Update

You have to look closely here. The light red horizontal trendline is the $110.50 SPY resistance level. Price rising since 2 p.m. created the bear flag or what was a bearflag. The diagonal trendline shows the support of the bear flag, below that is a break of the flag which we have now. The red arrow is the continuing negative 1 min divergence in the SPY. and finally the thick red horizontal line represents the point in which 3C would be in a leading negative divergence as it crossed below that level. Compare prices to the far left of that line to prices at the far right of the line0they are obviously higher, now compare the yellow 3C indicator at the two relative points. This is a leading negative divergence so there has obviously been some trading by the market maker which is extremely common as they are also traders trading their own accounts as well as making a market.

While we may close higher today-again I warned this could happen in a false volatility move-"shaking the tree" the lower price moves down, the longer the wick will be on the daily candle. When you see the daily chart at the close, a long wick is extremely bearish, even on a close higher so this doesn't alarm me.

Watch the diagonal trendline, it's not uncommon for a rally to test that resistance (former support until prices broke below it at 3:10 p.m.

SPY Bear Flag

Keep an eye on this, it's the first 1 min negative divergence on the bear flag. It did by the way, break out to the upside.

Opportunity?

The SPY has been in a bear flag since the President started speaking, it hit resistance where it was most likely, at SPY $110.50, "looks" as if it's about to break down. Watch for a false upside move above $110.50 (Wall Street games) , but I don't think it's "very likely". Below $110.25, I'd say the bear flag has broken to the downside.

Last Night's Trade ... MSPD

Above you see the daily chart of MSPD-the false breakout and now the confirmation of the bull trap. It's looking like a great trade-even at these prices. The false breakout lesson is a valuable one as well.

Here's 3C's 5 min chart into a leading negative divergence,

As far as the speech, I don't think there's anything new as far as the market is concerned. This is just a campaign speech.

Sounds like a political speech

There's a bear flag developing on the 5 minute chart- something to keep an eye on as a breakdown will give you a decent short entry.

new lows in all 3 versions of 3C 1 and 5 minute now.

OK, So....

We are seeing the same thing that was reflected in GDP, it's still positive but de-accelerating. Now the President is coming out for damage control. So I'd expect to see some lateral movement until then. There's no accumulation into this, it's actually heading pretty much straight down.

CNBC is asking what caused this gap this morning... LOL

We are seeing new lows in 1 min 3C for the day in all 3 versions

Update...

Well, I don't see any accumulation into the sell-off....

If The Market Breaks Down

Upon the release of the Beige book in 10 minutes, here are a few trades you may want to consider on the short side. Of course any of the market related ETFs, especially the Q's and Russell or tech like semi conductors.

AAPL as it looks like a big top and has gone far enough north to knock most shorts out of the trade

GOOG for at least a swing trade

SNDK a top that has broken already, so a continuation move down should be rather smooth sailing compared to other trades that are still in tops.

JNPR in a nice top close to a break

CSCO should resume it's trend down, it hasn't impressed me with it's rally.

I'll be posting more, it just depends on what happens here shortly.

I'm not sure if this is retail running because of the unknown factor or this is what smart money has been up to all morning with the negative divergences.

Update...

This is strange, last update I told you the Dow had been seriously lagging, keep that in mind.

In about the last 20 minutes some serious damage has been down and 3c 1 min has headed significantly lower in the SPY. One of the 3 versions is nearly at a new low for the day. Two of the 5 min versions have also seen rapid deterioration.

The QQQQ has deteriorated but not to the same extent, but it has become more negative.

The IWM has one version of 3C that has made new lows for the day in the 1 and 5 min time frame. Another version has the 5 min time frame looking very bad headed towards new lows and pointing down, the 1 min is also showing some of the worst readings of the day, but not quite at the lowest point. This is all significant as prices are significantly higher then the open.

The Dow/DIA however, -well, forget that. I can't type fast enough to keep up with it. In any case, it was improving, while still negative, while the others were falling apart. There is 1 1-minute that shows a pretty decent looking positive divergence still, but with the others falling apart, I'm guessing it will follow soon.

You can see how fast these things move and this is why I prefer to concentrate on the overall trend, but you never know when one of these is going to lead to something significant. Lets see if they move the Dow up in the next 20 minutes as it has lagged all day.

