Bottom Line on the Bounce

Hopefully this will be a quick presentation using futures, the averages and the Euro as a risk on currency.

 After nearly 2 trading weeks of moving lower , the market was in an oversold condition and primed for a bounce. The price/volume relationships that I track have been suggesting a bounce since Wednesday as the short term 3C charts have also developed favorable conditions for a bounce as well.

The break below the 13th's QE3 announcement area figures to be a key level as well.

First the Euro...

 The Euro 3C intraday charts show a negative divergence, granted it's only a 1 min timeframe, there were negative divergences in the Euro today out to the 10 min chart. These divergences halted all upside momentum in the Euro during trading hours.

Since the close, the EUR/USD hasn't been able to gain any upside traction. In fact it may be interesting to see how it performs tonight.

NASDAQ Futures

These saw an early positive divergence and later a negative 1 min divergence with some signals on the 5 min chart too, since the 4 p.m. close the divergence has grown worse and NASDAQ futures can't get a foot hold on any upside.

QQQ

 The QQQ chart, like the futures, was negative from 1-3 minutes, thus usually plays out the next day for these averages, I'll explain in a second.

 The QQQ 5 min chart just went negative as well.

ES (S&P E-mini Futures)

  After an early positive divergence in to the Spanish 2013 budget presentation, ES saw a negative divergence too, also on a 1 min chart, but there was evidence of a slight divergence on 5 min charts as well. Since the close as you can see, the divergence has grown deeper and ES hasn't been able to gain any upside traction either.

 Like ES, during normal hours the SPY went negative from 1-3 minutes as can be seen above.


The 5 min chart also went slightly negative.

Typically divergences on the averages like QQQ/SPY that we see at the end of the day, tend to play out the next day as if smart money prepared for the next day in advance, futures are a bit different, although the signals on the SPY/QQQ and others often will see confirming overnight activity in the futures.

I would expect to see the SPY, QQQ, etc pullback a bit and repair the damage on the short term charts and keep the 5 min chart healthy enough to continue the bounce/move higher, if that happens and we see some positive activity in to a pullback, then it will likely offer you an opportunity to take on some long positions to play the bounce/upside, however if price keeps moving up without repairing the damage to the short term charts, it's likely the 5 min chart will see more damage and it will continue to migrate to more important charts; in this scenario, the bounce will look strong price wise, but it will essentially be rotting from the inside out and it would not bode well for any kind of sustained move. If this is the scenario, the probabilities would be to short in to price strength/3C weakness for a resumption of the move down. I personally am leaning toward a continued bounce and an opportunity to add some long exposure to take advantage of it as the market is pretty oversold, but we'll have to let the market tell us where the probabilities are.

This is why I wanted to see both downside and upside post QE3 to see how the underlying trade reacts, this will tell us a lot more about what smart money is doing and whether QE was front run by smart money  for the first time which would likely mean they'd be looking to sell in to the policy that has all traders conditioned to believe the same thing about QE.

In any case, 1 bridge and opportunity at a time.