The Mechanics of Short Term Market Manipulation

Here's a quick read, keep in mind it's op-ex Friday

Well, off by $.75

Really $132 was the minimum I was looking for and $132.50 seemed to be ideal. In any case, when you add the premium, most of the $132's expired worthless so the pin for all intents and purposes was just about the same as far as the street was concerned.

Now we have the intermediate intraday timeframe positive divergences to deal with, which makes me thing we rally a bit next week and set up the pins so they can knock 'em over.

You can clearly see some algos were brought to bear on the close, I suppose they brought the market to the range in which they made out like bandits on the options buyers.

 SPY 10 min 3C positive divergene

SPY 5 min positive divergence.

These aren't really important timeframes, but they were not resolved to the downside at today's close, so I'm guessing we have a little upside to come.

Based on the last May Op-Ex bounce and Fibonacci retraements, I'm thinking $134.70 would be on the higher end of the range.

I'll have plenty of updates this weekend so be sure to check in once in awhile.

Have a GREAT weekend!

A Few Reasons BAC may be a decent quick long trade.

Picking up from the last market update

I just looked at the TICK chart, I encourage you to use the intraday TICK hart as t often is a leading indicator for intraday price action.

 Using the TICK chart is as easy as drawing channels and watching for a change in character, also note the recent TICK surge to +1000, this is bullish. Readings above +1250 are rare as are readings below -1250. The TIK chart takes the NYSE component stocks and deducts decliners from advancers and the number you have left is the TIK reading, so the trend up recently fits well with the recent positive divergences in the market.

Today's intraday trade.

We are some distance away from my mid-$132 guestimate for today's close, but as you'll see below, we have 1/5 min positive divergences in effect right now, so we should see some upside from here, how far? Well lets just see, t should be interesting.

 DIA 1

 DIA 5

 QQQ 1

 QQQ 5

 SPY 1

SPY 5

What Can We Expect After Op-Ex Today

This s an interesting question, so I went back to the May Op-eX which was similar in that the market was showing weakness before Op-ex and after, it also wasn't a major 1/4 window dressing event or Quadruple Witching like we saw in June so I figure it's a more appropriate example.

We have a market that is showing significant signs of weakness, but as I said earlier, the game still must be played so lets take a look.

 Starting with the DIA, in June the hourly 3C alerted us to the likelihood that not only would the viscous downtrend that was taking place would soon end, but that we were building a significant base and we'd likely see a rally. We were weeks ahead of the market regarding the rally/short squeeze and the white box is the area that was under accumulation. Since we saw the short squeeze and then some, then the 60 min went negative and we saw a reversal in July. The 60 min chart is still extremely negative so big picture, 'm bearish on the market, but there's still the volatility game and perhaps some very good reasons for it.

 Here's the DIA 15 min chart, a good timeframe for swing reversals on divergences. We saw confirmation of the short squeeze rally at the green arrow as 3C made higher highs with price, whenever you see a green arrow with 3C, it denotes confirmation of the price trend. Then a negative divergence at the red arrow and square on an island candle. Right now we have a 15 min positive divergence, it does not trump the 60 min chart's negativity, but can warn of a counter trend reversal.  Note how price this week has been range bound, likely having to do with options expiration and pinning the market at a specific level causing the most number of contracts to expire worthless.

 The 10-min chart also has a recent positive divergence.

 And so does the 5 min hart, but I attribute this one more to potential upside today to bring the market in to what I expect to be the closing range of $132.50 or n the mid $132 area to pin options.

 Now we look at the IWM and May options expiration on the 20th . Note again the range bound market going in to op-ex Friday in the red square. Actual closing op-ex is at the white arrow. However, note that after op-ex, we had a dip in the market and then a swing up, which resolved to the downside. Why would this occur? Because the market had to remain within a range to pin options, but the locals on Wall Street want to short in to strength and that brief move up allowed them to do so, as op-ex and the range bound market was no longer a concern.

 Looking at an hourly 3C chart of the IWM during the period, we saw weakness by way of a negative divergence in late April, then options expiration in May. There was no positive divergence on the hourly chart around op-ex time because it takes a lot of accumulation to move that chart, but we did see pries advance after op-ex and we did see heavy distribution marked by the hourly negative divergence at the end of the swing move up, then the market resolved to the downside. In June we see the accumulation I spoke of hinting at the short squeeze to come, followed by distribution and a reversal in July. Note the hourly chart remains negative right now.

 Here the 15 min chart shows current accumulation, suggesting we may indeed see a move higher after op-ex, unless it resolves negatively today by the close.

 The 5 min chart is positive too, but I think this s more related to intraday trade.

 Here are the QQQ's at May option expiration in yellow, note the 15 min positive divergence building during the op-ex trading range, similar to harts above now. The large white box was our accumulation for the rally and you can see the red arrow negative divergence turning the market lower and a current positive divergence.

 The Q's hourly hart remains negative in leading status, so the big picture s still bearish.

 QQQ 30 mn postve divergence now suggests some upside after op-ex.

 The 15 min chart tells us nothing.

 The 10 min hart however has turned very bullish today.

 And the 5 min 3C chart

 Here's the SPY at May op-ex, note the 15 min positive divergence then that led to the brief bounce up, then a negative divergence and a resolution to the downside. Currently the 15 min chart tells us nothing about the present.

 Here' the hourly chart I've spoken of that tipped us off to the short covering rally. Note this hart remains negative for the bigger picture.

 The 15 min chart isn't telling us much presently, but called the recent top and in the white box, strong accumulation. Two days before I sad, "The market needs to pullback and accumulate before heading higher", it did so in the white box.

Here's a positive divergence currently on the 10 min chart.

