The Wrap

Lets start with tonight's Price/Volume relationship, there was no dominant theme, but a lot of averages saw Price Up/Volume Up, which is usually the most bullish of the 4 relations, we saw it yesterday as well, but it didn't materialize in to much-The Dow up less then .50%, the NASDAQ 100 up .15%, the R2K down .17% and the S&P up .50%. The point is the relationship didn't really make much of a difference and at this point it probably has more to do with short covering then anything, just lke I thought several days before options expiration. They took out the calls on Friday and the Puts probably saw many shut out this week, it was a pretty smart set up.

As for Morningstar Industry and Sub-industry groups, out of 239, 172 closed green. Considering the Dow jumped over 150 points in the first hour of trading, today was no victory, but hopefully you used the strength to get short, that's why I posted the non-confirmation of the open so early, it was just a matter of time before the strength was faded. The non-confirmation and negative divergences to follow showed smart money wasn't buying, they were selling and probably selling short.

I have been trying to create an indicator that shows the seriousness of a divergence, I'm not quite there, but I have something that I think is pretty close. Remember my last post about scenario 2..., this new indicator, which is admittedly rough, may shed some light on the situation as it stand tonight. I hope this is more helpful then confusing...

 This is the 3C 60 min chart going back to the Market bottom where the March 2009 rally started this uptrend. The red represents the amount of accumulation or distribution on the chart. There's a moving average in blue, generally the shallow peaks that fall above the moving average are accumulation areas, the 2009 bottom was the heaviest accumulation. If the chart was better, the accumulation periods would be above the -100 line, but this is what I have so far, so the moving average best represents them. You can see a long period of accumulation at the 2009 bottom, the yellow lines that mark red areas that fall below the moving average at peak dips represent distribution and reversals down. I use the yellow lines to mark minor and major tops and show the relative level of distribution and the white lines to mark accumulation areas and the red shows the relative level of accumulation. Note the recent August sell-off was preceded by deep red distribution and the second most shallow red area (after 2009) represents the current bottom we put in. Remember 3C was calling for a bottom as the market was still falling, so this level of accumulation is pretty significant within this 2+ year rally's trend.

 This is a 30 min chart, you will notice that the relative levels of distribution and accumulation don't change very much in different timeframes, there's just less history.

 This is the 15 min chart, here we can start to see the the last two accumulation events in white at the right, the first was 3C calling for the end of the August downtrend, then there was distribution at the yellow marker which was the pre-option expiration sell-off that I mentioned the Wednesday before Op-Ex Friday, the slightly deeper last yellow line is where we are now so you have some idea of the relative distributuon from the August op-ex week and now. While the distribution now is heavier, it's nowhere near what we have seen in the past and one of the reasons that I have been saying I expect a move down to create a head fake or something similar, but not a new trend down, there just isn't enough distribution, especially compared to the distribution present at the start of August when the nasty downtrend took place.

 This is a 15 min chart that I'm using to try to give you some idea of what the above chart looks like.

 This is the 5 min 3C chart, again note the two tops that started the August downtrend in yellow at the left, then the shallower white areas that represent the halt of the downtrend and the accumulation after op-ex Friday. The last two yellow markers are the sell-off on Thursday of August's op-ex week and our current position.

 And here's a similar timeframe chart so you can better see the price action

 This is the 1 min 3C chart showing the sell-off on August Op-Ex week, the accumulation after and our current position, which has more distribution then the August Op-Ex sell off, but still much less then seen before the early August downtrend.

And here's the relative positioning on a 1 min chart.

I hope this gives you some idea of the amount of distribution we are looking at now compared to the past, t suggests a sell-off perhaps a little deeper the the Op-Ex sell-off of Thursday and Friday, but nothing like we saw before the early August sell-off. Taken with my post last night and my last post tonight, it should give you a better idea of what we may be looking at. If you look at some of the longer term charts above, you can also see how relatively shallow this area is and why I believe we could see a decent rally after this current sell-off finishes. After that is when I envision the second shoe to drop.