The Deal-The Scam

If you have been here at WOWS for more then a week you know that I've been talking about and expecting what I call a malicious bounce. Some bounces in a decline are just the result of profit taking from shorts, the market never goes straight up or down, we have twists and turns along the way, but a malicious bounce is one that is pre-planned, a bounce with a purpose. I also warned it was likely to be a scary bounce, the scarier, the better. This all ties into what I have been calling “the Judo Concept”. If I understand Judo correctly(I did study martial arts for several years, but not Judo), Judo is different then others as it's not so much about striking and initiating an attack, but rather letting your attacker initiate the attack and then using the momentum of their attack against them. Many martial arts use this concept. In the form I studied, Aki-Jutsu, a round house punch thrown by an attacker was a gift, it allowed us to use dozens of parry defenses to use the momentum of that punch to put our opponent in a hip toss, or an arm lock or a move in which they would literally somersault through the air to fall 5 feet and land on the hard ground on their backs. The point is this, the market does the same type of thing.

Recently I posted 3 bearflags in the major averages. At one point in time, when the internet and online brokers were just coming onto the scene, Technical Analysis was considered to be voodoo, few understood it and it wasn't popular, the more forensic Fundamental analysis was popular. People researched P/E's , growth rates, debt to equity, cash flow, everything that was derived from financial releases. That's actually how I started with my first trade. The problem is you nearly need to be an accountant to figure it out, the information going into the equation was bad from the start-consider Enron and the whole cooking the books. Eventually Technical Analysis became the more popular form of analysis as it studied what smart money was doing and tried to emulate their actions. It got to the point where it was so popular, as it is now, that everything on a chart was obvious to all and still is. When the market knows all traders are focused on something like those bear flags that I warned would be likely to see a false breakout of some type, then they can easily knock all of the technical traders out of the trade as they did today. Much of today's gains were caused by shorts buying to cover their positions. In the technical analysis world, what happened today wasn't suppose to happen, the market was suppose to break out to the down side. The ironic part is the market-in my opinion has a 98% chance of actually breaking down below those bear flags, but before that, the market will take out the shorts, force them to cover and sell short themselves as they fill the optimistic buying of longs who just saw a bear flag fail and feel the market is showing extremely bullish resilience. However, as the charts I posted and the one below illustrate, smart money wasn't on the buy side of the trade, they bought awhile ago when we first saw the hourly positive divergence. They bought at cheap prices and distribute into days like today.

As you can see, we have yesterday's late afternoon positive divergence in white-I warned of this last night and then we have today. Prices move higher, 3C moves lower, this an indication of smart money selling or shorting into strength. This is evidence of our malicious bounce. It ruined the technical trader's setups as they expected what technical analysis has told them to expect, a downside breakout. The smarties intentionally did this, they set it up when we saw the hourly positive divergence-that's when they bought, at the lows and today, they didn't chase the rally, they sold into demand so they could fetch higher prices and better short positioning. When they are done, which will probably coincide with some bad news that causes traders to sell perhaps like tomorrow morning's initial claims (this information has no doubt been leaked already to the smarties) , then it's the longs turn to be at a loss. The longs who bought today's strength (institutions were the ones selling to them) will be at a loss, they'll sell, which will create more supply ten demand and prices will fall, which will cause more longs to sell, and over and over again. At some point the shorts will re-enter the market seeing the false breakout and they will add to the supply imbalance and lower prices. So all smart money had to do was break a technical pattern, the fast decline that will follow will all be regular Joes feeding the downside move. Remember, failed breakouts almost always cause a severe reaction in the opposite direction for the reason I just mentioned. This is a malicious bounce, this is the Judo Concept-use the momentum of your adversaries to your advantage. THIS IS HOW WALL STREET OPERATES NOW.

power to finish their plan.

This is why I said I would be looking to exit shorts on a bounce and start looking at adding shorts, just the same way they are. They know more then we ever could, so why not just piggy back them?

As for the market, it was an out of place, over-reaction if it were a fair and free market. Being it is not fair or free, it was an obvious set up and the one we've been looking for.

The hourly charts which DID NOT go into a negative posture during the down days we have seen the last few weeks, went into a negative posture today on a huge rally. That seemingly makes no sense, unless you understand how the market really works, then it makes perfect sense, it's showing the smarties distributing into the bounce.

Above you see price moving in a downtrend on the 60 minute 3C chart of the SPY-accumulation. Today, if this market had no institutional activity, 3C would have made a higher high with price, it didn't, it moved lower into a negative divergence. It's clear what they are doing. It's been clear that this was coming in some form eventually.

