Watch the Cat and Dogs long trades (under $5.00), you may see some action there.

If you look at the DIA chart, 

you see 2 bear flags. A bear flag is a bearish continuation pattern, meaning it is expected to resolve to the downside. On the DIA chart, but not the others, we do see a false breakout on bear flag one at the white box/arrow. These flags are so obvious and we know that 85% of the time obvious patterns get hit with false breakouts, it is reasonable to expect a false breakout here, especially because we are at an area of important support for the bulls which was broken today and we closed right above it.

This 3C chart

is a 1-minute chart of the DIA showing a leading upside or positive divergence. This is seen in the SPY and the QQQQ as well. So I'm pretty sure we'll see a breakout of that flag. Now how long that lasts , we'll have to wait and see. On the first chart of the first bear flag, it lasted an hour. This is more important as we are at an important support/resistance area.

So I'm expecting that move to occur, it doesn't bother me, it's just part of the game on Wall Street. This breakout from this flag does not in any way represent a threat to the big picture. It may in fact be a good trading opportunity for nimble day traders. 

So understand this is common, we have seen these false breakouts 3-4 times a day just looking at a few charts. This is a market maker/specialist of an HFT firm's way of making money, like I said, it's part of the game.

I think the situation we are seeing in the market is more serious then people may realize, see the post below with all the charts and see how strong the uptrend reversal was and how complete in many ways. I do not think that natural progression from bull rally to a reversal is going to see a "out of no where" big bull move. We'll monitor the progress of it should it come to pass, which I think it will early tomorrow. It may be a good opportunity to start picking up shorts many of you have been emailing me about.

I believe the dollar will be down tomorrow, but I see a not so subtle change in character taking place in the $USD. This would make sense. However as I said about the market, tomorrow looks to be a down day on the less important short 3C time frames, the more important longer time frames are where we are seeing this change of character, just like when we spotted it in late August. I was actually listening to a video on august 19th and I mentioned we were seeing some strange stuff happening so changes in character don't just happen in a day, they take some time and I think the reversal stage of this rally is pretty mature. As I said last night, you will find as many or almost as many up days in a bear market decline as you will see down days, again, it's just how the market works.

There are a lot of possible plays you can make with that informaion. I'll be adding more shorts probably tomorrow afternoon after I see where the best entry points are if we get a false run.

Until tomorrow.... 

Flash Crash CENX

Once again, the big boys were nowhere to be found leading up to today's Flash Crash in CENX, they got out at the highs.

Objective Data

We seem to be making some progress here in the turn downward thus far. We are at or near some pretty serious, last levels of support so there may be a little back and forth, but here's the charts to show you where we started and where we are now.

 The DIA-this time frame called all the serious reversals, it is in the worst divergence seen yet on this chart, a STRONG leading divergence.

 Here the DIA shows 2 consecutive bear flags, the first saw a false breakout as we'd normally expect, the second one has shown up right below very important, last ditch support. Even with a false breakout, it seems like the DIA is locked into a reversal down.

This chart (sorry about the clarity) shows the 5 day moving average turning down, putting the DIA into a short term down trend, changing the classification in Dow Theory from lateral. This is the first time in September that the 5 sma has turned down.  The white arrows represent a bull trap, any longs caught in that zone are now at a loss.

 The QQQQ in a timeframe that has caught all the major swing reversals including this rally , it's now in a negative divergence calling for another change in trend, down.

 The QQQQ showing again, two consecutive bear flags, no false breakout on the first one though. This is a decent top and the flag is right at last ditch support before moving into a sub-intermediate downtrend.

Again the 5 day m.a. is signaling a change in the short term trend from lateral to down. The red arrows show nearly two weeks of longs caught in the losses of a bull trap. Looking at the volume alone, you can see something is definitely wrong with this chart, the bull trend seems to be over.

 The SPY on a 30 min chart that has caught all the swings up and down including this rally, now in a leading negative divergence-as bad as it gets for the bulls.

 Here's q 5 min chart of the Q's showing the newly formed bear flag, 3C again is in a leading divergence suggesting that this flag will collapse like the one before it breaking any remaining support.

The SPY, has already broke an important support level, we are now at last ditch support with  another bear flag. you can also see to the left where any longs buying in the zone marked by the two arrows are now at a loss, this is what gives momentum to the Judo Concept.

 a 30 min breadth chart of the QQQQ showing the advance decline ration turning decidedly bearish and the A/D min 10% change line now turning negative.

Two more measures of breadth for the QQQQ in obvious turnarounds to the bear side.

 The 30 minute breadth of the QQQQ in terms of % of stocks above or below their 30 min moving averages. As 3C suggested throughout this rally, this chart confirms there was continued weakness throughout the rally almost from the start.

 Another measure of breadth for the Q's-% of stocks making new 50 bar highs on a 30 minute chart. Again, more confirmation of 3C's negative divergence throughout the rally.

