Major Market Update

Lets take a look at where we were, what we expected and what has happened, this looks like a very familiar price pattern or Wall Street play that we have nailed through the first 75% of, the last part is always the hardest.

I'll use the Q's as an example.

 The week of 10/12 I was saying how ironic it was that we started the week in leveraged long ETFs, specifically FAS (in that post) and by mid week we were changing them to leveraged short ETFs, FAZ in that case. By the weekend (I believe 10/21) we were expecting a range to develop, I was spending a lot of time trying to describe how it might look initially and that it wouldn't look like a range initially, but only after would you see it. Each average had a different range, but all had a range; the reason we were looking for a range, the market needed enough time to put together an accumulated position as I had and always say, we rarely see "V" reversals and the range was the time in which the mechanics of an upside reversal would be put together.

Once that range was in place it becomes VERY obvious, support levels are very obvious. What is the last thing we see about 80+% of the time before a reversal? We see a head fake move in the opposite direction first and that has become one of our timing cues, so the break at the yellow arrow below the range is not only not a surprise, it's something we look for as a cue. Just like I was saying when the range started, it will be volatile, emotional, it won't feel like a range until you can look back on it. Well the same can be said for a head fake move, the depth of which is usually commensurate with the scale of the price pattern before it, so these 3 days down after about 10 days in a range or 2 trading weeks, isn't that surprising.

The last question is how do we know if it's a head fake move or not? We look for divergences that don't confirm the price move.

 As the break started we talked about it as a head fake move and that a 1 day drop like that wasn't just boing to put in a "V" reversal, I expected a move toward the lows of the day or somewhere about that area, this is the hard part about a head fake move, it has to be strong enough and convincing enough to do its job, that makes their depth hard to predict and we have to rely on all the analysis we can gather.

This 1 min chart has stayed positive throughout the suspected head fake below the OBVIOUS range.

We look for migration of the divergence through the longer timeframes, the 2 min chart is leading positive at a new high today, migration? Check.

 The 3 min chart with a signal of a Crazy Ivan-like shakeout to the upside and then down with a leading positive divergence near new highs and above the range area.


 When I explained the first day's break wouldn't likely put in a "V" reversal and lows would be tested or "about that area" I also said we'd need to see 3C move higher and actually drew a picture of what price and 3C would look like, it was something like this.

And since we first saw the market turning down on the 17th/18th before the range, the range area has had a positive and at the suspected head fake area, a leading positive divergence.

I think we have a good idea of what we are looking at.