China 25 head fake? Possibly

A lot of traders yesterday caught 3C bottoms and made some great trades in the averages and USO via options. Looking at FXP which I like long and it's inverse (long) counterpart-FXI for the China 25, we may be seeing some of that false break out action I mentioned in an earlier post today.

FXI

Today's 1 min 3C-note the volume today, that isn't how locals accumulate, it is how they make technicians running volume surge software think they are accumulating. Reading technical analysis message boards, especially over at Worden, users are still trying to develop indicators based on volume surges as "accumulation". How many times have we seen that is NOT the way they accumulate, but so long as technicians continue to think that, Wall Street will take advantage of it.

Here's FXI breaking out through Gap resistance, remember what I said about these false breakouts we see at almost every reversal. I've even said recently I prefer to get involved with stocks that have already shown a false breakout as they are so common place before a reversal now.  If you don't recall, the reason is, it creates a snowball effect on the reversal from positions (in this case long positions) being underwater. the longs then sell, they create an imbalance in supply and demand which causes prices to fall more rapidly, which creates a loop of more traders at heavier losses selling, so on and so forth. the end result, the locals that short up here have to do VERY little to get a profitable position working. The retail crowd does all the heavy lifting through their losses. The locals don't have to commit extra capital to create a bear raid/run.

FXP-the inverse of FXI the China 25 (basically a leveraged short on the China 25)

Here we have near perfect confirmation of the FXI in distribution on the 1 min with accumulation in FXP-the inverse of FXI.

The 10 min chart is also bullish-we just need to see the 15 min chart turn and between the possible false breakout and a 15 min chart positive divergence, we should see a reversal to the upside in FXP and downside in FXI.

We'll monitor this trade today as positioning will be excellent if today is "R-Day".