Above is a 1-minute chart, you can see the market makers getting ready for the bounce as I showed last night with a late day accumulation session close to the lows of the day on Tuesday-they sold as you can see into the rally today. From the stance of most of the charts, I would guess this bounce doesn't carry any further, but that's a guess because I have no way of knowing what their inventory levels and targets are. There was no positive divergence at the end of the day, on fact we closed near the highs, but 3C did not follow so it seems they were getting rid of their long exposure, perhaps going short; this suggests to me that the bounce is done. We need confirmation of that though. Even with the uncertainty, it didn't and wouldn't stop me from shorting into today's strength.

Getting the picture of how manipulated the market is? They had to know all of these news events that were released in advance so they could schedule their bounce and their reversal. Wall Street's tentacles reach everywhere, the media, the government, foreign governments, the Federal Reserve-all leak as do individual companies. Remember our earnings experiment? The final result was something like 19 of 21 earnings called correctly using only 3C to tell us what smarties were doing in the stocks in advance of the earnings reports. In the past I've showed people these relations after the fact, this was different, the results were posted by me before the earnings were released. PROOF POSITIVE!

Again, today USO had the improbable rally. The recent trend in US oil inventories gives oil no reason to rally, the falling dollar did, but last Wednesday there was no falling dollar and a report that should have caused a sell-off-we were buying oil for one of the most improbable rallies ever, and it worked. Yesterday they bought USO on the cheap with that horrible decline, today they cashed in.

The hourly 3C chart shows their accumulation into lower prices, remember the accumulation into the low of the day last Wednesday when many of us bought and the bounce following it in the white box... Today however, we saw distribution on the hourly chart into a nearly 3.25% gain in USO.

You can see above where they took oil down with the first negative divergence, then at yesterdays closing lows they accumulated for today's bounce. Look at where 3C is right now into the bounce in the red square. In the case of confirmation, 3Cwould be significantly higher which tells me they sold into this rally as well. They accumulated for awhile so I don't know if oil has more upside, if it does, surely we will see more distribution into the uptrend.

Last night I showed you the negative divergence in the dollar (UUP as a proxy)-today we got a huge move down. Is it not obvious that the smarties moved out of the dollar because they knew what would happen today? I don't know how anyone can view this chart and not make that connection. Today there was a negative divergence in the dollar, nowhere as extreme so direction of the dollar/oil trade is difficult to say. I act on strong signals because they have high probability, today is a signal, but not a high probability strong signal. There are 1-5 minute charts that do look like UUP may see a bounce tomorrow, but for me it's not so consistent that I would say anything more then that at this point.

Last night I said I believed we'd see a drop in GLD today, we did although minor.

Here's the longer term outlook for GLD on an hourly chart, it seems clear that the divergence is quite negative and the huge positions that have been accumulated in GLD seem to be unwinding, I mentioned SOROS selling some of his GLD position. The only reason I can see is if the market were to crash, which I'm a firm believer it will and soon, then investors may move out of GLD to raise cash. One thing is for certain, there is a sentiment bubble if not a real bubble in gold, at least as represented by GLD.

In connection to gold, I was asked to look at PHYS, here's one of the hourly charts-remember-white= accumulation, red = distribution.

Both charts look different, it's because they are written differently to confirm. The results are the same, there was accumulation and now both are in leading negative divergences, so it looks like gold again is quietly being sold off into a media frenzy which sings it's praises. Typical!

Above the 3^rd version of 3C on a 30 minute chart shows the EXACT same thing, accumulation, a rally, then a negative divergence that turns into a worse negative leading divergence. The long term outlook is not good and this is the kind of confirmation that is obvious.

A 15 minute chart-EXACTLY the same!

A 5 minute chart the same, except today we see a slight positive divergence into the close

And here's the positive divergence on a 1 minute chart I said occurred toward the close, it's actually leading so probabilities are a move up in at least the earlier part of the day, maybe a close up, maybe even a bounce. However, it seems that GOLD is rapidly becoming an excellent short sale candidate.

OK, that's it for tonight. The initial claims report should let us know if the scare bounce gets scarier, just remember, that's the point of it, we are not entering a bull market if we see upside tomorrow, we are just getting a stronger fall at the reversal and better short positioning.

I have to now go and get all our paper work ready for the big interview tomorrow-the biggest of my life. So I posted trades on the site-not on the spread sheet yet, earlier today. I also gave you a list of ETFs with broad coverage. If you need to get short in a hurry, those a great ways to do it. PLEASE make sure you read our risk management and go over former short trades posted on the SS, many are still excellent trades. When I get back tomorrow, I will give you that list of shorts and my attention will be 100% back on the Wolf pack.

Have a great day. Study these charts, they are the key to understanding how crooked the game is, but how you can beat the street and you can.

Relief

Below you will see 3 charts, the DIA, QQQQ and SPY. Last night I told you the only really solid positive divergence with consistency (that would still allow me to believe in this bounce) was the hourly chart and despite the declines, it remained in a positive posture. As of today, I have at least 3 negative divergences, which is surprising because it does take time and distribution to move them; that may say something about how strong the distribution was today.

