An Alternate Theory

Being prepared for this (if it comes to pass) will allow you to be the wolf and not the sheep. I got an email this morning which was forwarded from a well known newsletter. They are focused like a laser as are all technicians and even non technicians on the "consolidation pattern".

The pattern is within the red trendlines and it's being called a "consolidation"IT IS NOT A CONSOLIDATION! The price action is WAY too volatile within it, the volume is not correct, but people see it just like they saw a random pattern in 2009 early in the rally that looked like a Head and Shoulders. Volume is the second most important indicator on your chart, but technicians have become enamored with anything exotic and have forgotten all about volume. By the way, it wasn't a H&S top, just a random price pattern that looked like one and volume made it VERY clear that it was not.

So everyone is now watching this triangle which as of yesterday I thought thy may try a false upside breakout to shake out shorts and trap longs, but now I'm wondering (if they still have control over the market) whether they might be going for something even bigger? It's what I call a "Crazy Ivan" from the movie, "The Hunt For Red October" in which the submarine does a 180 degree turn to see if there are any other enemy subs following in their prop wash where they can't hear them.

In my market interpretation of a Crazy Ivan, there are two shake outs, one below the pattern, one above. Which way the pattern breaks first has a lot to do with which way the market eventually will really break. For instance, if we had a false upside breakout, then there could be no false downside breakout, just a real move down, but if it breaks down first, then all the longs can be immediately shaken out, then the shorts when prices move higher. Then we have an upside breakout as I mentioned late yesterday. This one will take out any remaining shorts and capture longs in a bull trap. Eventually the market moves back down. All indications to me, both fundamental (from Bill Gross/Pimco's words and actions and the Fed's Fisher's word about QE2 possibly not being completed) all suggest to me that there is nothing left in the market to melt it up, except whatever remaining POMO operations are left and those are now being thrown into question.

So we'll watch for the signs, but be aware that this is a possibility, we have had the mother of all bear market rallies, it's not going to fizzle away to the downside, it's going to see the mother of all volatility.

Be prepared for this mentally so you can use it to your advantage, so you don't get caught in the game. I'll let you know what I see that may confirm this. As always, if you understand what is happening, there's a huge edge and opportunity for you, but the stakes are high so make sure your risk management is not a motto, but something that is water tight.