Go With What You Know

That is the best you can do, make decisions based on what you know RIGHT NOW, not yesterday, and certainly not tomorrow. The only certainty in the market is after the move has occurred and usually there's not a lot of $$ to be made at that point although as I have been saying recently, "Get your toes wet-not dive in full force". I want to remind you we have had 11 days of market action in this "Bounce". Of that 6 days have contributed to the advance. While it seems like forever (and that's probably my fault for speculating with regard to "when"), this is not an extremely long move considering the average leg recently up or down- July was 25 days on it's advance.

I also want to remind you that 3C caught this bounce/rally-(it's semantics) as early as August 25th, maybe a bit earlier. It took that much time between when we first saw accumulation and the trend up to start, that is because accumulation takes a little time, as does distribution. If you are Goldman Sachs and want to accumulate a 30 million share position, you can't just go and buy 30 million shares on the market, you'd quadruple prices, even if someone got wind of the fact you wanted to do that. At the same time it takes DEMAND and time to sell those shares, and if you want to establish a short position, even more time. As trading has unfolded over this bounce, so has the bullish motivation regarding the "perceived" H&S bottom pattern. I posted a chart earlier that shows when bulls entered the market, it was when the SPY was above the neckline around $113. So the first part of the demand equation is met by accumulating a position and driving prices up forcing the shorts (which increased their short position quite dramatically the second half of August) to cover-cover means to buy, thus they can unload. The further up prices travel, the fewer shorts there are to cover so you need to open a new line of demand and that seems to only take place above $113, this the market penetrating that level numerous times this week. Why don't they take the market down big after that, maybe because they haven't filled out the short position size that makes the trade worthwhile. Any dip that carries down too far will cause those longs to sell, if you are doing what I have suspected since before the bounce started, then you don't want that, you want them in that trap. Otherwise you get a half hearted move down.

One last thing I want to remind you of, before this got started, I told you "this is going to be scary", I posted example charts of what it may look like and asked you to try to put yourself in the emotional moment of those charts to prepare you for what was coming, so I'm not real surprised by the reaction some people are feeling. The market mechanically is driven by supply and demand, but what creates supply and demand are emotions. Count your losing trades that would have been winners if you didn't react emotionally. Just today I received probably 10 emails from people in WOWS making money because they jumped into emotionally difficult trades and stuck with them in tough times. EMOTIONS DO NOT SERVE YOU WELL IN THE MARKET WHATSOEVER.

So there's only 1-2 people that I really read and have a very high opinion of, 1 is Don Worden because he is one of the great innovators of technical analysis throughout the 60's and 70's. His indicators were used by Wall Street firms, his indicators were the basis for some of the more well known indicators out there (whoever publishes first gets the credit and he didn't publish). So here's what he had to say about the market tonight and I show it to you because it's in line with my findings.


The Worden Report (Thursday, September 16, 2010)


Smokin' Down Deep


      Well, of course, it was time for a negative day. It was easy to see it coming, since yesterday was a modestly positive day. The day before that was modestly negative. It's all summed up in the pulsating buzzing of a snare drum. The beat isn't actually that rhythmic, but it is rhythmic enough to put a snap in your step as you plod from day to day.
       I must admit the market was unusually forthright about its mood today. The balance of activity was definitely on the negative side. Twelve of the 16 Breadth Groupings were Negative, two of which were Super-Decisively Negative, with another four Decisively Negative. That only left four more Groupings, one of which Super-Decisively Positive and another Decisively Positive. That made for a pretty Negative impression overall, but nevertheless half of the 16 were Indecisive, the same type of thing we have been seeing. Not something to be basing big wagers on.
       The Ten Important Averages moved an average of a tiny -0.26%. 
       The Dominant PV Relationship was PDVD (1283 stocks), another ho hum reassurance that somewhere underneath everything going on is a quietly smoking bear market. 
       There were no changes in the Trend Table. -DW


SO HERE'S WHAT I FOUND TODAY....

AAPL is definitely the heaviest weighted stock influencing the SPY, today they were nearly a spitting image of each other. Tonight I created a version (since NASDAQ won't tell you the formula for weighting) of the NASDAQ 100 weight, it came close to what I know AAPL is weighted at. I took the float and multiplied it by price- AAPL was weighted 7 times heavier then the #10 stock in the top 10 and about 14X heavier then the average component. So what's going on in AAPL?

Above, the 3C chart (Daily for AAPLAAPL. At new highs, both indicators should be at new highs just for confirmation.

A Check of 3C vs. Don Worden's indicators, MoneyStream shows the same as does Time Segmented Volume so this is no 3C anomaly.

Here's today's 1 minute as it seemed the SPY was desperately being pushed into $113, it appears the market makers weren't willing to take AAPL into their inventory once it passed $274-negative divergence-possibly going short. You can see the 2 pm positive divergence used to kick off the move in both AAPL and the SPY at the white arrow. You can also see 3C's effectiveness in the only other 2 divergences on the chart-yesterday's close which pushed AAPL higher this a.m. and the negative divergence that put it into a late morning trading range.