I started WOWS as a side project as I was doing a lot of research for the people I advise personally. WOWS has grown at a pace unimaginable to me in a few short months.

I have over a decade of technical trading experience and about 3 years of teaching Technical Analysis, so for me many of the things that I've learned in the past are still with me. 3C has given me a new insight into the market, but some calls I've had to make like the oil bounce, like the malicious bounce in the market that we saw today, these all run counter to what I've known and practiced for years. I feel a strong responsibility to the Wolf Pack and all I want is to see you succeed, it's my little dig at the crooks on Wall Street and I feel great when I hear your success stories. However, none of these calls lately have been easy to make; they have all flown in the face of everything I learned all those years. While you should not expect to be right a majority of the time in the market (it's just not realistic-that's why we have risk management), I feel a commitment to the Wolf pack to give you sound analysis. So today was a day of great relief for me. Everything that 3C was showing me and how I chose to interpret it, all culminated today with a breakout that looks very much like the false breakout I've been watching for. Even the fact the bear flags were broken alone is a success in the analysis. I'm not bragging, I can't-I just interpret the 3C readings. I guess I just wanted to say that I feel the analysis, that many of you have contributed to by the way, seems sound. It feels and looks like we are hot on the heels of these crooks. So today, I feel relieved that the improbable outcomes that we've been looking for have materialized. I feel relieved that we are understanding the market and I think this is a very select and small group of people who can say that. I think maybe 1 of 1000 traders has the insight we have gained into the absolute corruption and game rigging that is Wall Street. While others suspect it, we prove it.

I just hope that you make money, that it enriches your lives. I hope that you have come to understand the market or are well on your way and maybe you find out new things and I can learn from you as you all have now broken free of the dogma of technical analysis and the media manipulation. I think you see how things really work and with each passing week, we add more knowledge to that cup. I'm confident that you are the new generation of effective traders that will make new discoveries, invent new indicators/strategies and will realize, YOU CAN BEAT WALL STREET. You can see the traps and you can use them to your advantage.

It's a heavy burden to go out on a limb with so many people listening and reading my analysis; especially when I have come to a conclusion or hypothesis that runs counter to everything I had learned in the past. Like the oil trade last week-the seemingly impossible bounce last Wednesday in oil. Everyone is bullish on gold and I'm not, I'm at odds with every  Wall Street analyst and the media that so many relied on in the past. It's even at odds with the normal relationships that exist between gold and the market. That puts me pretty far out on a very obscure and thin limb. So to see the pieces fall together today was a huge relief.

I have the best group of people I could ask for. You all have been so supportive in so many ways, I do feel a strong obligation to you and I hope, that while I may be wrong or make mistakes, that in the end, I don't let you down. I appreciate your trust and all the incredible emails my wife and I read from all of you. I hope I have given you something for your money, you have definitely given me something in return: purpose, support, well-wishes, very humbling emails and when my wife reads them, she is really proud of the work that I'm doing which means the world to me. So having the respect of my wife that I love more then I can put into words, is invaluable-it's your emails that have given us both strength and personally, given me the strength to go out on those limbs that I sometimes wish I didn't have to, but are my obligation to you.

Thank you all. Sorry for the rant, today just feels like a huge relief and I wanted to share it with you all.

Here are the 1 hour 3C negative divergences developing....

GOLD

Last night I made a pretty clear case about my bearishness on Gold, today and yesterday we saw the Judo concept in action again. Textbooks on Technical Analysis teach us that we should see a nice clean break down from an ascending wedge like the one shown here-it is a bearish formation despite rising prices. So most technicians are at a loss and consider a breakout to the upside like we saw yesterday as a failed pattern, shorts cover, longs jump in the trade. Another noose innocently propagated by authors of TA books is the concept of a failed trade means you should enter the trade in the other direction, in this case, (assuming I'm correct about this being a false breakout from the wedge), then the trader gets whacked twice.

Computers and online brokers revolutionized trading. I can remember when everything was about fundamentals and technical analysis was like witchcraft. Now it's mainstream, just like sentiment being so lopsided that the trade moves counter to sentiment, technical analysis is so predictable that Wall Street practices Judo on those traders. One of the worst things in technical analysis is the opinion many have come to, "if the trade failed, it wasn't because of technical analysis, it was because you did not adhere to the concepts of technical analysis". This thought pattern is an absolute gift to Wall Street, it means they can take technicians out almost every time. That's why what we do here at WOWS in a way, is revolutionary. 3C is the effect of thinking about technical analysis for myself and not following the books. Really I got lucky, I doubt it's more then that. I'm a good technician, I understand technical analysis. However, I've seen enough that I can now view technical analysis and the set-ups not like a technician, but like the crooks on Wall Street. I think to beat a crook, you have to be able to think like one.

