As Simple as This

I could go through all the market averages, the Industry groups, key bellwether stocks, currency, futures, leading indicators, all of that, but I can also show you the same thing with 4 charts in 2 assets. For one asset, the "Risk On" asset, I could have chosen nearly anything that is a risk on asset and moves up with the market, the second is a common asset I use to confirm. The bottom line is NOTHING has changed since yesterday when my opinion was that we have a very strong market cycle to the upside set up and ready to go, in fact it did go this week as is being pointed out, "Biggest 4-Day Run in 4 Months", the truth is most of this move was accomplished in 2- 2.5 days. We had a couple of really nice trades for 115%, nearly 80% and several others.

Yesterday I said that from the looks of the charts we are going to see a pullback, this could be a simple corrective pullback, a fill the gap or even something that tests the recent lows and gets shorts to jump back in the market with both feet. However, the more important trend that has been developing for about a month and the most important of our charts that go with this trend are very strong and put the balance of evidence in the bullish trend on a move that could easily last through the end of the year, but it's not about time, it's about amplitude. So as I said yesterday and wish we had seen today, I welcome a pullback because we need that movement to set up new positions like the AAPL Calls from last Friday that were closed Monday for a 115% gain in less than a day or the GOOG calls closed at a nearly 80% gain.

I'm not going to post all of the charts, I'll just say among the leading indicators we follow Credit looks great, yields look great, FCT is in good shape, the behavior of the market this week with regard to breadth as we have been watching in the NYSE TICK has been great, the powerful positive divergences in almost every risk asset and the level of confirmation looks great, these are the kind of moments we only see a few times a year like when we were shorting around March of this year or when we saw the June 4th bottom coming, to a lesser extent the charts being right about the market when QE3 was announced in September and everyone expected the market to soar, but our charts said something different and they were right, well this is another one of those moments; it's not going to be easy, there will be moments, days, maybe even weeks that test your convictions, but this has shaped up to be one of those few moments.

As for the charts I mentioned above, I chose Financials just because that's what I had open and one of the common confirmation assets, Treasuries (TLT) which are the opposite of risk on, they are a flight to safety trade.

Financials (XLF)

 While there are even longer timeframe charts in Financials with 3C positive divergences, I chose the 15 min because it has a little better detail than some of the longer charts (the longer the timeframe and bigger the divergence, the more important the move that is being set up). The last cycle ended on October 17th/18th, that week I talked about how ironic it was that we started the week long FAS (3x long Financials) and switched in the middle of the week to end the week with FAZ (3x short Financials). We expected a range to develop after that, which it did in all of the averages (some cleaner than others), we always expect a head fake move before a reversal and even more so when we have a very obvious and definable level that traders will take action at, the bottom of the range provided that. We confirm a head fake move by seeing if 3C confirms it, in this case with a move down we wanted to see a 3C positive divergence to confirm the head fake move, we got that. Last week I commented on how the momentum had picked up in 3C and there were divergences in places I had never seen them like in multiple timeframes in the S&P E-mini Futures. After not having taken any long positions or even thought about them in AAPL for a long time, Friday I said I liked the calls, Monday we sold them on a 7+% move in AAPL on no news. So above, we'll let this 15 min positive divergence in Financials stand as our weight of the evidence for a bullish move with exceptionally high probabilities.

 Yesterday I expected a pullback in the market, we saw what happened today which looked like a low volume manipulation trade so we could have a headline like the one above going in to the Black Friday holiday shopping spree. 33 Liberty Street certainly didn't want to see a nasty day down today and we saw that in the futures overnight on the bad EU news, however, this 3 min XLF chart shows the probabilities of a pullback in the next couple of market days (maybe not Friday) to be very high.

 Treasuries or TLT move opposite the market, they are the flight to safety when the market is moving down and here on the 15 min chart you ca see the recent negative divergence sending TLT lower as money is moved from safety to "Risk on". This is simple confirmation of Financials or any other asset you want to choose, it's the exact opposite signal in the same timeframe at the same place.

 How about our market pullback? It stands to reason that if Financials are showing a negative divergence in near term trade then we should see a positive divergence in Treasuries in near term trade such as we see at the white arrow today on a positive divergence (5 min)-again, confirmation that the bigger trend is bullish, the near term will be a pullback.

That brings me to 2 more charts, AAPL because this is one of the stocks that I think I might like to set up another call position on a pullback that is accumulated.

 AAPL's 30 min chart representing the longer term trend and the highest probabilities has a large leading positive divergence, just like Financials.

 However the near term 3 min chart over the last 2 days shows smart money getting ready for a pullback in AAPL, as AAPL pulls back (as well as other assets we are trading or considering) we'll watch for accumulation in to lower prices. I don't care where AAPL pulls back to, I only care that we see positive divergences telling us when AAPL is a buy again.

And it's as simple as that.