"The market averages themselves were slightly negative as I posted today, most damage was intraday and halted at the 5 min chart so we didn't see massive distribution, but enough that a pullback in the market is certainly a possibility. There was a little better tone in the intraday timeframes toward the close in the SPY and DIA, however the QQQ/IWM didn't see the same, but overall the tone on the day seemed like there was selling in to price strength above the SPX's major resistance area, which would make some sense as nervous shorts would provide the bid."
The bold part is the most important part, as noted yesterday, there was some intraday 1-3 min charts seeing some negative divergences, but they could not reach the 5 min chart where it would be slightly more serious, keep that in mind as well as the comments about the DIA/SPY's late day action as you review the market update charts below. I'm trying to give you a little larger view (up to the sub-intermediate trend as that is what we are dealing with right now, the primary trend is as you know, much uglier).
If you are a new member this explanation may help, other members know what we were looking for based on the longer term 3C charts and thus far we have seen exactly what we were looking for.
On a daily chart of the SPY, the market formed a top, it then broke below the support of the top and formed a bear flag/pennant which is a bearish consolidation/continuation pattern. This means technical traders would be shorting the pattern in anticipation of it breaking to the downside and starting the next leg down which is usually about the same size as the first leg that formed the flag-pole portion of the bear flag (which can be seen in the lighter red trendlines and highlighted by the red arrows). 3C went positive on 15, 30 and 60 min charts going in to this flag so we expected the flag to put in a head fake move to the downside and then a solid (very strong move) to the upside that would eventually pass above the tops former support (as of Friday it was still resistance, yesterday and today it was broken through on the upside and becomes support). This area is where the short squeeze intensifies (green box). You can see two head fakes from the triangle (A Crazy Ivan shakeout), but the most important was the downside head fake move that suckered in new shorts as it gives the upside reversal more momentum. So thus far everything has gone according to plan. The only thing left is 1) the short squeeze could and should be much stronger, meaning we should see quite a bit more upside before this is over and 2) So long as there isn't Central bank easing (which may in fact be why we see such strong positive divergences), ultimately we are looking to short in to the highs in preparation for the next PRIMARY trend leg down. "IF" the F_O_M_C announces some sort of easing tomorrow, the whole game changes, but that's another subject outside of the scope of this post, but we do need to consider "Why have these positive divergences been so strong? Simply a short Squeeze maneuver as short interest was hitting multi-year highs or is there a leak re: F_O_M_C policy that will effect the market bullishly?"
This is a 1 min chart of the SPY above the major resistance area we expected to see and this we expected while the bear flag was still forming and before it broke to the downside- between the 3C signals, the predictability of technical traders and thus the predictability of Wall Street's reaction, we expected all of these things to come back in mid-May (maybe even earlier).
Intraday updates and the bigger sub-intermediate trend picture...
DIA 2 min negative divergence this morning, this "Could" lead to a consolidation or a pullback, but as mentioned, we aren't seeing strong distribution signals as the negative divergences have been contained to the short intraday charts of 1-3 min, meaning there is likely some selling in to strength, but it's not strong selling. Thus far the market hasn't reacted to the downside, but the divergences are still there. Keep in mind that we are above the level in which we expected a short squeeze to start and that is likely a large part of what is driving upside momentum.
DIA 3 min with the late day positive divergence mentioned last night and copied from last night's post above at the start of this post.
The DIA 5 min is still in line with 3C/ trend confirmation, as mentioned yesterday, there's not much damage to the underlying trade as neg. divergences are halted at the intraday timeframes.
Bigger picture, the 30 min DIA chart from when it went negative at the May 1 top to confirmation of the move down to a positive divergence as the pennant portion of the bear flag developed. We also see a large positive divergence as the market broke under the pennant as technical traders would expect, confirming our view that the move would be a head fake or bear trap, since the DIA has moved higher in a leading positive divergence that is above where 3C was at the May 1 highs. For newer members, a positive divergence, especially a leading one, on a 30-60 min chart is a very strong signal, don't let the 30-60 min timeframe fool you, we are talking about sub-intermediate to intermediate trends being effected.
ES 1 min intraday today, it is still in leading negative position, however this is a 1 min chart, the least influential and more or less calls intraday moves.
IWM 1 min with a leading negative divergence, that divergence is still in place (it takes time to capture these charts, post, comment and upload them so sometimes things change during that process-for now they haven't changed).
IWM 2 min is leading negative today.
The 3 min chart showing confirmation of the move up with a neg. divergence at the opening highs yesterday and a current divergence today.
The IWM 5 min chart is in confirmation of the uptrend. 3C signals travel from the shortest timeframes to longer ones if they are strong enough, obviously the 1, 2, 3 min signals are not strong enough to effect the 5 min chart which simply means the intraday divergences are NOT strong at all, there may be some profit taking, there may be a set up to pull the market back, but in the larger view of things, the divergences are not significant to our expectations.
IWM 60 min from the neg. divergence at the May 1 top to the left to the positive and then leading positive divergence as the bear flag formed and created a bear trap, this is a VERY strong signal, only a daily chart is stronger and that represents the primary trend.
QQQ 1 min neg. divergence which is still in place, note how upside momentum fell off as the divergence started. Often these 1 min divergences can create consolidations, they don't always represent a pullback, it depends on how strong/long they are and how far the bleed through the longer timeframes.
QQQ 2 min saw very little positive activity at yesterday's close as mentioned, the momentum in price is as we expected to see, based largely on short covering,
QQQ 3 min with a relative negative divergence, this is a fairly weak divergence.
The 15 min trend showing a leading positive divergence as the market hit new lows, this was an excellent area to buy as a bear trap was created.
SPY 1 min intraday negative, this is also still in place, it hasn't added to the downside momentum of 3C, but is relatively in the same position.
As mentioned, negative divergences are contained to the 3 min chart as the SPY 5 min is still confirming the upside trend, this doesn't mean an intraday pullback can't happen, but the 5 min chart is more important than the 1, 2, 3 min charts and it is still in good shape.
SPY 60 min from the Mat 1 market top/negative divergence to the positive during the bear flag/pennant and an even stronger positive as the bear trap was sprung with the market breaking below the pennant, also a current leading positive divergence.
These longer term charts suggest there's still quite a bit of upside in the market, probably much more than we'd expect as the short squeeze is in effect, but isn't nearly as bad as it can and likely will be as trader sentiment is still looking to short these moves higher.
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