My greatest ambition is to show you what I have learned and what we together continue to learn. Wall Street is not what our parents thought it was, it's not what we thought it was and truthfully it's probably a lot worse then we can even imagine, but we'll keep learning how they act and we'll use that for one, not to become a victim, to make money and at some point, we may (G-d willing) be able to turn the tables and take the crook's money. That's a day that I will sing from my roof top.

Initial Claims Tomorrow....

Don't forget, we have initial claims tomorrow at 8:30, a perfect catalyst to complete the set up.

AAPL

Remember that I said to watch the leaders for an indication of the market's position. Here's AAPL on 1-5 min 3C charts.

Despite even the late day positive 1 min divergence, the position of 3C at that point is very negative. Look at the red arrow on the top chart, the distribution taking place while it ran for the highs of the day!

The 5 min chart, like the market is in a negative divergence, I'd call this leading.

The triangle size itself in the trendlines is a sign of a top, 3C didn't move up much at all on a good bounce and this is a leading negative divergence-major trouble here. Definitely a core position for me. I would hold this through even a bounce above the triangle-I'd add there too, but just to illustrate the amount of trouble this stock appears to be in-and it's a market leader.

Trades

Here are some short trades that look decent, I'll keep adding them as they pop up. I also included a list at the bottom of inverse ETFs, I personally like a mixture. The ETFs can give you great leverage. Keep in mind that it looks like this may be a one day bounce and a false breakout, it could extend longer, but with the TRIN at .55, it suggests a close lower tomorrow as of now. Understand that a close back into the bear flags I posted the other day, will be the JUDO concept and the malicious bounce we've been looking for. The breakout above and fall back into the bear flag is itself the trap. So when considering stops, keep all of this in mind as right now we have finally seen what we've been looking for. 

GIB with a wide stop at $14.41 or a tighter stop can be used at $14.27. I like it here at market. It responded poorly today, there's 3C negative divergences everywhere, especially the crucial 1 day chart. A break under the 8/25 low around $13.50 should seal this one's doom.

ABC may make a run higher before the day's over. The main resistance is around the 8/23 top of the gap around $28.52. If the market were to try to move up further, that would be the level they'd try to break above for a false breakout. I don't really think it will get their but you must consider it for position sizing of risk. There's a lot of overhead volume around that zone as well and you can see it failed to break through today. An alternative entry would be to go short below $27.20 and place a stop at $27.77 at that point it should experience a swell of short sellers and a severe imbalance with little demand.

GIL is a failed double top with support around $26.60. It acted very badly today considering the market, that's a bearish sign. I don't see a high probability of this making any significant gains whatsoever, the negative divergences are leading in some of the most important timeframes. An Entry at $27.40 would be nice, but for $.20, does it really matter? The one day 3C negative leading divergences are really bad. The Trend Channel has a stop around $28.70, personally I wouldn't be too worried about taking this right here.

TSCO gained today, that puts it in good position. There's gap resistance at 70.88, a stop a little above that would be my choice or $71.81 if you really want to give the initial entry some room to work in case there's volatility in the next few days. This is a trending position that will see some counter trend bounces I think but I think the trend channel could handle those. The beauty is once it breaks $59, the sailing will be a lot smoother and eventually this could easily be cut in half.

Inverse ETFs (buy these long like a stock and the underlying issue they cover will cause these to gain as it falls. they are also leveraged so keep that in mind with risk management. The worst thing is setting a stop too tight and seeing the trade work right after you get stopped out. According to the risk management plan I linked for you, we can have a wider stop by taking fewer shares. We can always add to the position and I usually do add to winning positions-NEVER losing positions. These also can not be called away from you as we have seen with some Scottrade short trades-that really stinks too to have a trade working only to have it covered by your broker.

FAZ, EDZ, SRS, EEV, FXP, ERY,SSG, SMN, SPXU, SRTY, SQQQ, SDOW, TZA, MWN, BGZ,  DRV, SOXS

I want to get these out to you now, but I'll be adding more.

Below you can see a 5 min 3C chart, today's move up has a distinct negative divergence. All the averages look almost identical. Whether we get another day up, which I doubt, they seem to be clearly selling this breakout.

1- min negative divergences.

OK, I'm seeing the first 1 min negative divergences, it seems the last 1 minute positive was just a little market maker play that ended around 1:45.

This does not mean for sure that today they will reverse the market, but it is an indication of a strong possibility being they have completed the task needed to create the false breakout of the bear flag (Judo Concept). This could simply be a jiggle in the market, but it's in all three major averages, so personally I don't want to get greedy and fall into a hole. I'd suggest to start looking at phasing into short positions you may like.

AAPl is one I like, it's showing distribution across all timeframes 1-5 minutes in all 3 indicators-6 for 6. With it in the position it's in, I feel it's a short worth looking at. I'll be sending out more shortly.

Mixed signals

As I said in the last update, they did what needed to be done on their side. If the market goes higher, fine, but they don't need it too. what has happened already was enough. So these two charts may be a warning that this bounce will be short lived.

