After Hours

Now you can see the effect of the positive divergence at the end of day.

 Here's the 1 min ES with the EOd positive divergence, it has lifted prices in after hours a little, but those are already being distributed.

Here's the SPY in after hours with the EOD positive 1 min divergence which sent pries higher in AH-still significantly down on the day, and you can see distribution of even that slight price rise.

The Euro is slightly higher since 4 p.m.

I'll be posting more updates, but right now I have an hour drive to the Apple Store-wish me luck!

EOD Indications/ Big Picture

We'll start with the short term charts-which effect short term movements and as all of these harts and timeframes can get confusing as to what they mean, we'll take a look at the big picture so you can get a feel for how things fit in to place. Just remember that 3C is showing the underlying "smart money" movements and as such will almost always contradict price as what you see in price is usually not reflective of what smart money is doing behind the scenes. To understand this, you have to understand the difference between the trades you make every day and how Wall Street is forced to trade.

Most of us can put in our orders, even large orders (our perspective) and we don't move markets with our trades, we are a drip in the ocean. However Wall Street cannot trade the same as we do, they are dealing with much larger positions. For smart money (Wall Street, institutional money-whatever you want to call them) to enter a trade, they have to phase in to the trade in bits and pieces over a longer time period. If they tried to place their full order in one pop, they would move the market against their position in a huge way-perhaps 10-15% in a day! So they need a few things to enter/exit trades and when you understand these things, you'll understand a bit more about how Wall Street works and how 3C signals work.

Assume I want to enter a 1000 share order in the SPY, I may move price against me a bit in getting a bad fill, but I'm not moving the SPY for more then a few brief seconds if that. When smart money is placing orders they are so big that they have to be done in pieces over time and they use market makers or specialists to fill those orders. For a purchase, they need a lot of supply being offered, this usually can be found in a falling market or a flat range bound market. A move below an important technical area that creates a lot of sell side volume is another way to get shares without moving price against them as they are taking the other side of the transaction and not visibly adding to demand.

To sell, they need demand and this comes in the form of rising prices, a short squeeze also creates demand as shorts cover (buy) they can take the other side of the trade and sell. An upside head fake that breaks an important price level will draw buyers in to the market and give smart money an opportunity to take advantage of that demand to sell in to. This is why head fakes are so common right before an upside or downside reversal. As mentioned, this also takes time, there's only so many shares traded a day and the last thing they want is to place an order that effects the supply/demand dynamic and moves prices against them. Think about these dynamics as you look at the charts, especially the long term charts at the bottom of the post.

First, the end of day indications.  Don't let all of the annotations intimidate you, I'll explain them.

 DIA 1 min This is the shortest timeframe I track and has the least amount of influence on price, usually it moves the market intraday, if the divergence is long enough or strong enough (leading divergences are stronger then relative divergences) it can have a longer effect. The longer the timeframe, the more important it is to the overall trend. First look at the white arrow to the far right, this is the end of day and it is a slight positive divergence. Why it may not be complete as the market closed, as it sits, it will do 1 of 2 things, either move the market intraday like a bounce, or it will send the market lateral in a time based consolidation rather then price. You can see since it started the downside momentum turned in to a consolidation through time. To the left is a red box, this is a leading negative divergence as price makes a relatively higher high, but 3C is moving down. This is short term distribution of today's lateral trade and led to the late day sell-off. The red arrow shows the price high yesterday at 3 p.m. and this negative divergence kept prices in place, the move up ended. I placed a yellow arrow over price too, which signifies the churning I have mentioned in previous posts. Churning can also be used by smart money to sell/distribute shares or even go short, especially if the churning volume is high. The white box with the white arrow to the far left shows intraday accumulation of the lows, which sent price higher. Sometimes it is essential for them to not allow price to fall as they have more shares to either distribute or sell short in anticipation of a downside reversal-both distribution and selling short are sell orders. However, I pointed out that area so you can make a relative comparison between price at the close today as well as 3C compared to that area and what you will notice is price is higher now then it was at the lows in the white box, however 3C is much lower. This shows you that the move up in pries was used to sell, whether distribution of shares or selling short. So the two things to take away from this hart are the distribution into strength and the end of day positive divergence suggesting a short term correction after such a steep afternoon fall.