Another Interesting Note...

The Dow is way underperforming everything else.

As I write, we seem to have that downside break. I guess our H&S breakout was a head fake-I should have said something about that, but as always, obvious patterns get manipulated.

Update

Well that H&S top got blown, but this is still interesting...

The SPY 1 minute 3C  -from the first negative divergence reported this a.m., it has made no progress at all (3C) showing no institutional buying at all.  It's not even trading in line with price, so this is a bigger negative divergence-meaning there's apparently more selling going on into higher prices. This is why I said last night, I can see no reason why institutions and market makers would object to higher prices, but they needed inventory-at least institutions did, the MMs can go naked short. We saw that inventory build in the small positive divergence late yesterday.

To confirm what I'm seeing, I looked at the 5 min 3C, it confirms it alright. Perhaps they intend on running this higher right into 2 p.m.-that would be assuming the Beige book is not taken well. I don't think that's an unreasonable assumption, but who knows the depth of depravity.

Update

This is very slight, but I would call this a positive divergence in the SPY 1 min, it's not something strong enough that I would trade from, in fact it's quite borderline but it's there.

Right around the same area we see a push to form what appears to be an intraday H&S top. If prices continued higher then the formation would be destroyed, but as of now, that's what it looks like.

Conjecture time again...

If market makers accumulated for a bounce today (and I warned about this stuff last night-shaking the tree) then I wouldn't expect a "V" shape reversal down, they need to unwind the entire position and get back into a short standing in their inventory, a top like this is meant for that purpose.

Again, "if" we see a negative Beige book release, all this will make sense and we'll have another important insight into Wall Street. This is also the reason I did not list trades last night. I'm surely not putting out longs and the shorts best entry depends on how high then may take the market.

The Beige Book

Here's our current situation on the 3C charts....

Everything above is in a negative divergence 1, 5 and 10 minute charts. We have the release of the Fed's Beige Book at 2 p.m. today. I would think if there were something good for the bulls in there we'd be seeing charts with clear accumulation, we are not. Bonds are down this a.m. but they are showing signs of buying. I have to assume the Beige book is not going to be a good release.

Honestly, the news today regarding the rally's justification, Portugal's debt auction going smooth? As if that in any way compares to months of stress testing the Euro banks and then finding out the results are bunk and the banks are in a lot worse trouble then previously assumed?  I'm sure Portugal was the spark for retail traders, I just don't think Wall Street buys it, but I suppose, like I said last night, it can't hurt them to see higher prices before a decline, it can only help and if it helps them, it helps us.

In any case, I can only report on what I see, the rest is conjecture until proven otherwise and we should know in 2 hours.

The Dollar too

We are seeing a positive divergence in the dollar from this a.m.'s move down, recall the dollar trade opposite the market.

First divergence of the day

We have our first negative divergence, I guess this is what we were seeing late yesterday, as small as it was, I suppose it was just getting started. In any case, we have the negative divergence now so I'm expecting some sideways or reversal activity.

If You WANT THIS, It's All Right Here

Monday night I looked at the economic calender and there was nothing happening today. In my gut, from all that I had seen and laid out for you over the weekend I felt very confident we'd see a lower close and the start of the Judo Concept with the bounce failing. Logically with nothing on the calender to give us a catalyst to send a shock wave of fear through the retail community I felt a little disappointed, but Wall Street came through for us and all of the signals witnessed were “not for nothing”.

Tuesday, the already questionable results of the European Bank Stress tests from a month or so back, came out with an announcement that they had not counted or they had disguised high risk government debt that they were holding, making the results of the test near worthless and throwing into question the true state of the European Banking system's resilience. Considering what I showed you with all the signals of a reversal very close, DOES ANYONE FIND THE TIMING OF THIS RELEASE TO BE INTERESTING? 

I think this is something that was known and strategically released for a purpose. If you listen to Jim Cramer's interview with Aaron Task on Wall Street Confidential on the net (Google "Cramer Manipulation") , Cramer talks about how he, as a hedge fund manager and how others would routinely use the press to send out false information to further their goals. I think the truth runs even deeper then that. If you consider that these financial news organizations DEPEND on Wall Street to sell ads and the infomercial interviews, I think it's very likely that they are fully complicit in Wall Street's manipulations. I've seen things on CNBC that make me say to myself, “Does anyone really buy this carp?" (I know, it's a fish).