Finally my MACD Heat Map. This takes extensive explanation, so I'll just say the red arrows are sell/sell-short, the green arrows are buy. You can see we've entered a sell/sell short signal and you can also see that this chart has not had a single failure on it.

With the weight of the evidence, I'm not worried about a false breakout through the bear flag should it occur. You have to expect the bulls to put up some fight at last ditch support before capitulation. This is in essence, everything we were looking for when the accumulation was first spotted in late August. Needless to say, as I have maintained, I still maintain a bearish stance. 

Another Perspective

Markets don't go straight up or down, there's a clear bear flag here. We know they like to create false breakout, so a breakout to the upside would not be a surprise, it also would not cause me concern as they tend to fail and reverse back to where they were going

This is what I mean

Both have negative divergences, not huge, but there. The DIA chart shows it better, there's a negative divergence, but the relative height of 3C is a little high for my liking. In any case, if we get a close around this area, it will be constructive for the short positions.

The Information Curve

Good thing we have ties with Iraq, apparently they have far more oil reserves then previously thought. I wonder if this has something to do with the interruption in Oil's ascent? There's a lot of other questions one might ask about the information curve but I leave that for another site.

Update

Position wise 3C is still in a positive area, but it is starting to put in some 1 min divergences, so we'll see if it breaks this afternoon trend shortly.

Strange Behavior

I'm seeing 3C positive divergences that seem to turn negative rather quickly, right now we have the biggest of the day, here's what they look like.

DIA 1 minute The DIA divergence is between the SPY and the Q's with the SPY returning to a negative stance and the Q's, showing a small negative divergence but still in a positive stance.

SPY 1 minute The SPY divergence seems to be in shambles again after a quick run up

QQQQ 1 minute-you can see while there's a small negative divergence, the Q's overall stance is still positive.

QQQQ-15 minute-this chart is obviously looking very bad and it's the most influential of these charts above.

Interestingly, it seems the SPY is starting to turn down, followed by the DIA, the Q's are still in the short uptrend. We'll see how they play out. I was really expecting the Q's to lead the charge down, which they are on a % basis, but 3C should look significantly weaker i the Q's then it does.

Opportunity in Oil?

I don't know if this dollar higher is a 1-day deal or the start of something bigger, positive divergences on 15 min charts are pretty serious.

Here are the negative divergences in USO showing it swinging around

 1 minute

 5-minute

10-minute

15-minute

If you are nimble, there may be an opportunity here if this is an early reversal of the recent surge upwards.

2ND POSITIVE DIVERGENCE

The first didn't get very far. Interestingly, the SPY has the weakest divergence, then the DIA, the Q's have a strong 1 min positive divergence, but the 5 and 10 minute charts are showing negative divergences. I don't know why this is, if it has something to do with the amount of bots operating or what, but short term it looks like a good strong positive divergence, other ten that, the 10, 15 , 30 and 60 min charts are all in leading negative divergences.

Bull Traps

The last component of our understanding or thoughts about what this bounce would look like ended with a Bull trap. right now in all 3 majors, we have at least intraday bull traps. This may create high volume today, this is the opposite of a short squeeze. There seems to be a trade program at work here, the declines are too linear for all human trade, so this of course raises the question, "Was this planned?" and from what we've seen in 3C, the answer would be a simple, "YES".

Maybe getting ready for a little bounce

3C is in position to complete a 1 min positive divergence, which is not surprising after the sell-off we just saw.

The Dollar

I had been hopeful regarding the dollar since it had maintained a relatively positive position on the daily, not the same as a positive divergence because it never moved up, but it was better then what it should have looked like. Compare price ad 3C at the two relative points.

Here's the 15 minute with a positive divergence.

ISM Falls -1.9 points

Here's the particulars from Brieifing.com

http://briefing.com/GeneralContent/Investor/Active/ArticlePopup/ArticlePopup.aspx?SiteName=Investor&ArticleId=NS20101001105207HeadlineHits

Here it is on the Dow with Yesterday's Fast 3C

Was It Just Me?

Or did we just see a mini flash crash? I have all three averages moving straight down in less then 30 seconds to the lows of the day off the opening rally.

It All Comes Out Later

Rember the "Tepper Rally" a week or so back, then the next Monday Paulson's comments, "stocks were right, bonds were wrong"

Well, as usual, here comes this story to explain all that. Remember I said the quarter ended last week and the funds wouldn't want to see more out flows?

Read this article

http://www.zerohedge.com/article/paulsons-advantage-plus-fund-returns-126-september-flat-year

Flat for the year means, if Paulson's fund is like most, there's a high water mark, and until they pass that high water mark, they aren't making any money. Imagine if it weren't for the September rally, this story might be talking about how another several dozen funds are closing shop.

I told you these guys always have a motive and CNBC is always their mouthpiece.