Above the one min chart is looking like the accumulation at least got the market higher since 1:00, it may go higher then that, I don't know.

The more important chart is where we see institutional money-the chart above is market makers. This is showing distribution into the rally, this is what I expected to see. How long this goes on is an unknown although the 1 min going negative would be a pretty good sign of the end.

So take appropriate measures to guard any gains. MAke sure you are looking at the shorts on the list. I'm running short scans now in-between everything else. I'll try to get some good ideas out there for you.

To me, logically, thinking as a criminal, I see no reason they can't go higher until the close and sell it off there if today were to be the last day, but really it depends on what they want to sell short and how long it takes to accomplish that. Plus how much inventory they may have if any on the long side, that would need to be distributed so the second chart could be that distribution or it could be them selling short. It's showing institutional selling, and for 3C, there's no difference between selling a long position or going short, they are both selling.

Update

Ok, another inventory report, just like last week and oil is up-the only thing that makes sense is the positive 1 hour divergence and the flop in the dollar, it seems they are controlling this trade despite anything happening in the market.

3C is not showing any consistency with short term signals because USO is in a triangle and indicators enter the Bermuda triangle in consolidation zones typically.

Here's the pattern

This is typically considered a continuation pattern so the expectation is for a breakout to the upside, again, it's an obvious pattern on the chart which gives Wall Street an incentive to fool around with it being they know everyone in the trade is watching it and being that the pattern is expected to breakout to the upside. So watch for a false breakout, I'd guess if it occurred below the triangle that would be good news, above the triangle, bad news, unless they don't manipulate it at all. So basically I think I'm not giving you any helpful information with regard to direction, however the fact that it is up on that report may say something itself-bullish.

The market responded well to yesterday's late day 3C positive divergence, better then anticipated. As I said last night concerning the oil trade, they pulled a "Crazy Ivan" and Wall Street is getting much more aggressive. The only way to handle this is with risk management which means wider stops and fewer shares, it's all in the risk management article linked on the site.

The market itself seems to be acting as if it is consolidating and considering the gain, it is entitled to that. The market has broken out ABOVE the bear flag, this is exactly the type of thing I was looking for when I talked about a malicious bounce and the Judo concept because a bear flag implies the market will breakout to the downside and many traders will have gotten in early on the short side anticipating that breakdown a new lows. This is the Judo concept and a prime example of it. When we see distribution (and you may want to consider starting to take profits because this only needs to last a day to achieve their goals with this kind of a gain) then we will be out of all bounce longs and moving into inverse ETFS (Broad market exposure is a good one to have, like a 2-3x leveraged long inverse ETF-effectively short the market) and the shorts listed plus others I will add. For the best risk/reward set ups and the best probability trades, we want to catch those trades as the market makes its highs , that's when we have the upper hand. So how long this lasts will be the key question, for their purposes as shorts will most likely already have been squeezed out and longs have entered, they could reverse it today.

Study the events of today and this week, you will have more insight into how the market really works then if you had read 100 books. This is the real deal, the corruption, the false moves, the leaked reports, manipulating trades and the market and most of all, using conventional technical analysis as practiced by 99% of technical traders, against those traders. That is in a nutshell, the Judo Concept and why technical analysis as most have come to understand it not only does not work, but it puts you in a position of being manipulated-it works against you. It didn't take Wall Street long to figure out the game once technical analysis went from hokey-pokey voodoo to mainstream analysis for average traders and investors. THIS IS WHAT I WANT TO BRING YOU AT WOWS, not to give you a fish, but to show you how to catch them. I hope I'm doing an adequate job in illustrating all of this. If not let me know because this is where you really get your money's worth.

ALR

Just triggered a long trade-check it on the list and be careful, we don't know how long this bounce is going to last. However, ALR is a small pattern breakout, it may have a few days of upside initially and perhaps more after a pullback

Morning Update

From last night's late post....

Gold had a strong negative divergence, they were selling into the price climb off the opening gap lower, it's very clear now that between that and the end of day positive divergence that someone knew something. It's ironic that I mentioned some of the BRIC countries growth and China's growth drove the Asian markets over night and the US markets this morning. In any case, this is another example of smart money knowing the outcome before hand, taking the market down to accumulate shares toward the end of the day and then popping it up today. Now we have the bounce back on track for now. I need to watch closely for them selling into it so we can fulfill the rest of our strategy.

You see the Judo concept and you see the forward manipulation. Now lets see about oil.

As I discussed with a member this a.m. and as you could probably tell from my post, I think we are going to see an implosion of the gold sentiment, I don't know if today's the start of it, but clearly it looked a lot like the parts are all falling into place. Whenever the market gets overwhelmingly sentimental on one side, like we saw with the housing bubble or tech bubble, it's near an end. Before the market collapsed in 2007/2008 there was constant talk about DOW $20,000. Sentiment was very one sided, which leaves a huge opportunity for smart money to employ the Judo concept on a massive scale. Their job, their paycheck comes from making the most people wrong at any one time as possible.