 This DIA 15 min chart is showing very bad distribution during the rally by smart money. A 15 min chart negative divergence alone is often enough to turn the market, when longer term harts like 30-60 min also are negative, it is showing the market to be in worse condition as the distribution is even heavier as well as their short selling, which of course implies a nasty downside reversal. The red box is there to highlight the leading negative divergence has hit new lows and is far below where the rally first started on the 4th. Considering prices are nearly 11 % higher then the lows of the 4th of October and 3C is lower now then it was then, this implies to me that not only has Wall Street distributed all of their long position that was accumulated before the rally started, but most likely they have a huge short position already in place as well. First they accumulate/buy shares before the rally starts, then they sell them (distribute) in to the rally's strength, then they short the market for a reversal down. So in terms of distribution, they can't sell their position like we can at say $114, rather they start selling shortly after the rally starts (once they prices have moved above their average accumulated position), so their final exit will be an average determined by how much they were able to sell at each price level as the market moves higher. It's not selling at the highs, but when you consider how many shares they had, they make a nice profit.

 IWM 1 min shows distribution between yesterday's close and today's early morning trade and notice it is at the price highs. Again, this is most likely short selling at this point. The red box shows a leading negative divergence as the market traded sideways (lateral trade is also an area where they are very active as it provides stable average prices). At the end of the day, after the late day decline, there's a relative positive divergence at the white arrow and notice how prices lost the downside momentum.

 IWM 5 min chart (this is more important then the 1 min chart above). Here there's no sign of any end of day positive divergence which tells us that as of the close, it wasn't that big. The area in white is offered as a relative comparison between that area and today's close. Once again, prices right now are a bit higher then the white box lows, but 3C is making new lows. This tells us again that price strength was used by smart money to sell in to.

 QQQ 1 min-At this point you should notice that different versions of 3C and different market ETFs are all giving similar signals, that is the type of confirmation I look for. The late afternoon sell-off once again saw a positive divergence that killed the downside momentum. Partly because we are near a support level where buyers will enter the market, possibly sending the market higher in an intraday bounce, which they can play long and then sell short into again to add to their short position.


 The QQQ 2 min chart, which is slightly more important also shows this end of day positive divergence. The red arrow shows price being distributed in to the highs, which were also a head fake move highlighted in the yellow box. The white box is for comparative purposes. Price is about equal now to the lows in the white box, but 3C is making a new low, showing there is more of a negative money flow now (probably because of short positions added).  If all things were equal, 3C would be at the same level depicted in the white box.

 SPY 1 min-is the same explanation as above.

 The 5 min chart which is more important to the longer term trend is making new leading negative lows, which also tells us the end of day positive divergence wasn't that strong, otherwise it would be reflected on this chart. Compare where price is now to the lateral red arrow-much higher now, but look at where 3C is compared to Oct. 4th. This tells me that the position accumulated at the white arrow has been completely sold and likely they are heavily short. Looking at price alone, you would never know this, that is why I say 3C has the power to contradict price and show us what smart money is really doing.

 This is ES (E-Mini futures, about $60,000 per contract) which trade 24 hours a day during the trading week. We see distribution in red during the trading day, price falls significantly and an end of day positive divergence.

 The longer term 5 min ES chart also shows longer term distribution and an end of day 3C reading that is not positive, but inline with price, meaning following price.

 ES 15 min-shows longer term distribution at this top, the green box shows 3C confirming today's price decline.

ES 30 min, we see accumulation sending price to it's high and at that high, there is distribution. Just as  said, they sell in to demand and in to price strength to get the best average position. Today we also see a negative divergence and price react badly, falling in the afternoon. 3C is leading price lower at the close.

Here are the long term charts. Remember, an hourly divergence is very strong and we don't see them very often unless a big move is coming.

 Compare price and the corresponding 3C level at point A and B, price is higher, 3C is much lower. The long term trend is showing a lot of distribution in to this last rally-which is a mix of selling their long positions and going short.

 IWM hourly in green shows confirmation of the downtrend as 3C makes lower lows with price. Compare points A and B and where 3C is in relation to each-currently leading negative.

 QQQ hourly. This is an excellent example of how this latest rally has been distributed, look at points A and B and notice how much lower 3C is and in a leading negative divergence. Even though price has made a new 10 week high (likely a head fake as it moved above point A, 3C is moving toward new lows. I believe the last 10 weeks have been used in part to accumulate for the current rally and it has been distributed hard.

We see the same in the SPY 60 min as price is higher then point !, 3C is lower and in a leading negative divergence.

It's my position that if we were seeing price pullback over the last few days for a new leg higher, we would see accumulation of the consolidation/pullback, instead we just see more distribution. I do not believe this is a consolidation for a new leg higher.

Study the charts, they will tell you a lot about how the market works.

Market Update

 And here's a little intraday support as I'd expect at the ascending wedge area, it actually broke, but is being tested and often lingers around the area for a bit.

 SPY 1 min shows the intraday positive divergence near the support area

 SPY 2 min longer term relative negative divergence.

 SPY 5 min leading negative hitting new lows for the entire rally.

 SPY 15 min is the strongest or was the strongest chart, it looking like this is significant.

