.

The truth is, I just do not know what is driving this and where it is going at this point.As I write this, USO is overtaking yesterday's opening gap down, quite a recovery thus far. The SPY has reclaimed most of the losses from the gap down and is near the unchanged mark.

There's one possibility that I have not explored yet, but before I mention it, I want to say that we should not forget what the real opportunity is before us, it's on the short side. I've spent a lot of time on this potential bounce recently, I don't want you to lose sight of the short side opportunity before us. I do believe when books come out in the future, they will look back at this period as one of the great market crashes and probably the first secular bear market in stocks that most people have ever seen. That is the real opportunity.

Now, the possibility not explored yet and it is because I have never seen this in action through 2nd party participants (smart money). I have told you in my major market analysis that the Fed seems resigned to the fact that the other shoe is dropping and there isn't anything they can do to stop it. With everything the government and the Federal Reserve (two entirely different entities-don't let "Federal" in the name fool you into thinking they are a government agency) have thrown t the first shoe, the efforts did not stop what seems inevitable. So I said that I believe the Fed is resigned to the fact that the second shoe will drop, BUT I also said that I think they will use whatever tools they have at their disposal to make this an "orderly decline" if that is really possible.  When looking at the market behavior the past few days, considering the news, yes, we saw gaps down, but we did not see the intraday panic selling that we have seen in the past with sentiment so sour. I have to consider the possibility we are seeing something completely new to this market, Federal Reserve intervention through 2nd or 3rd party activity.

We will know soon enough and if so, we'll get up to speed and identify the markers, if this is what I spoke of, some markers are already extremely apparent.

This in now way changes the fact that there are good trades that can make a lot of money and it throws a new dynamic into the mix which could benefit us even more-The inevitable law of unintended consequences that plagues Fed policy action. Right now as we speak, there's a new bubble in treasuries being created. Even scarier, there's an apparent bubble starting in junk bonds as investors seek higher returns then treasuries can provide-especially as interest rates are driven down as more bonds are purchased. It all makes you wonder about our system and how it truly operates, even with what we have uncovered. Oh, I wanted to tell you, the junk bond bubble is really scary because most of the proceeds went to pay special dividends, not to shore up finances or invest in the company. I think a default is inevitable and I have a feeling I know who is buying up those junk bonds. If I'm right, it will just push the economy and the market lower.

As I've written this, the SP-500 is approaching highs of the day, the NASDAQ 100 is in the green, the Dow is approaching the highs of the day, The Russell 2000 is green, and USO is not only green, but has nearly engulfed yesterday's trade-curiously, while the dollar still sits in the green. It is obvious now that accumulation of oil has taken place.

This is why I say we have a historic opportunity right before us, happening now. Trading and specifically trading the short side, may be one of the only recession proof jobs left.

Real quick

We have a 1 min negative divergence, an intraday swing down is to be expected. This is not my analysis, just a quick warning for the next 30-60 minutes.

Sorry For the Late Update

I woke up this am with about 50 emails in my inbox, I just caught up and my fingers-all two of them, are burning! I need to catch up with updates and the market so if you have an email that is urgent, please mark it as so in the subject line so I can catch up with updates. I'm going to take a very close look at this am's activity, I've been watching between emails and have an opinion, but there's about 20 securities I need to look at before I step out on any limbs. Give me 15-20 minutes and I'll have an update up for you. Obviously you can see the market has taken bad news in stride, USO is trading in the green and the SPY is near unchanged-I think you might agree, that is not the sentiment you'd expect coming off of two bad news days in a row, which implies... well I'll get to that in the update.