The Game Plan

This is my theory on what happened today, continues to happen and where it will likely lead tomorrow, this is based on watching the trade today and the 3C signals.

Here's the FX market thus far...

It's down and heading toward the lows of today's intraday trade, but notice the bounce right now.

This weekend we had some good news from Greece and some offsetting bad news from Italy, during the day, it was pretty slow, I showed you the two levels of support and resistance we are currently trading between, the news was neither sufficient to break support or come close to testing resistance, but it was a nice low volume day and if nothing else is going on in the market, why not set up a run? 3C on the ES chart shows accumulation in the white square, I mentioned market accumulation around that time in the SPY and others, note the volume is pretty low which is typical in accumulation areas.

Then we get a big break in prices, not too hard to create on a low volume day and everyone including myself are looking around to see what's going on, not much, but traders assume something is and they love to chase momentum, thinking the market knows something they don't on a price move like that. The volume you see in the yellow box is NOT smart money, they already accumulated, that's the effect of mark up or chasing momentum by dumb money. The FX correlation in green during this time is pretty spot on with the EUR/USD and when we hit the red area, 3C goes slightly negative, there's no more higher highs and the whole zone looks like a churn and burn area where smart money made their gains on the way up, now they are handing those positions off to weak hands and in effect going short. We see the negative divergence in 3C and we get one final price pop right around 5:15 or the time want-to-be traders get home from their day job and see the action on the day and jump in the market (remember ES effects the SPY trade as well, it's not just ES traders-for that matter, the entire market pretty much moves together). All of those trades at the highs are at a loss already and on ES, multiply the price by 50 and you have 1 contract so the little dip is actually a pretty big loss. The correlation in AH turns negative as FX rallies, the EUR/USD correlation completely flip flops and whatever rally there is in FX is ignored as ES is pushed lower, at this point below the closing prices.

If this is accurate and I don't have any big doubts about it, then ES should continue lower through the night, if that happens and we gap down in the a.m., then smart money who would have gone short near the close at that level of churning in red, made out pretty well for a day that was otherwise not going to produce much.

We'll see, but wouldn't that be an interesting lesson in the market? I've seen and participated in much worse so it's not too far fetched of an idea for me.