Onto the SPY

The hourly shows the August highs negative divergence/reversal, at the white arrow the accumulation before the bounce started and the continued distribution/sell side trades.

A quick check of another 2 versions of 3C for confirmation , both showed all the major events above, note this is purposefully written differently so I get confirmation only if it's there.

Finally the 15 minute confirmation.  What we see on the hourly. From the accumulation before the move to the selling during it.

Here's a triangle on the 15 min chart of the SPY-traders are looking for a breakout above-the bulls any way, it's a continuation pattern of the uptrend. Perhaps the rush to push the SPY in the final hours of the day was to give the impression of a breakout of the VERY OBVIOUS triangle. We know what happens to obvious patterns, we see it multiple times a day. As soon as the market closed, the wide spreads and thin liquidity of after hours trading immediately took the SPY up, within a second of the close. Again, I don't want to create anticipation by speculating too much, but what better way to get longs in at higher prices then to throw them a bullish breakout going into the over priced after hours market.

As for the Q's that have been stealing the show-if you know about Dow Theory you know 3 other averages have not confirmed and being the Q's are the least influential, the implication is they'll get hammered back down. On a reversal, shorts on the Q's will be a clear edge. One reason though to run the Q's up is to create a bullish atmosphere. Clearly it only takes a couple of stocks to do it and AAPL has been on a tear.

So the NASDAQ....

The hourly NASDAQ 100 A/D Ratio, note the huge drop off of participation into today, the white arrow marks the start of the bounce.

Here's the Advance/Decline ration for the NASDAQ 100 today, clearly confirming the hourly chart as we saw more stocks declining then advancing into the final hour.

This indicator is used by NYSE traders to measure money flowing in and out-below 0 it's flowing out, above 0 it's coming in. The trend on this 15 minute chart though clearly confirms the charts above.

And here's the same indicator (hourly) on the SPY-white is where the bounce began. Same trend. It seems AAPL has a lot of uses.

As for internals, of the DOW top 10 weighted stocks, 4 were up, only 1 was up on higher volume, the other 3 showed the most bearish price/volume relationship possible. The major price/volume relationship for all stocks was close down/volume down, this is the hallmark of a bear market.

So that's what I've got for you tonight.

I could speculate as to what an opening gap higher in the a.m. might lead to, but I'm going to let the market show us what's what in the morning. One thing I feel pretty strongly about is this does not look like the strength one would expect to see going into a potential H&S bottom. Retail traders do not run this market. If the notice of the bounce coming a week before it came isn't enough to convince you who really runs this market, I don't know what will convince you. Retail traders are good for 1 purpose on Wall Street.

Gotta run out for an hour

In the mean time, take a look at the correlation between the SPY and AAPL, definitely using AAPL to run the SPY.  In AH they seem to be bidding up the SPY, interesting. Also interesting is the pains AAPL went through to go higher. There are several relative divergences in AAPL and a leading negative divergence. 3C on the 10 min chart is 10 points lower right now. The hourly chart correlates to nearly 16 points lower.

The 1 min SPY had some minor 1 min negative divergences, but if there were real institutional support right here, I'd guess we'd be seeing a large leading positive divergence.

This is one of the first times, I do suspect institutional activity to push this higher. This is the 4th and weakest attempt at a breakout.

Be back soon.

Keep an eye here

Watch what happens with volume, especially around $113, if it picks up big and red on the downside, Wall Street is most likely sending retail a sign, "It isn't going to happen". Note how the green volume (1-min) increased into $113.

They seem to be running the SPY via AAPL so I have AAPL overlaid on my SPY chart.

NEG Divergences

In the DIA, QQQQ, IWM, but not the SPY.... not a big surprise. they seem to be going after $113 pretty quick here.

They appear to be using AAPL to run it up.

Following Wall Street's Tactics

As you know, I've been saying $SPY $113 is about the only place that the longs are really interested in buying, to set up a bull trap-remember-failed moved produce fast moves-you need longs to buy.

We know because we are seeing it probably 80+% of the time that Wall Street knows how technicians think, technicians are so attached to the years of study that they just can't or don't want to see this. It's like people who make money in a stock, they fall in love and despite it going against them, they hold it because they've invested so much time learning about all the great reasons this stock will go up. Thus the question, "Do you want to be right or make money". It's the same principle. For conventional analysis, a symmetrical triangle like you see in the red trendlines carries no bias, it's a continuation pattern of the trend that precedes it. that trend-marked by the red arrow is down. Thus technicians believe this triangle will resolve down, it may be why we saw so much volume inside it. However, it resolved up-a failed bearish triangle is bullish in their minds and they bought the breakout-white box.

Here we see that Wall Street is aware of mass sentiment and their fixation with this "perceived" H&S bottom at $113 SPY. Note the only time the bulls enter the market is above the red trendline denoting $113 SPY-in the white boxes.