The dollar got slammed today, last night's post showed the intense distribution in the dollar and the night before I mentioned that it was coming very soon, that's helping the markets,  interestingly, it's not helping GOLD so two different dynamics are at work there and gold is moving down despite the dollar. This may be that sentiment trade I mentioned and the GLD did put in a perfect Judo reversal yesterday when it gapped so far from the ascending wedge, it left a lot of bag holders.

Well by the time you read this inventories should be out and we'll know if what the 1 hour chart has been sticking to will materialize into what I'd like to see, but also as I mentioned, what would be another sign that the market is manipulated with help of the US government.

Morning Update coming

Just take a look at the divergence from later yesterday in oil on 1 min chart and the report is out at 10:30

Emails

I tried to answer everyone's emails, I have a lot in there though and if I missed yours or was not clear, please send it to me again tomorrow morning as I'm starting to think I need to go to bed.

Wall Street is NEVER As It Seems-NEVER

Very quickly, today's price/volume relationship was split between Price Up/Volume Down and Price Up and Volume up. The first relationship is that of a typical bear market and doesn't tell us much. The second though is quite surprising considering today's moves in the major averages which mount to nothing; it's the most bullish price/volume configuration possible.

 

The Headlines....

The Dow Jones 30 had its worst August in 9 years. Typically August is strong for stocks (summer rally, etc), September tends to be weaker. I would not be surprised if august was just the teaser to a horrible September.

The Russell 2k had its worst August in 12 years. Because the Russell is large and filled with the type of companies that make America run, it is a much broader measure of the economy. If we were in stage 4 decline, I may be inclined to say that we are nearing a bottom, but the fact is, we just rallied for a year, we are at a stage 3 top that has broken down in August, again, I think this is a teaser of much worse things to come. 

According to the media, stocks made early gains based on better then expected Housing, Manufacturing and Consumer Confidence reports. The drop later was attributed to the Fed minutes for the August Fed meeting which showed policy makers disagreeing over how to deal with the economy. Hmmm.

Today the Euro was up over the dollar. I have some interesting charts and comments below on this.

In other Headlines...

Government reports released today said problem banks hit the highest level seen since 1993 during Q2 2010. The number of banks were 2x more then what was on their watchlist a year ago. However the bank index, BKX was up  because banks collectively posted gains near 3 year highs. Is this chart of accumulation at yesterday's lows evidence of another leaked report?

3C is higher at lower lows the day before the report was released!

Onto Gold....

In another article, the most widely held future is the December $1500 options on gold. Their 18% higher then the June 21 record of $1266.50 and 21% higher than today's $1240 level.

Soros, one of the biggest buyers of gold, calls this “The ultimate asset bubble” and says “It's rational to buy at the start of a bubble”. For those of you who have been here for awhile, you know I've stayed away from gold, something does not sit right with me and I'll show you.

Interestingly, an August 16 SEC filing said that Soros sold 341,250 shares of the SPDR Gold Trust, the largest ETP backed by actual bullion, during the second quarter of 2010. Some funds are moving out of gold and into copper/silver fearing an equities sell-off will cause a gold sell-off as investors rush to raise cash.

Still, the biggest position in call options is gold  is at $1500 for November expiration. It's obvious there's huge bullish sentiment in gold with analysts and the releases of various firms all singing its praises. This is a trade set up for a fall in my opinion, even if it runs counter to typical market relationships.

Check out the charts...

This daily chart of gold shows 3C in lockstep with gold prices, however look at the leading negative divergence, even before GLD broke its uptrend line. Next and ascending wedge which is trying to break back above the trendline with no success. The move today in GLD, the breakout of an ascending wedge is exactly the Judo concept I've been talking about recently. At some point I may decide to enter this trade, but not yet. When I do, I suspect it will be on the short side as GLD is forming an obvious sentiment bubble.

The 60 min chart takes a closer look and confirms the daily negative divergence. There's accumulation at the start of the wedge-THIS IS TYPICAL WALL STREET ACCUMULATION for a position, later it is sold into higher prices. The breakout from the wedge sets up the Judo concept. I just don't see Gold making $1500.

If indeed, the Judo concept is at work in GLD, then today may mark the start of a fast and furious fall. Note the late accumulation yesterday on the one minute chart and the distribution into the gap up today. I've stayed away from this trade, but I'm going out on a limb and saying that we will soon see a drop in GLD.

More Headlines....

US auto sales in August were the slowest in 28 years, an 18% drop year to date and a 7% drop from last month Ford and Chrysler surprisingly are leading in sales, General Motors is expected to be the worst performer. This is an obvious sign of the economic times. Even more surprising, analysts expect Toyota, Honda and Nissan to perform the worst. What's the name of that Indian company selling $3,000 cars? I'd like to look at that chart. I'll try to do that tomorrow given the next headlines...