BREADTH TODAY.....

PRICE VOLUME RELATIONSHIPS....

Price Down/ Volume Down: Dow (18); NASDAQ 100 (53); S&P-500 (278); Russell 2000 (1046); All NYSE STOCKS (2788)

Price Down/ Volume Up: Dow (8); NASDAQ 100 (32); S&P-500 (165); Russell 2000 (753) ; All NYSE STOCKS (2164)

IN THE S&P-500: 57 STOCKS CLOSED UP

THE NASDAQ: 15 STOCKS CLOSED UP

THE DOW JONES 30: 4 STOCKS CLOSED UP

THE RUSSELL 2000: 201 STOCKS CLOSED UP

Roughly 10% of stocks closed up. The price declines don't reflect the severity of today's move.

I track stocks that make 5% or greater moves and their P/V relationships, obviously Price Down was dominant, but as to volume, the dominant relationship was Price Down 5% or more on rising volume. THIS SHOWS A MAJORITY OF THE BIG MOVES WERE PANIC SELL-OFFS.

16 Major Breadth Groupings tracked by Don Worden: ALL SUPER DECISIVELY NEGATIVE

As an interesting note, I'm not quite sure what it means, generally speaking the averages were down on relatively higher volume then the ETFs that represent them, the NASDAQ 100 vs the QQQQ is a particularly stark contrast, take a look for yourself.

This is what a confirmed Hanging Man reversal signal looks like...

You may remember from the weekend post that this is one of 12 major reversal formations in Japanese Candlestick charting and I point it out because it is an excellent example. The first component is an uptrend which is seen at the green arrow, the second is the Hanging Man candle itself (in the white box), it doesn't need to gap up to be valid, but the further it gaps up, the more significant it is and the higher the volume, the more significant; we saw both conditions met. It's not a confirmed reversal signal until a close lower the next day which we saw today at the red arrow. Note that this is the ETF and volume is somewhat light. Unlike an uptrend where rising volume is essential to confirm the strength of the move, light volume is the hallmark of a bear market and does not diminish the importance of the reversal signal, although higher volume AT THIS STAGE, would indicate panic selling. All 3 candles that make up a Hanging Man Reversal pattern are in the red box. Keep this in your mental tool box.

Remember I told you over the weekend that even with a reversal, do not be surprised to see an attempt at a new high or a volatility move. I called it, ”shaking the tree”. We saw some slight gains in after hours, the IWM gained .11% in after hours, the DIA lost .01%. these are not significant moves.

Above you can see a very slight 1 min positive divergence in the IWM right toward the close, the red arrow is the negative divergence from Friday. We have these 1 min positive divergences (even though they are slight) into the close of all of the major average ETFs. So that would explain the after hours, it may also lead to a gap up on the open. The breadth readings show a market in a lot worse trouble then the price declines depict, but most traders aren't looking at breadth readings, they're taking a chance on catching a falling knife, thinking that today's decline wasn't as spectacular as Friday's advance and maybe this is just a little glitch in the bounce. Remember, humans, as traders by nature are hopeful and biased toward the long side. I see no reason why Wall Street and the market makers would object to a gap up, or even a big gap up, it only helps them make more money-”shaking that money tree, knocking out as many positions as they can”.

Here's the bigger picture though in the IWM

You see the white arrow of accumulation that got this move started, you see the red arrow showing the distribution throughout the entire bounce and today you see 3C making a new low, even though when it is compared to similar levels in the past, price is much higher now-this is the powerful NEGATIVE leading divergence. To be fair there are a couple of positive 5 min divergences in averages like the SPY-see below.

However, we need to look at the bigger picture, this is the exact same chart but zoomed out to show the relative position of 3C.

While that 5 min positive divergence is there, look at where 3C is in relation to prices at similar levels, so we have a slight positive divergence within a really NEGATIVE leading divergence. To me, this smells of a setup. Here's what a possible scenario could look like and I warned of this over the weekend before we saw a reversal to the downside because I know how Wall Street likes their games. It's almost as if they want to exasperate you.

