Another MArket Scenario

There are a lot of market scenarios, but we want to look for the most likely. Last night I put out what looked to be the most probable scenario based on many factors, not just 3C. However, a scenario that was a bit remote yesterday, is gaining credibility with me today.

You've seen the 10/15 min charts many, many times and how they have grown worse today. These charts can lead to swing moves of days to weeks in some cases, depending on how 3C responds during the move. For instance, 3C had a favorable response as the market was plunging early this month and that led to the market not only stabilizing, but bouncing from there, something none of the talking heads expected.

What has grabbed my attention today and brought this formerly remote possibility to look more plausible are the following charts on the 30-min timeframe.

 DIA 30 min

 IWM 30 min.

 QQQ 30 min

SPY 30 min.

In each chart, today did some damage that I had not thought to be a high probability of materializing.

In the last big downtrend t took a 60 min chart turning quite negative and in a few cases even the daily chart.

 SPY 60 min and quite some time led to the early August plunge.

The IWM  and DIA took a daily chart and quite some time to reach the same plunge.

So I don't see a similar plunge as a high probability, but as I noted last night, the market often swing way too far one way and way too far the other, making some of our most outrageous projections seem conservative.

In addition, over the last 2 days, we have had The Fed's hawk, Evans open the door as a dissenting member of the last FOMC statement, to more QE and today, Lockhart said essentially the same thing.

They may need political cover to pull it off, which would mean a market decline, I can't say for sure. Some argue that the market will rise from here based on these statement alone. I think the charts are too far gone at this point not to see downside as 3C has been projecting. I'm just starting to wonder though whether the downside will be more extreme then the head fake to get shorts to commit? Based on the daily/60 min charts, t still seems likely that we'll see the strong rally that was part of last night's perspective and I think that will be closely connected to the QE3 situation. In any case, you've had several days to get in to position and whether it's a 3 day ride down or a 2 week ride down, you should be well positioned.

The ongoing movement in 3C over the next few days should help to clear this up, should the 30 min chart keep on falling, then I would think this leg will be more substantial then originally thought. If there's a reversal in those 30 minute charts and they gain or they quickly gain upon a move down, then the original perspective from last night would be more likely.

There are a lot of possibilities, and I need to look at them all, but I need to present you with what I believe are the highest probabilities and I would be remiss to not at least mention this possibility, even though it is no where near the kind of action we saw before the August plunge.

Looks like mini H&S neckline support

 DIA

 IWM

QQQ

As for the break neck bounce...

If you read my post last night on my market expectations, it s short term down, an intermediate term up and then long term down on the second shoe dropping.

It is news it's stories just like this one that should lead the market higher in to the next bounce that the 3C intermediate and daly charts are predicting...

Another bounce

Remember, reversals are a process, not an event.

 DIA 1  min

 QQQ 1 min

 QQQ 5 min suggests this could be a decent intraday bounce, I would use strength to enter shorts.

SPY 1 min.

So far it's not past the 1 min in most and not past the 5 min in the Q's, so while it could be a decent intraday bounce, it shouldn't change the trajectory of the trend.

Market Update for this downtrend

 Ever since this morning's first post, it's been fairly clear to me that today was an extension of yesterday's head fake to the upside, the direction and duration of a head fake are hard to quantify, we just know that in most cases they are coming before a trend reversal, I wrote about that last night. In any case, it gave many of you great positioning today as I am gathering from the emails.

 Here's the DIA 1 min which is the only major that is showing a positive relative divergence, maybe a consolidation, maybe another intraday correction or maybe nothing, it doesn't really matter in the larger scheme of things.

 The 5 min chart shows the distribution of the last correction and again a relative divergence now.

 The 10 min chart has lost a lot of ground today and set a new low in the negative leading divergence, I would guess there was very strong distribution in to this morning's strength.

 The 30 min chart has even moved in to a negative leading divergence, which I'm not thrilled about as far as a rebound form this move, but we'll have to see how it acts as prices move lower. At least you should have some shorts/inverse ETFs to make this move worthwhile, it has been telegraphed for several days to prepare.

 Luckily the 1 hour chart is holding strong in a positive leading divergence as well as the daily.

 The IWM 1 min shows distribution at the last correction and is in line with price at the green arrow.

 The 5 min gave up significant ground in a leading negative divergence into the strength earlier, as suspected.

 The 10 min chart is setting a near new low in a negative leading divergence, just compare the real 3C low and the current one and price at the two relative levels, a lot of distribution today.

 The 15 min chart gave up a little more ground as well. This is the point of the head fake, any buyers are trapped as Wall Street takes the other side of the trade on a short sale.

 I don't like the deterioration in the 30 min IWM chart, but the  1 day is still strong enough, but we'll want to watch how this reacts in to lower prices. As I said last night, we have a blueprint, but there will be some surprises along the way as the market always swings way too far in each direction. Also remember I've been saying the point of this decline is to get shorts back in the market to squeeze them later, so the market will do what it has to to gain their trust to re-enter the market.

 The QQQ 1 min chart shows the last correction's divergence and is in line now.