 We have to remember, it is not that often that 30/60 min charts, above and below go in to leading negative divergences.

While there's a lot more that I want to look at with some time, I would say this to those wondering if this is a pullback/consolidation for a move higher. If that were the case, the point of such a move would be to accumulate shares for a move higher, I don't see any signs of that happening. If you were able to enter/add to short positions this week, I'm a little jealous.

Crude/USO Update

As mentioned earlier, the Euro will have to move a bit before crude moves, in this case though, crude seems to be discounting ahead of the Euro-bad news by the looks of it.

 USO just about took out the last 2 days' trading range in about 60 minutes.

 Yesterday I mentioned churning across various assets incl. the market, here you see it in USO in the white box. Note the candles all have long upper wicks, telling us higher prices are being rejected and on a heavy volume spike-churning like this is rarely bullish. The FXE/Euro comparison is in red, you can see USO is seemingly forward looking in discounting as it broke the correlation and headed much lower then the Euro.

 3C 2 min shows not only the churning in the white box with a negative divergence, but also a local head fake. In green is inline trade and we have a small positive divergence as you might expect with a drop of that magnitude that quickly.

The 15 min chart is starting to look a lot worse and is leading negatve.

I'll get to the market in a minute.

OP-EX Friday

This is REALLY FRUSTRATING! you know yesterday my track pad was like "Ghost in the machine" on my MacBook Pro, so I bought a mouse to fix the issue and waited at the AAPL store last night for 2.5 hours to get ZERO help. Now even the mouse is wondering around the page. Very frustrating when trying to capture charts and post, but that's my problem, just venting to my sympathetic Wolf Pack.

So Friday is Options Expiration and I figured it's time to look and see where there may be a potential pin and I found something altogether different.

Take a look at the SPY Call/Puts in the option chain....

Calls....

Puts.....

Do you see what I see?

On the calls, there is very little open interest below $115 with the PUTS there's very little open interest above $122. So clearly the option buyers have been bullish.

By my rough calculations, a close below $122 on Friday will wipe out 1.2 million calls and add to it if the SPY moves down. The open interest in calls below $115  average around 35k per level, so you an see where the incentive is on the calls.

As for the Puts, a close below $122 wipes out over 5 million contracts, so they can take price down several points still and wipe out a lot of contracts. Puts over $125 average around 20k contracts at each level so they con't lose much. Again, I don't know where the pin would occur, but taking the market lower is more beneficial then higher by a pretty wide margin. Of course you could really look at each level just below $122 and probably find the max pain, but this is one time when the bets where all lined up in such a way that it seems that the crowd may be way off base and cluttered together in an area that makes them a prime target.

If any of our options traders take a closer look at the chain and have an opinion (as I see it as kind of a wash when looking quickly at is), let me know what you come up with.

Market update

 This is the waste of time  was talking about, we had negative divergences so in my impatience, I just want to get on with it, but make no mistake, the market moving sideways which is very boring and seemingly meaningless, absolutely has a purpose. Remember what I said, tops are a process, not an event. That isn't a slogan, it's an explanation. Think about why this is true-it's true of bottoms too. If you remember my post about the very powerful SPY 15 min chart and how we ended up getting such a sharp rally from a "V" bottom/reversal (which is an event, not a process), then you'll understand why such a "V" reversal to the downside is not/was not likely. Think about it.

 Here are the near term important levels in the market, we are nearing a head fake on the ascending wedge-when you are considering the question above, remember the head fake on this ascending wedge, it is part of your answer.

 SPY 1 min leading negative divergence.

 SPY 5 min the same.

SPY 10 min, the same. Impatience is not a good trait for a trader, but I want to see my members making money, not watching grass grow, but it's all part of the process.

Gold Miners

When the market exits this chop, we will start running the back tested Gold Miners trading system again. The average trade needs 8 days in that system and until this last rally, that has been impossible to find over the last 10 weeks.

GLD will also largely be determined by Gold's actions so I'm not going to get too heavy in to the analysis when a lot depends on the unknown.

 GDX daily-a decent leading positive divergence

 GDX 15 min also a decent leading positive divergence, shorter timeframes don't have much of an edge right now.

Here's a possible pullback area, and if gold breaks down, we could see an initial move in GDX lower, but one thing GDX has that gold doesn't is value (meaning relatively, gold miners are very cheap).

This is a major trend trade that I have expected for awhile and should gold head even higher, then I would expect that to help GDX. GDX is gold miners, they own gold, it's just underground and relatively speaking, the last time I checked, they were trading at a significant discount to gold, somewhere around the equivalent of $350 per ounce of proven underground reserves-that's a big discount.