What Wall Street is doing is so obvious. Look, LEARN!  A solid move above this $113 level should happen once on huge volume, it's not there.

Example

1 min divergence-positive in the IWM at 1:45 or so on

10-minute IWM in a leading negative divergence. You can see it's worked at every divergence, the 9/10 EOD positive, the 9/14 top negative, the 9/15 top negative.

Update

Looks like there's an intraday leg up coming, after that the 10 min charts are solidly negative in leading divergences. I don't know the timing, but looking for a run up, to where???

But if I needed shorts, I'd be looking to short into this leg, right around the reversal.

Just Part of the Game

If you used technical analysis in the past and felt like you could never win, here's a good example of why.

A new breakout intraday high in DIA, look at the green volume, the longs eagerly took the bait, then PLOP, instant bull trap, no need to add water. Look at the volume after. Even if DIA closed at new monthly highs today, a bunch of longs, especially the most likely ones to take that trade, day traders working on 4-10x leverage just had their day ruined. One trade like that for a day trader, "Could" end their career. So please look at these charts and learn. What just happened there was a breakout above an obvious resistance level, one the BULLS WANT to buy. Most retail are optimistic, full of "HOPE" and that was without a doubt a malicious act by the market maker. The market maker-in this case the specialist as it's NYSE listed, saw the orders piled up in their book right above resistance. For a specialist, Volume x Spread =profits. Those guys bought up there, the specialist in filling the order is probably already naked short so it just helps his position as he collects more shares.

This is the market:  ugly, not fair, a rigged game. forget about CNBC and their recommendations, this is how it goes down in thousands of stocks every day and in more meaningful and hurtful ways then just a 1 minute chart like you see overhead. If you are a technician, you have to nearly unlearn everything you know, or at least use that knowledge to think like a crook (specialist/market maker). The way you have learned to trade through thousands of books, seminars, CDs and DVDs, market letters, all of it, just reinforces your status as a victim-a sheep.

It's a small example, but be assured, it ruined some people's entire week.

SPY Update

Sometimes I rush to get information out to you, like the 12 -ish post today on the SPY divergence and I make assumptions that I shouldn't. I should have said "This is an obvious pattern, watch for the false breakout", however, this is still a lesson.

I've recently said probably 70% of obvious patterns will see a false breakout. I can think of 5 or so examples today alone. Here we have n obvious triangle, a positive divergence, and if you entered at the note on a long inverse ETF for a day trade, you are making money. However, look at the small dip below support just before the move up. You can expect to see this on just about every obvious pattern in price, it's market maker greed and a mini-version of the Judo concept as short covering as the rally starts, gives it some legs. If you have read as much as I have over a decade about TA, you know this isn't supposed to happen so often and when it does it signals a failure-meaning prices continue down and this is why I tell you conventional technical analysis is dead, it WILL hurt you just as it hurt the longs the were stopped out as well as the shorts. It's a "Crazy Ivan"-the market maker clearing both sides of the trade.

In any case, what it means for the market at this point, I doubt much, but as I said, we'll have to see how it reacts to resistance, right now it doesn't seem like it's ready to break through it.

GLD 3C timeframes are aligning

This means we may be at the apex for gold, how far? I'd say at least a retrace of the wedge, however, momentum builds momentum and it could be a lot lower.

Update

We have a positive 1 min divergence at 11:52 in the SOY, watch those quick longs I posted last night. There's a trading range this a.m., we'll want to watch how it reacts around that top of the range.

For short term day traders, there may be a quick buck here.

More on GLD

Yesterday we had a bearish bear flag the entire afternoon in GLD. Being what you know about the market's false breakouts, which way would an obvious 4 hour long pattern be expected to break out? If you said up, you'd be right.

Only 1 problem...

Both the regular yellow 3C and the very long blue are both in negative 1 min divergences.

You know what a negative divergence looks like so I don't need to post 5 more charts, the 5, 10, 15, 30 and 60 are also all in negative divergences. This alignment is usually a pretty good timing signal, although if you were to tae action, you must do it slowly, ultimately price confirmation is the final say.

Interesting Volume

We've had some very large red spikes this morning in volume, it's strange to see it occur mid-morning, heavy volume on the open is to be expected with limit orders and such being filled, but these are standing out as if some mid-level firm not connected to the boys club, is dumping in a dramatic way.

GLD will be an interesting trade to watch this a.m., don't just discount it as bullish on this gap up, the most wicked reversal starts with a big gap up.

UUP also saw interesting volume this a.m. and thus far refuses to make a lower low on what is already increasing volume.

Some interesting things that are out of character are afoot.

Maybe Early, Definitely Speculative

Hoever, TM Toyota Motors is showing a sharp 3c reversal to the upside. The Dollar/Yen currency spat could have dramatic short term effects on US markets, but short term can often lead to a snowball as all is not well in the Home of the Brave.

Oh what a feeling! Toy.... Am I showing my age?

After All This, Could The Yen Be The Answer?