3C Indications

Last week when I was talking about the next trend in the market being a pullback and a pullback that is more extreme than that we'd usually consider a pullback to be, I also mentioned that it wouldn't likely be a straight shot down, there would be volatility and noise in the trend to keep everyone on their toes (this isn't a market for chasing stocks).

XLK, Technology is a perfect example of where we are at with the averages...

First here's the SPY

Early today I mentioned I thought the most probable outcome to shakeout the most number of traders was to rally the market off the gap down lows and back in to the flag, that's exactly what happened, but as I pointed out earlier, in my original vision, I thought it would move higher and take another day, so there's a decent possibility that we see a little more upside, as I'll show you, for now, I want to sell or short in to price strength as the short term charts have some bullish signals that are teetering, but the longer term, more important charts are still solidly negative, so for this trend (short term pullback), the direction I want to trade in is short or to the down side and and price strength I want to use to help me get in position.

Now for XLK/Tech as our example...

 First we're going to look at the longest timeframe chart (from 1 min to 15 min) that the positive divergence made it to today, for XLK, the positive divergence reached the 15 min chart with a leading positive divergence, you can see last week's negative divergence sending us lower this morning.


 Next we're going to the next longest timeframe to see what the divergence may have done to that timeframe, in this instance that's the 30 min chart (pretty long timeframes for a single day's move) and there's nothing positive on this chart at all, this is what most of the averages are like, there's a stone wall dividing today's positive divergence from the trend's negative divergence.

The question that has to be answered as soon as possible tomorrow is whether the longest positive divergence can hold because in all cases, the shortest charts like the 1, 2, 3, or 5 min have gone negative and migrated as they should through the timeframes; if they continue, they'll take done the strongest divergence timeframe of the day (for XLK the strongest is 5 min).


On XLK the 1, 2, and 3 min timeframe above have all gone from early positive to very negative as the day progressed. The 5 min is in line, if the 1, 2,and 3 min continue negative, the 5 min will go negative followed likely by the 15 min and we'll have a good ida of near term trade to use for tactical entries.

The other 2 important industry groups, Financials and Energy...

 XLE 15 min went negative last week and that is still the dominant trend, but today there's a decent positive divergence on an important timeframe.


 The next timeframe is like a brick wall, the 30 min is leading negative, therefore, I want to trade from the short side, I just want to narrow down where we are going to be so I can plan entries.

 Financials 5 min shows the major trend being a negative divergence, that sent price lower, but today we saw a 5 min positive divergence, just remember the shorter term timeframes are already rotting away as seen in Tech.

On the other side of the 5 min and the faster timeframes rotting way we have the 15 min chart with a clear leading negative divergence and a large trend there, I don't want to trade against this for the time being.

As for the averages...

 The DIA's best trend is only on a 1 min chart, but it is leading positive at a new high, the 2, 3 and 5 min timeframes are already rotting away.


 The 15 min is solidly leading negative.

 IWM 5 min, the major trend is a leading negative divergence that sent the market lower, today's leading positive divergence is on the 5 min.

Here's an example of the earlier timeframes rotting out...

 IWM 1 min looks the worst, it should migrate to the next timeframe and it does...

 IWM 2 min looks almost as bad

The IWM 3 min is negative, but not as bad as the 1 min, this is normal. If the short term trends keep deteriorating, this 3 min will look worse and probably start to deteriorate the positive 5 min IWM chart at the top, if not, then the market has some support to move higher very short term, but this is noise in the trend, it can be used to our advantage, but we want to know how it develops to best use it.

 On the longer side of the 5 min positive IWM, the 15 min is leading negative, this is where the short term trend is.

 QQQ only made it to the 3 min and even there we can see some deterioration throughout the afternoon.

The 5 min never saw any of the positive intraday divergence from today and remained leading negative.

The SPY shows a nice 5 min leading positive and that may be because financials were looking pretty good today. 

 The 60 min is showing a strong, long leading negative trend. The 15 min which is the next longest timeframe is negative too, I just wanted to show you this 60 min trend.

The $USD trend may play a big part in the near term trade (the Euro too, although it doesn't have as consistent signals as the $USD), UUP a proxy for the $USD has negatives from 1 to 60 min, a lower $USD will generally support higher risk asset prices. My initial gut feeling is that we see some very volatile moves, but also very quick to change trend, but this is part and parcel of the noise within any trend for the last 4 months.

Watch the opening gap and trend, lately it has been reversing intraday.