Overall, my take away from this is that the market must be pinned and therefore Wall Street can't sell short into higher prices until after op-ex. The nature of the positive divergences are mid-term on the 10-15 min harts, suggesting enough accumulation to swing the market higher next week (remember the day after May op-ex-the next Monday, the market fell, and was accumulated for the swing move higher).

PCLN Update

Yesterday PCLN made a significant step in the short position by breaking a trendline that was acting as support. Yesterday I showed you a short term positive divergence in this update and said, "we also have a positive divergence and the trendline is likely to be gamed a bit over the next few days." and, "we also have a positive divergence and the trendline is likely to be gamed a bit over the next few days."


This morning PCLN did exactly that.

 Here PCLN hits the trendline on the open and backs off a bit with the market.

 However, we now have a stronger positive divergence on the 10 min chart that has entered leading position. This would suggest to me a bigger bounce that will likely take out the trendline/resistance.

 However, I haven't turned away from my bearish stance on PCLN, it's just the game on Wall Street and it's going to be played. Here we see our current signal candle on a closing basis at the white arrow, a closing candle that has a low higher then the signal candle's high would effectively end the swing downtrend classification, otherwise, the candle would likely be considered noise in the swing trend. Another possible definition of the swing trend would be the reaction high at the candle after the signal candle. A break above that high could also be used to classify the trend.

You could also consider  trailing stop with a 50-bar average on a 30 min chart which has worked well. You could consider taking partial profits here and re-establshing the full position after this likely bounce is resolved. You have to do what you are comfortable with. As I said, I'm still bearish on PCLN and like the position short, however the market rarely moves straight down and we have to have an objective way n which to define the trend and decide what we are willing to risk and where our line in the sand is. I prefer to make these decisions before the event unfold to eliminate emotional decisions, however, you should still leave room for updated analysis which may influence your original decision, so long as it is objective and non-emotional. I have a higher tolerance for risk, but I'm diligent about risk management, my personal choice would be to ride out any bounce at this point, it may just be a 1-day event considering today s Op-Ex Friday.

Swing Trade Idea BPT (short)

I have fond memories of BPT, I bought it back in 2000 for $11 and took t for a long ride, collecting a great dividend around 12%. I thought I was smart when I sold it and then watched it go on to double from where I sold it in the $65 area. As I remember from back in 2000, although I haven't confirmed this recently, the BPT site had about 10 years of oil left in it, I don't know what the situation is now. There's still a hefty dividend of 8.2% so you don't want to be caught holding this short when it goes ex-dividend.

 Here's the weekly chart, with a current large triangle formation, typically these are tops.

 My trendlines may look a little of kilter here, but I'll show you why I drew them this way.

 This is the 3C daily chart, note negative divergences at the red arrows and positive at the white arrows. There were two head fake moves (at the yellow arrows), the first above the triangle, which was met with a 3C negative divergence and the second just before the current uptrend started with a downside shakeout on a positive divergence. This chart shows you why head fakes are important and how they influence price acton.

 Here's the current breakout from the triangle, which I suspect is another head fake setting up the downside and probably making for a good swing trade. The green arrows are the trend, the yellow arrows are noise in the trend. It was just this week we saw the first consecutive pair of noise candles in the trend and noise, while it is not always important, most often precedes a trend reversal on a swing basis. The red arrow is the back of the uptrend broken. You can also see the last 3 candles of the uptrend each showed diminished momentum with smaller bodies until the last day formed a Doji which in itself is a common reversal signal.

 Here's the negative divergence on the hourly chart

 And distribution on the 15 min chart

 The reversal/negative divergence on the 10 min chart

 The same on the 5 min chart

 And on the 1 min chart. Thats' a lot of confirmation.

My Trend Channel has worked well as a swing trade stop-loss guide, even though we have some signals that were earlier then the Trend Channel. However I show it as one of two stops I would consider, the first at the Trend Channel around the $116.00 area, that's if we don't get a gap-fill and the second above the highs of the reversal day at $117.72. Even using the higher stop, the risk on the trade is approximately 2.7%. If this is the false breakout used to distribute as I suspect, then there's a good chance of a water-fall type sell-off making the trade worthy of consideration.

Trade Idea MRX (short)

I'm not a huge fan of shorting bio-techs and you my want to check to see f they have anything in the pipeline that is going for regulatory approval any time soon. Otherwise, this is exactly the kind of chart I find to have some of the highest probabilities.

 MRX (weekly chart) just recently made a 2.5 year high a couple of days ago. Check out the red volume on the failure, it's actually the biggest 1-day volume spike in the trend.

 Here MRX goes for the new high on an intraday basis and can't hold it above resistance, a pretty typical head fake that we see so often before a major reversal, you can almost count on a head fake being there before a reversal for reasons that are not too hard to figure out, they allow the locals to get good positioning, they play on technical traders biases and allow the locals to short into demand without raising any suspicions and the head fake adds momentum to the downside. The swing trend up is clearly broken on yesterday's gap down.

 Most of all, we have good 3C confirmation. This 60 min chart shows distribution at the breakout attempt and is currently in a leading negative position, other then the daly harts, the 60 min is the most important timeframe with the furthest reaching implications when it produces a divergence. When we have multiple timeframe confirmation, it's that much stronger.

 Here the 30 min chart (as with each shorter time interval) shows more detail, distribution appears to have started in June. Note again, the worst divergence is on the breakout attempt.

The 15 min chart which is the shortest timeframe that can produce a divergence powerful enough to cause a reversal, is also in confirmation with the worst divergence again at the head fake breakout.

I don't know if the gap gets filled, it would be best if it remained unfilled as a breakaway gap, but even here at $38.54, this looks like a decent short position, even using a stop at the recent intraday highs of $40.51 with less then 5% risk on the stop (this is not to imply the 2% risk rule shouldn't be followed through position sizing).