I have a feeling I think know what this is all about. We have to go back to my market expectations posted over the last week or two. I expected the market to head down to suck in shorts, but ultimately, after that, I expected a "break neck" move back up on short covering. Then once we were back up, the market would start to distribute for the second shoe to drop. How long this part of the process takes depends on a lot, especially if the Fed announces some sort of QE3, it could be months. However, ultimately the second shoe to drop would be the BIG plunge. Remember, I said, "
We have to watch THIS move down for accumulation", so as the shorts are being led back in to the market, we would also expect to see accumulation for a move much higher. So seeing accumulation even here, would make sense as the institutional money knows that the move up after this move down, will ultimately be much higher then positions accumulated even here. And also remember that accumulation occurs in to falling or flat prices.
We don't know how low the market has to go to gain the confidence of shorts, who will be extremely important in sending the market higher on the next cycle through a short squeeze. I just never expected that accumulation could start so soon, but with the NFP number as bad as it was, it's starting to make a little more sense.
Here's what the process looked like...
Here's the triangle that everyone is watching, the idea was a move into or below the triangle to suck in shorts, maybe even a new marginal low. Then a move significantly higher at the green arrow, I've speculated that it could hit the mid $130's, but it could even hit new highs, then the next red arrow=the SECOND SHOE to drop, or the BIG decline. So far I don't think we are in a technical spot to get the shorts back in the trade, but the NFP # being as bad as it was, may have done that work for us without there having to be a huge move down.
Here are the complete 3C chart updates.
DIA 1 min-Here we have a positive leading divergence-accumulaton, there's a small distribution area as you can see.
DIA 2 min A positive divergence off the open and a leading divergence-again a small area of distribution likely sending DIA lower intraday
DIA 5 min a positive divergence on the open, sending DIA higher, it's basically turning negative intraday
DIA 10 min a opening positive divergence and a leading positive divergence, also intraday is turning negative
DIA 15 min in line on the open, but a small positive divergence that is leading.
DIA 30 min Pretty much in line, but within a leading negative divergence-this chart would suggest to me that there is more downside expected, unless even the NFP number was way below Wall Street's expectations, but as I posted yesterday, the 3C action seemed to indicate Wall Street knew what the NFP would be, why else would they distribute so heavily into an unknown?
DIA 60 min in line
IWM 1 min a slight positive divergence on the open, the IWM looks the worst, now leading negative. SRTY and TZA should be good performers.
IWM 5 min a opening positive divergence sending IWM off the opening lows with a leading positive divergence-although it has to be taken within the context of the larger picture which is still negative.
IWM 10 min A leading negative divergence, but some hint of a bit of accumulation
IWM 15 min A leading negative divergence, again with some hint of accumulaton-remember they have to do it quietly, they don't want anyone catching on to what they are doing so it will be in small pieces at a time to form a average position cost. I would trade the exact same way f it weren't for the commission costs, which are a non factor for institutional money.
IWM 30 min this is a nasty leading negative nearly making new lows on the chart
QQQ 1 min A positive divergence on the open, sending the market higher, now a slight negative leading divergence-the Q's are the second worst looking average, so tech should be a short that is working well.
QQQ 5 min a positive divergence on the open and confirmation as of the time of the capture.
QQQ 10 min the distribution that led to this sell-off, confirmation at the green arrow and some positive divergence, even though it is within a larger negative leading divergence context.
QQQ 15 min A new low for the negative leading divergence
QQQ 30 min the same for the 30 min
QQQ 60 min and the same for the 60 min. This would lead me to believe that there will be more downside, but I believe they know that they can't go too far with this leg down without starting an avalanche, so t seems they have started to accumulate quickly already as they start to cover some shorts.
SPY 1 min Confirmation and a slight leading positive, that has since gone a bit negative since the capture which was 45 mins ago-I had a lot to capture.
SPY 2 min confirmation and a negative divergence, I just checked the action right now and ths negative divergence has led to lower prices as I would suspect.
SPY 5 min the same more or less
SPY 10 min some 10 min accumulation
SPY 15 min a leading negative with a brief round of accumulation.
SPY 30 min this long term chart is at a new leading low, so I do think there's more downside, but we should expect to see bouts of accumulation in to lower prices.
I think the original theory was correct.