Oddly miners use to always lead gold, now they lag, however I think that has to do with the continued printing and dilution of the dollar's buying power. People quite simply want to hold gold when we are in a dollar deflationary period like we have been in over the last 2+ years. Furthermore, there's a sort of Y2K survival crowd who see the world's turmoil leading to a collapse of the fiat currency system, I think that is unlikely as Central Banks start to become irrelevant in that scenario and we all know who the most powerful American is (he's thoroughly caucasian, bald and has a beard), perhaps the most powerful individual in the world and that artel is not going to let go of that power after all it took them to get there. However, the buying of gold by many central banks does make one wonder if they see a change in the fiat system on the horizon?

As for GDX, I'd wait a bit until there's a solid edge.

GLD/Gold

GLD/gold is a different story then SLV/Silver. It use to be that gold and silver moved inversely to the dollar, then they seemed to lose the correlation. See the chart below and if you study it carefully, you will see breaks in the correlation.

 GLD vs UUP (USD-red)

Silver is a different story then gold because silver has been suppressed for a long time due to JPM's inherited short position from Bear Stearns, which was and may still be huge. I remember not too long ago the struggle between Blythe Masters of JPM and the silver vigilantes led by Max Kieser. For nearly 4 months, $30 was the line in the sand and the level at which, once broken, it was assumed JPM would cover their short. Silver did break that line in the sand mid Feb 2011 and promptly headed up to $48 on what was assumed to be JPM short covering, but whether it was or not, I really don't know. All  know is word came down-I'm guessing the "FERAL Ra Swerve" (you know who-I don't want to be tagged by their ease dropping programs running all over the web) most likely sent word to the COMEX to kill the rally in order to protect JPM from massive losses and the COMEX did it's duty like a good solider and killed the rally with 5 sequential margin hikes at the pace of about 1 every 2 days (and the volatility excuse didn't hold because they kept raising margin even after the rally was dead).

Point being, the historical ratio of what's in the ground between gold and silver and price would mean silver was still undervalued by at least 40%. So while gold is in my opinion, in a bubble (which can last a lot longer), the manipulation of silver never really allowed such a bubble to form, and that's why they look different in my opinion.

 This s the long term 150-day m.a. which historically over the last few years has been a fool proof place to buy. However the decline to the moving average this last time was so sharp (unlike past declines to the average) that I have felt GLD needs to consolidate along the average and prove it can hold it.

 There aren't a lot of important charts here, not a lot any way. The 1 min shows GLD when it moved a little too far away from the average and I expected a return toward it, this negative divergence started that move back toward it.

 What is a bit scary for gold longs is this 30 min chart which doesn't look good.

The 60 min chart also has a slight negative bias at a time when  would thing accumulation would be sending both higher. So it all comes back to what I originally thought, GLD needs to consolidate very lose to the 150 day moving average, that's where accumulation would occur and just as important, it needs to hold the average.

My fear (if I was a long gold trader) would be that this 150-day moving average buy area, is so well documented now that it only makes sense to send GLD below it. What would be difficult is distinguishing between that being a head fake move or the start of the gold bubble popping. Since GLD hasn't behaved like I would have preferred, to me, this scenario is very much up in the air. Taken with the COMEX's ability to hike margins anytime for any reason, I personally don't feel safe trading gold. After all, the central banks are buying it, why wouldn't they want to buy it as cheaply as possible?

SLV/Silver Update

I really don't like trading the PMs because they are so unpredictable as far as the COMEX goes and that power to raise margin and send PMs lower (When is the last time they cut margin rates?) has only been consolidated under Dodd-Frank legislation.

It certainly makes you wonder what they are up to and there are a lot of theories.

Any way, fundamental surprises aside, here's the update.

 There are two distinct stories going on here depending on the timeframe you are trading, the short term and intermediate term. The 1 min chart above shows SLV getting ahead of itself and responding well on the downside to 3C negative divergences, it tends to rise and fall rapidly on the negative divergence as you can see in the white boxes.

 This 2 min chart's white box represents accumulation under a leading positive divergence about the same time the market was under accumulation, there has been a pretty bad 2 min negative divergence suggesting some downside near term or perhaps consolidation which is taking place now and since the divergence started around the 7-10th of Oct.

 Here's where the story changes to the bullish side at the 5 min chart. The fall/negative divergence was clear, now we have a clear positive divergence as well.

 15 min-The trend is defined well here with a negative at the top, confirmation on the way down and a strong leading divergence through out what would be called a consolidation on this larger view chart.

 The same is seen on the 30 min above and 60 min below.

I think the short term negatives are probably small pullbacks within this range and/or consolidation patterns, but longer term, it looks like silver wants to move higher, which is a little strange as it is more associated with Industrial production then a safe haven from fiat currency, but who knows what s happening at the central bank level, they may be stacking their vaults with PMs. The scary question is why?