 The 5 min chart has taken out yesterday's head fake level and some significant support. 3C is digging toward a new leading negative low.

 The 30 min chart is also showing weakness here. Luckily it's daily chart is one of the strongest of the bunch.

 SPY 1 min gave the early signal that this strength in the early part of the day would be faded, that was your cue to set up positions and short n to strength, that is why I uncharacteristically posted it so early.

 The 15 min chart is reaching for new leading negative lows.

 The 30 min chart here too is showing significant deterioration, so this could be quite a wild shakeout.

The 60 minute chart retains its strength.

So look for this to be a pretty ugly move, when you start doubting whether the market can come back from it, then it has probably done its job.

Some Leveraged ETFs

If you need some leveraged ETFs to take advantage of a trend that I think will lend itself to the use of leveraged ETFs, here are a few ideas, but be careful on the risk management side not to over-correlate your portfolio...

SRTY
DTO
SPXU
SQQQ
SDOW
FAZ
TZA
BGZ
SRS
ERY
TMF
EDZ

Let me know if you are looking for something specific.

Trade Idea DTO (long)

In the sprit of the last update on USO DTO s looking like the kind of trade I like, a high probability/low risk trade/ and timely.

 Here's the hourly chart and if you understood my market expectations for multiple trends/timeframes, then you'll understand that the market can't go very far without energy. Thus the 60 min chart of the Double Short Crude Oil-DTO, doesn't look so hot and that's what I would expect, but if you understand my expectations for the coming days, then the charts below do make sense.

 The 30 min chart is just showing signs now of a relative positive divergence

 Look at the leading divergence in DTO today alone and remember what USO looked like.

 The 10 min chart is also in a spectacular leading positive divergence, indicating heavy accumulation and it s doing so in an area of flat/range bound trade, exactly where it often does.

 The 5 min chart is in a leading positive divergence in the flat range as well.

And the 1 min chart, speaks for itself. I like DTO long right here.

USO Update

Yesterday USO was up, as I expected on tensions between Israel and Egypt. For long term members you may recall the power struggle that I thought would take place in Egypt as Mubarak was more a figure head and the real power was the military, who is the party responsible for throwing him out of power, which they had already planned on doing before the Arab Spring because they pick the presidents from within their own ranks ever since Nasser and Mubarak's succession plan to put his son n power didn't sit well with the military. While the people thought free elections were coming in 6 months, it's become obvious who is calling the shots. I warned to offset domestic uprisings, Egypt would look to create a sense of nationalism and that would probably be aimed at conflict with Israel and this is why I say "Nothing moves oil like tension in the Middle East with Israel". However, we have some interesting USO charts today to consider today.

 The 15 min chart has continued to fall apart.

However, the real damage being done today is on the 10 min chart. Just look at the leading negative divergence created today alone! I think USO is about ready to see some downside.

Other market averages

The QQQ/IWM give us an idea of which way the market is headed from this early afternoon correction.

 IWM 1 min

QQQ 1 min

Both in leading negative divergences

Market Update

In my last market update about an hour ago, I thought the SPY was gong to consolidate or bounce higher intraday, it chose the second.

Here's the update of the accumulation in the 1 min chart from the last update. There's some distribution here, but it's also at a resistance level that could explain it as a consolidation, we'll have to wait and see what price and /or 3C does.

Trade Idea BCS (Short)

BCS is a long term short trade, it may be well suited to long term options. In general, BCS may follow the market path I laid out to some extent last night, except I think it will weaken and see the second shoe drop quicker then the market.

 This is a 5 day chart of BCS-Barclays, although the pattern is not a rounding top, the volume pattern is similar, in any case the volume pattern is not bullish. Nor are MACD and RSI. You can see the volume pick up substantially on the break of the top.

 Here's a multi-day 2C chart from 2006, right now BCS's 3C chart is making new lows despite price being lower in 2009, this is a strong leading negative divergence, the most important divergence on one of the most important timeframes available. This bank is not coming back.

 The 15 min chart showed no accumulation on the recent run up which is now going negative, this is a case of a rising tide lifts all boats and not a short term bullish move n BCS, which means the big boys are afraid to put money in this stock even when they are fairly sure it is going to bounce.

 Here's a more detailed 10 min chart, also at a negative divergence today

 And the 5 min looks the same, it's actually a leading negative divergence.

 The 1 min chart is in horrible shape. Being BCS is up nearly 5% today, it might not be a bad short to intermediate term spec. short play here.

Ultimately if the market does what I laid out last night, here are several possible targets, I would consider BCS a short at nearly any one of them, but I would want either a pure equity short or long term options if available.

Silver/SLV/AGQ

Yesterday I posted AGQ as a trade I liked, I mentioned correlations in GLD, I'm also wondering about them in SLV. Thus far this morning, I DO NOT like the short term action in silver.

 This leading positive 15 min chart is what I really liked about SLV, you can see there's a dip this am on the chart.

 The 10 min chart is pretty much in line with the trend.

 But the 5 min above and 1 min below are looking pretty negative. Out of an abundance of caution, I'm pulling the long trade on SLV/AGQ