The Russian economy grew at 4% for the first half of the year, and is expected to maintain similar growth throughout the rest of the year despite a drought that destroyed ¼ of Russian crops, and raging wild-fires in western Russia forcing industrial companies to shut down and cut shifts as Moscow is covered in smog. Is Russia really outperforming the U.S.A.?

India growth rises 8.8% last quarter, the fastest rate in over 2 years. Again, what's that motor company?

India is now the second fastest growing economy behind China. The growth is attributed to strong industrial and mining output. Industrial output up was up 12% and mining up 9%, hotels and banking up 10%! That's rather amazing and may signal a shift in global fund distribution. I see American neighborhoods and I think of India, maybe with an ignorant perception, but this just doesn't seem to make a lot of sense. Clearly this is something that needs some follow up investigation.

What surprised me is that services =55% and industry= 25% of output. I had a much different perception. The Reserve Bank of India is expecting 8.5% growth the rest of the year. The downside was inflation was over 11% last month so they are expected to raise interest rates to fight inflation, which may harm growth. They have raised rates 4 times already this year. Is there an opportunity there for investors seeking higher yields? Remember, I just put US bonds on the short list.

And Europe?

Europe is not faring well. A quick look at national debt as a % of GDP

Countries that have over 100% debt to GDP: Italy and Greece

76-100% Portugal, France and Belgium

51-75%% Austria, Germany, Cyprus, Netherlands, Spain, Malta, Ireland, UK, Slovenia, Slovakia, Finland and Luxembourg

Unemployment Rates in the Euro-zone: Spain 19.1%, Slovakia 14.1%, Ireland 13.2%, Portugal 10.5%, Greece 10.2% and France 10.1%

Europe's largest economy, Germany is seeing unemployment stabilize at 7.6%. This is the 14^th monthly decline with the rate nearing a 2 year low . Most of Europe is seeing higher unemployment rates. Germany posted record 2^nd qtr growth through strong exports and domestic consumption. I have a very bad feeling about the Euro and the Union should the US enter a double dip and multi-national corporations should be at the top of your short list research, they will be on mine.

In Today's Trade...

The TRIN Wins Again! Yesterday's close of 3.81 strongly suggested a higher close today, the Dow, S&P and Russell 2k just eeked out gains between .04% and .06%, only the NASDAQ failed to follow with a loss around a quarter of a point. Today's TRIN reading came in at .84% which is on the bullish side, but nowhere near the levels that would strongly suggest a close higher tomorrow. The TRIN is moving toward neutrality today so we don't have that to add in the stew.

Interestingly, 3C in the 1 min timeframe didn't show a lot, but there was one timeframe in all 3 major average's ETFs I follow that showed a positive divergence in all 3 versions of 3C, it was the 10 min timeframe. This is a period in which 3C uncovers institutional movement. Until recently I thought it was the earliest timeframe to uncover it until last week when 5 minute charts appeared to uncover some as well. 1-min 3C charts are still the home of market maker and specialist activity as far as I can tell. So in the 10 minute time frame we had 3 indicators and 3 averages which gives us a perfect 6 of 6 charts all showing the same thing at the same time, approximately 1:45-3:45.

Last night I warned that the daily charts were showing an obvious bull flag and to watch for a breakout or a breakdown-most probably a false move, I thought the breakout would be the more likely with the TRIN so high, but we saw a breakdown. This is the 10 min 3c chart of the SPY, the red trendline is the bottom of the daily flag. You can see we had a clear break below that support and it acted as resistance the rest of the day. However, as mentioned, look at the positive divergence that formed near the lows of the day at the end of the day. This is in all 3 versions of 3c and in the SPY, DIA and QQQQ

The dollar (UUP as a proxy for intraday data) lost a tiny bit of ground, but climbed off its opening gap down to close near its best levels of the day. Interestingly, all 3 versions of 3C also agree on a divergence in the 10 minute timeframe, all negative. This is what I wrote about the dollar last night,

“The dollar did close up today and that may have had something to do with it, but the dollar looks exceptionally vulnerable on the price chart of further downside (which is good for oil generally speaking). On one min charts there's confirmation with a negative bias, on the 5 min chart there's a clear negative divergence.”

“This is one of those moments that doesn't make a lot of sense. Both oil and the dollar seem to be under short term distribution, oil was effected negatively today, while the dollar seems as if it will be affected negatively shortly.” 

“the negative bias of the 1 min chart in the dollar suggests it may turn very soon, presumably good for oil. To further complicate matters, when looking at at the candlestick formations between the two, the dollar's short term is positive, while oil's short term is negative.” and....

