Friday was a frustrating day, but we did see some underlying strength and I took partial profits in some short positions on what looked like a market bounce, hoping I might get to re-initiate those shorts at higher levels for 1 more drop.
I think just from a news perspective, there could be a relief bounce based on 9/11 so far, passing peacefully and Greece not defaulting or falling off a cliff over the weekend, but it was not all good news in Euroland, but it seems the worst fears sis not materialize.
Lets get to the charts, there are a lot.
First lets pick up where we left off Friday...
DIA 1 min with some accumulation Friday and in line status toward the close.
DIA 5 min, relative positive divergence or accumulation, but somewhat mild compared to other averages.
The 10-min chart is where the line in the sand seems to be as t is simply in line, this is what makes me think we see a bounce that may be able to be used to short in to strength, we'll have to see how the 10 min charts react this week. Basically, this is the theme though. If the 10 min hart were also positive, it would suggest a bigger bounce, so for now, I look at it as a possible opportunity to sell short in to strength, but these are all still short term, choppy moves in what I believe is a bigger base forming.
The IWM 1 min chart has very good positive divergences.
The 5 min chart shows a relative positive divergence .
And like the DIA and others, it stops at the 10 min chart, suggesting a line in the sand. As I said, we have to see how this chart develops, but as it sits right now, it suggests a bounce that can be shorted in to strength.
The QQQ 1 min is in a positive leading divergence, the strongest type and indicating 1 min chart accumulation.
The strength of that 1 min hart did as it should have and bled in to the next timeframe-5 mins, making it a bit more powerful-the longer the timeframe, the bigger the move. This would still support the idea of a bounce.
Again, the 10 min chart is where it stops.
SPY 1 min chart is also leading positive.
It too did what I would expect and showed strength on the 5 min chart.
Again, the 10 min chart is simply in line and draws a line in the sand on this bounce, until/unless it moves into a positive or negative position.
I looked at the NASDAQ 100 breadth charts as well...
The 15 min Advance/Decline ratio shows some decent history on the moves historically/recently, there is a slight positive look to the A/D Ratio right now on this 15 min chart, although it's not as big as some of the past divergences that have created bounces of 2-days or so, it's still up in the air.
The 30 min chart is really more historical perspective then foretelling much at this point, but again the small positive divergence we see now is nowhere near the size of past divergences that have moved the market for several days.
The 15 min McClellan Oscillator is showing a positive divergence and has crossed up through the zero line, another indication of a bounce in the market.
As you know, my longer term outlook has been we are in the process of some base building in which we may see a head fake new low or some more choppiness up and down, but after that I expect a decent move up that should be at least on a swing trade basis and probably longer. QE3 would have a lot to do with the length of this move up, we'll have to wait for the FOMC this month to see if that is a starter or not. Ultimately n the very big picture, I feel that this will be the last significant rally before the market drops on the second shoe. This daily momentum chart being positive seems to agree with that assessment.
A for the short term bounce, the 5 min momentum chart is also showing a positive divergence, altogether thus far, there's a pretty good case for a bounce early this week.
Other indications of a bounce early this week and the Euro
Here's the EUR/$USD which just opened tonight in green, the Euro is slightly down, which would make the dollar slightly stronger, but a lot happens overnight in FX land.
As for FXE-the Euro ETF, the 5 min chart is suggesting some strength, this would send the dollar down and be a positive environment for stocks.
Again the 10-min chart is simply in line-that line in the sand which could create a shortable bounce.
The 15 min chart has some slightly positive attributes, but it is also a slower hart to catch up, the development of this chart will be key for the week's action in equities.
The 30 min chart overall looks very bad and is in line with the trend of the Euro.
The 60 min chart look even worse, as if the Euro will have a tough time regaining a foothold. The question I have asked for over a month now is, "Will the typical correlations hold?" Weakness in the Euro means strength in the dollar which is negative for the market.
Treasuries...
This is TLT
The 30 min chart is showing some of the same weakness in underlying conditions
The 15 min chart is in line-again, perhaps that line in the sand for a bounce in the market.
The 10 min chart shows a negative divergence, which would fit well with the idea or a risk on trade for a market bounce in the short term this week.
The 5 min chart confirms the same
Volatility-VXX
The VXX trades inversely to the market, so when it is up, the market is down. It is showing a 1 min negative divergence, again suggesting a bounce is in the making in equities.