This is a similar situation (above) in the SPY from the top of the June decline this year. We have a weaker hanging man reversal for a couple of reasons, 1) it wasn't a strong depiction of a hanging man, two it didn't gap up as high and 3 the confirmation reversal day was only about a half of a percent down, still it worked out. The white box is the reversal set-up, the red arrow shows higher volume on the hanging man day like we saw and the green volume arrow shows the lower volume on the confirmation day. The vertical red arrow over price show Wall Street shaking the tree with a fairly massive gap up, this was bound to shake out the shorts that entered on the hanging man reversal and encourage longs to re-enter the market-both events that benefit Wall Street and the market makers. However, look at what happened from there, the trend down was nearly uninterrupted and I think right now we have a stronger setup for a move down.

I'm not saying the situation above is what will happen, I'm just trying to prepare you for the possibilities because Wall Street plays the game a certain way and when you see it enough, you can almost guess pretty accurately at what they are likely to do. So be on the lookout for something like this, again, don't panic, I'm telling you in advance as I did this weekend before the reversal that this is a situation that could occur and you should not be surprised by it. In fact I would use it to short into strength.

As far as the longer term outlook....

Here's that 60 minute chart we've been watching-(the longer the timeframe, the more you can see and the more significant the findings of 3C are in showing what institutional money has been doing long term. 3C entered into a NEGATIVE leading divergence today. Remember I told you before the bounce started that they held 3C steady in a positive stance even on down days, well now that we are higher in price due to the bounce, 3C's relative positioning is very negative and should get worse from here. This is warning of a significant move down in the works.

Here's another, this 15 minute timeframe has called advances and declines on the order of a month long trend. Here again, 3C's in a leading NEGATIVE divergence-look at price now and 3C's position compared to its position in the past-this is very bearish.

And again, not as significant as a 15 or 60 minute chart, but the 10 minute has called some major swings, but what is more important is that we see all of them falling into line. You can see the white arrow-accumulation before the move up and the constant selling from institutional money. Again, another NEGATIVE leading divergence-the WORST kind of negative divergence. IT literally seems to PULL price down with it.

So that's what I want to show you tonight.

A trade that I really like and I'll be adding more tomorrow during the day, but for now, MSPD

Here we see a great top with tons of overhead resistance. It broke down and started a bear flag which insinuates a move lower is coming, but they ran the bear flag up far enough to cross above the neckline of the top-stopping out shorts and drawing in longs.

Here's the situation I warned of above, the day in the white box is a breakout of the bear flag on increasing volume. This was likely to take out most shorts left in the trade and such a bunch of longs in as they see a failed bear flag. This is 100% the Judo Concept. Note today price was sucked back into the bear flag and all those 1-day longs are now at a loss.

A closer intraday look at today's action....

The white box is the daily breakout of the flag on increased volume-this is the bull trap. At the yellow arrow they set another bear flag as price dumped back into the flag, longs now at a loss and they let this flag act like Technical analysts believe it should work and let it fail as they'd expect. The end of day price move in the red box shows a lot of long wicks on the candles showing higher prices were sold off and the volume looks horrible. This is a high probability low risk short right now in my opinion and I'd enter a good portion of the position now and add when that daily neckline from the top is broken. This should be a real nice short trade. However, I want you to really look at what happened to this stock, every component and see how Wall Street operates. At each turn those who follow conventional technical analysis thought they were right and then got knocked out of their trades. The initial shorts who were knocked out were probably the right ones and this is why I encourage you to use wide stops right now-the volatility in a top is intense and the trickery is non-stop. I do really like this short trade though.

So as the post said, if you want to know how Wall Street operates in the real world, not some textbook, study these charts, study the intraday charts posted and the bigger picture, go back and re-read the massive post from this weekend. Everything you want to know and need to know about how the market truly operates-the manipulation, corruption, the outright lies from the media, everything is all right here. I encourage you not to just read this post and wait for tomorrow's. Study this because you are seeing something that very few people will ever notice. You are seeing something real that I've never seen to this extent in any of the many, many books on technical analysis I've read and you will see something that CNBC will not talk about. It's all right here. You decide what to do with it.

If you have questions, you know I'm here for you.

Til tomorrow....oops, it is tomorrow.