Timing Irony

Again, this week's analysis starting with Sunday as to, "What to look for in the coming week/s" and "What is important and what is just a sugar rush" and culminating in my last post in which Is showed the current dislocation between the markets and FX/Credit has just manifested itself in to downside risk and that Friday short is now really making some money.

As far as I know, there hasn't been any news, at least yet, which means the market would be aggressively de-leveraging and heading toward the 2008 crash scenario that I have said over the last 2 weeks, "We seem to be in that phase".

Here's the SPY/S&P and why what just happened is important and what s likely to happen next.

 First I want to point out a simple indicator everyone can use, it's the lost art of "Volume Analysis". Quite simply put, there was a heavy volume spike around 10:40 a.m., the corresponding price candle had a very small body which meant price didn't move much on very heavy volume, in fact the total move for that 1 minute candle was only -.03%, which is nearly flat. Being volume was so heavy, this would lead me to believe that there was a churning event at that moment, which is when strong hands, usually institutional money, pass off their shares to weak hands, retail traders who saw an early morning bounce and chased it-THIS IS EXACTLY WHY IT IS OFTEN SAFER TO GO AGAINST THE MARKET TREND THEN CHASING IT, especially if you have good reason to. In the near future I will concentrate more on bringing you more information on volume analysis. With thousands of exotic indicators, each claiming to be the next "Holy Grail", simple volume analysis is the most useful and most underused tool technical traders have. In addition, MACD, which I use a very long version of (26/52/3-which reduces noise and uncovers trends) was in confirmation of the trend losing momentum.
As for stops, I always say, "Don't put them at obvious levels and try to keep them mental so Wall Street can't see them". The huge uptick in volume as morning support was broken was largely due to stops being hit as well as short sellers jumping in the market, they would have been much better off selling short at higher levels with much less risk.

 As you can see, the triangle that EVERYONE is talking about, is breaking to the downside, I talked at some length about this last night and encourage you to revisit my comments when you have time.

 Here's the daily S&P-500 as of the capture time and as I mentioned last night, a closing candle (the way price is represented on the chart-Japanese Candlesticks) that has no lower wick is often a candle which will see follow through selling the next day, I also talked about that last night.

This raises the stakes that this top may be about to be broken and put us that much closer to a 2008 sell-off, however, be aware that significant technical breaks often see price test the former support level that was broken and there is often a lot of volatility around these areas as price lingers near them. How the market closes will tell us a lot more about where we are in the process.

 The 5 min 3C chart continues to confirm the price action after breaking lower on a negative divergence yesterday.

Ultimately, no matter what the market does, even if it makes a substantial run higher over a day or several days, this long term 3C chart of the SPY shows the underlying condition of the market, much like credit as I showed you before, except this is Institutional money and what it has been doing, which is fleeing this market on the long side and likely putting on very large short positions. This is a negative leading divergence in 3C which is the worst kind and tends to pull price to it, so the longer term (meaning anywhere from right now to the next few weeks) is very, VERY negative for the market.

If you are a longer term trader or even a swing trader, the tactical entry is not great here from a risk perspective, but from a longer term view, we have a lot of potential downside and we are really not that far off the highs yet, so when you look at the forest, no one has missed the bus.