The 5 min chart is leading negative, suggesting the same as above.
Again, we see it everywhere, the 10 min hart is inline as a possible line in the sand containing the bounce and possibly making it an opportunity to short in to. This is the kind of confirmation between different asset classes that I like to see and is somewhat rare.
The hourly chart and longer term trend, negative. This again fits with the idea of a more significant move up off what appears to be a short to intermediate term base the market has been working on since August.
This is a newer tool, but it is used to judge the intensity of divergences and give us an idea of what they mean in multiple trends/timeframes.
First the DIA Daily, it is important to look at the dates so you can understand the significance of the indicator in the bottom window-here in yellow bars. The white arrows represent areas of accumulation, they can be short term even within a larger distribution trend. The more shallow these bars are, the stronger the accumulation, the deeper the bars are, the stronger the distribution. On this chart we start with accumulation to the left around July 2010, you can see the market distributing in to higher prices until the May/July tops that sent the market lower in early August 2011. You can also see on a daily basis, the accumulation now, seems to be the strongest since mid 2010. Again, this suggests to me the market Acton since the August bottom has been a base forming to launch a move higher.
This is a short term 1 min hart covering about the last 12 days of trading. In red arrows, distribution and tops, at white arrows, accumulation and bottoms. I think we may see a bounce and one more move lower, this 1 min chart seems to be indicating a bounce is coming, but note this is a choppy market and trends up or down only last several days-typical of a consolidation.
The longer term 5 min chart covering timeframes back to July 19th, again note the deep bars and red arrow to the left, this was heavy distribution and sent the market lower early August, since we haven't seen such heavy distribution, only mild amounts sending the markets lower for several days. It looks like we are working on another bounce all the way to the right with shallow bars.
This is the longer 15 min chart, again, compare the shallow bars (accumulation) with price Acton after and the deeper bars (distribution) with the following declines. As I mentioned, this is just to give you an idea of how much accumulation or distribution is present at each move and currently. Just examine the bars and price, I marked them red and green for distribution and accumulation. Once you get a feel for the indicator, you can make some judgements on your own.
This is the daily QQQ, again the bars are pretty shallow right now which is in line with my more intermediate trend idea of the market rising in the intermediate term.
QQQ 1 min
QQQ 5 min
QQQ 15 min
SPY Daily
SPY 1 min
SPY 5 min
SPY 15 min.
These are the daily SPY charts as they develop
Right now, most technicians are looking at this flag. A head fake move below the flag could suck in and trap a lot of shorts for the intermediate term move higher that I expect.
Here's 3C in the flag with some initial accumulation to steady the market from the Aug. decline and some distribution keeping the market in a consolidation pattern.
This triangle or bear pennant was the original formation, which is now turning in to a flag.
The false breakouts from the triangle were clearly head fakes as 3C was negative at both. Perhaps we see one more move up and then a head fake move down to set up an intermediate move higher, this has been my working assumption for nearly a month.
Finally, the daily 3C charts as they relate to the possibility of that intermediate move higher.
a 3C daily positive divergence, you can see the negative divergences (distribution) at the top of the market in May and July. The fact 3C is not leading lower suggests to me this consolidation is more likely to be an intermediate term base.
The NASDAQ 100, also showing a strong positive divergence recently after distribution in the top.
The IWM/Russell 2000 is about in line, no positive divergence, but the fact it is not headed lower is an achievement in itself. It may also speak to the relative weakness that we may expect in small caps when the second show finally drops.
And the SPY daily chart with the top evident in 3C as well as a relative positive divergence in this consolidation formation.
So after reviewing all the charts, my working theory hasn't changed much, I still think the base has a little more choppiness to go, with perhaps a new head fake low, followed by an intermediate trend up which sets up the final top and biggest move down to date.
A for the opening Acton, ES at last check was down 15 points and Asia is getting pummeled, making a bounce seem unlikely, but as you know, we are looking at the underlying action of those that control the market in the short term. The two possibilities are the positive divergences from Friday simply were enough to hold the market in a lateral consolidation or they are preparing a short term bounce. I'm inclined to think we will see a bounce early this week, as early as tomorrow because there seems to be wide confirmation through many assets classes, but I did not close out my short position entirely. I'm still short, as you know I took some profits Friday and am looking to re-enter the shorts on some strength in prices. However, I will confirm this before entering and that will be in my market updates.