“This is one of those moments where there is no clear edge as of now. If I had to absolutely bet on the short term direction within the next day, I would bet oil has another day of downside at least and the dollar has another day of upside-or at least that would be the first half of the day's trading. Notice I used the word “BET”.”

That looks like pure distribution all day today.

USO got hammered today, last night I wrote,

 “below you can see a very clear leading negative divergence on the 10 minute chart pulling prices lower”. 

Around 12:00 today I posted that USO was struggling to gain a foothold, then a negative divergence-all on a 1-minute chart- led prices lower as I suspected last night. The drop, while extremely ugly on the chart, did enough to trigger stop loss orders apparently from 12:20-12:41 that were probably placed near the tweezers bottom support of July 2/6. Another round of stops appear to have been hit below $32, an obvious stop level around 2:29. The $32.00 stops were probably placed because of the perceived support of the lows of 8/27 (lows of $32.06-many traders would have placed stops at $32 given our affinity with whole numbers). There were end of day positive divergences to a much lesser degree on the 5 and 10 minute charts. While the hourly chart did move down today it's still in positive territory.

While USO's price action today was violent, it did not make new lows to erase the original rally that started last Wednesday. It took out stop levels-remember, most of the time you place a stop with your broker, except for a few brokers that claim to keep them in house until triggered, that stop will show up in the specialists book-THEY SEE YOUR ORDERS-DON'T PLACE STOPS WITH YOUR BROKER UNLESS YOU ABSOLUTELY MUST-keep them as mental stops. 

One of two things is happening here, the bounce in oil is done and it will most likely remain locked in it's trading range, or something in tomorrow morning's US Oil Inventory report sets up an upside move after USO pulled what I call a “Crazy Ivan” (a reference to "The Hunt for Red October" when Russian submarines turned 180 degrees to clear their baffles and see if they were being followed by other submarines). I use the term "Crazy Ivan" as a price movement like this to clear out all the stops, take out as many longs as possible before rallying higher. Basically it's another scare tactic to grab shares on the cheap. 

Using conventional analysis, it looks like the trade in USO is dead. However, considering what the dollar looks like and the report tomorrow, plus some accumulation although I would not call anything other then the hourly chart convincing, it could be the setup to a move higher. Tomorrow will tell. This was a difficult trade from the very start, why should it be any different now? Tomorrow should answer the question definitively. 

If this trade goes higher, I'll be amazed, not that it went higher because last Wednesday we saw what seemed to be the impossible and called it in a timely fashion, but at the degree of aggressiveness being utilized by Wall Street. It seems they are getting more bold, more aggressive and if the trade goes higher, it would be another example of the leaks that Wall Street utilizes. The unfortunate thing about this is that the US government would be complicit in stealing American citizen's money and obviously favoring Wall Street over main street. I'd love to see this trade move higher, but it will be disappointing considering the last sentence. However, I've seen evidence leading me to believe that government reports have been leaked for a long time, so it would not be surprising, just disappointing.

Again, let me reiterate, the bigger picture here is and has been since WOWS inception, the absolutely bearish posture of the market. The strategy has been to accumulate short positions which we have been doing since SPY $118 and occasionally play counter trend moves. To be very clear, I do believe we are on the edge of a complete melt down and I do believe that we will see lows not seen in over a decade. In addition, I also believe that the secular bull market is dead and for the first time in most people's lives we will see a secular bear market in equities. Trading and making money in the market will be a completely new experience as most people trading today have never seen or traded in a secular bear market. I believe this is a huge opportunity for those who are first in figuring out the new game, I think we have the tools needed to do so, but this will be uncharted waters which will put a select few in a position to make money from the masses which will be at a total loss with regard to how to deal with this new dynamic. Trading isn't an easy thing. when you enter the market, you enter a zero sum game, for you to make money, someone is going to lose it. However, when we enter the market we should all be pretty well aware of that fact. I'd rather take Smart money's capital, but the fact is we'll probably be taking money from ordinary people like us. That's the game.

On a personal note, WHAT A WOLF PACK! I wrote my schedule for this week so you would understand what was happening, where I'd be and when I'd be back in full swing. I received a lot of emails from many of you that were incredibly kind. I am humbled, touched and deeply appreciative of your well wishes. This is a huge ordeal for us, it's my wife and my future together and I didn't mention it for any other reason then to be honest and responsible. Your emails have moved us both and I am reminded of the quality people here at WOWS and it makes me want to work 10x harder to see you succeed. I humbly and graciously thank you from the bottom of my heart as does my wife who was equally amazed. So instead of my usual "risk management!" sign off, I just want to say THANK YOU. It gives me the calm that I really need right now as this is an anxious few days.

I have a feeling something profitable is about to unfold. I got home very late, about 9 p.m. tonight as out lawyer is an hour and a half away and I had to make a stop so I'm pretty shot as I've been working on this post since I walked in. I'll be posting trade ideas throughout the day tomorrow. After Thursday everything will be back to normal. Thank you again.