ES Update

Since ES changed, I figured I'd update it...

The negative signal in the late afternoon has managed to work in to a positive signal and leading higher, it isn't at a leading divergence yet as it would need to pass above the a.m. high, but it's a change in character that came about pretty quick.

EUR/USD is still consolidating...

 However...

 There's already a 30 min Euro positive divergence in place and the 1 min trend seen above suggests the path of least resistance (along with the 30 min positive chart) is up.

The $USD below appears to be nearly the mirror opposite as it should for confirmation.

ES After Hours Pullback

I'm guessing the after hours market session will look negative based on the ES chart, however this is a near term divergence and a lot happens overnight, just thought this might be useful in understanding After Hours (Market-not ES, as ES trades all night) trade.

ES 1 min

While I'm at it, I might as well give you the full perspective in ES.

 ES 5 min shows a much more positive trend, it's leading strongly, this is where you compare two relative point, the high at the left of the chart and 3C's position compared to the present will give you an idea of the strength of the divergence. ES timeframes tend to be a bit different, the 5 min would be closer to a 15 min in the normal market 3C charts.

 Here's another, 60 min ES, again compare the 2 relative points and where price and 3C were/are.

This is the weekly for the long term perspective, the 2011 top had quite an extreme negative signal which brought us down to the Aug. 2011 lows, price is higher than the 2011 top, 3C is leading negative as it is lower.

This may also be interesting...

ES's VWAP for today

Note pre-market ES was trading under the VWAP, if you look at the first chart above you'll see a positive divergence/accumulation, as ES touched the two standard deviation lower channel. During market hours ES stayed in the upper channel, above VWAP except for a brief time where volume spiked. Although today didn't seem like a monster strong day, ES in the top channel of VWAP all day is quite strong.

Also...

There's not enough time that has passed by for a daily ES Bollinger Band study, but hourly, when an average walks the lower or upper bands, that signals very strong momentum, there's a clear shift from walking the lower bands to now walking the upper band.

Quick Market Update, I'l get the rest out shortly.

 QQQ Gap resistance and trendline resistance, you know what bears will be expecting at the red trendline.

 QQQ 1 min, not sure how 3C will end the day, but the negative on the open led to the consolidation, from 11 a.m. to 1 p.m. a positive divergence and the price response from there.

 2 min, same deal except 3C is leading at the 2 pm highs, compare to the open and 3C's position

 3 min again leading positive if you compare 3C's position now to the May 31 close at the far left.

5 min, again leading positive comparing to the May 31st higher prices, lower 3C.

FB Update

First I want to start with an email response from about FB from 12:22 today, I was asked how FB looked, my reply...

"3C is still holding up, price is still holding up as well as compared to the 6/4 lows, it hasn't made much of a new low, it is in a very recognizable bearish continuation descending triangle so it could see a head fake move"


FB is a stock that is being watched by everyone, it has been in a downtrend. There are 3 types of triangle consolidations, the most ambiguous of them all is the symmetrical triangle. This consolidation has no inherent bias and relies solely on the preceding trend so if the trend before it formed was up, it is expected to break to the upside, if the preceding trend is down, it is expected to break to the downside.


A descending triangle is inherently bearish, if there's a preceding downtrend (this describes FB perfectly), the triangle is considered to be VERY high probability to break to the downside and start the next leg lower which is usually the difference between the downtrend and the last consolidation to the current one, so in FB's case the last consolidation was a rectangle (same bias as a symmetrical triangle) between 5/22 to 5/29, the breaking point was around $31 and the downtrend to the next consolidation (the current)  was about $27, that means traders expect the current bearish descending triangle to break to the downside and travel $4 from the break (around $26.80), so they expect the next leg down to target the $22.80 area. The problem for the bears, the positive divergences which are now substantial.


Between the visibility of the bearish consolidation and the popularity of FB (not to mention the overwhelming bearish sentiment), it makes for an excellent upside candidate (not long term, I still think FB is way over-valued, but the market has very little to do with value anymore).

 The preceding downtrend and the inherently bearish descending triangle-this is exactly what they teach to look for in TA textbooks.

 A closer view of the bearish triangle.

Remember the volume spike concept that works on every timeframe? At the red arrow a volume spike with a bearish price candle that has a long upper wick, meaning higher prices were rejected, this is like a mini churning candle and they are excellent reversal signals on every timeframe. Then we get a bullish volume spike at the green arrow after FB breaks below recent support, there's high volume and a bullish hammer candle (reversal/support candle). This is almost certainly the head fake below the bearish price pattern I mentioned in the email around noon time.

 FB 60 min chart, this is a very strong timeframe/signal. FB shows confirmation of the downtrend at green arrows and around the 31st of May to the 1st of June, it goes positive, the same time the descending triangle starts forming. It becomes much easier for smart money to accumulate when traders are selling the triangle short, they provide the supply that smart money needs, the brea below the pattern does the same, except more traders will short that as most traders wait for confirmation of the pattern. In other words, their short selling provides supply to be accumulated in larger volume and it doesn't arouse any suspicions as someone has to take the other side of the trade.

 The 30 min chart should be stronger than the 60 and it is, but note the positive divergence starts at the same place.

 FB 5 min trend, again the positive divergence starts at the same place and sees a stronger positive divergence as price moves lower which allows smart money to accumulate in bigger size at better prices. We used upside head fake moves to accumulate short positions from March-May 1, it's no different.

 The 2 min chart shows more detail, negative divergences at head fake upside moves that quickly fail, the positive divergence again stats at the same place/time

Intraday 1 min, negative divergence on the open sending FB lower, a positive divergence at the volume spike mentioned.


Just look at all of this sell-side volume that can be accumulated, yet FB has barely moved...

Did a little poking around

It's no wonder the market is so consolidative today... From a quick look at 3C, most of the averages seem to be gaining ground (3C-wise), the Q's the IWM, the DIA still seems a bit consolidative and the SPY too, but the SPY looks better than the DOW; the Q's are really making progress.

So you may have noticed I don't use a lot of MACD, Stochastics, RSI, etc. That's because the information there is market wide, everyone knows the same thing, in reading interviews with some of the top traders the theme is pretty consistent: #1 Risk Management, no matter how good your system is, trading comes down to averages and consistent risk management may not be fun, you may miss a few trades, but over the long haul it is really the only thing that will let any trading system (that works-many don't as I have back-tested just about every popular system out there) give you a steadt equity curve rather than a volatile choppy curve with 40% gains and 50% losses, you're much better off with a steady equity curve and that should be a part of everyone's trading journal, THAT'S YOUR REPORT CARD.

#2- Can be summed up as, "To make money you have to see what the crowd missed", it's hard to do that if you are listening to Cramer or using the standard TA Tool kit.

The Risk Asset Layout was an idea I got from looking at CONTEXT and pondering the asset classes that make up the model. I think we look at currencies about as often as the normal trader looks at MACD and I wonder if the normal trader has any idea how much influence currencies have on the market. In any case, the Risk Asset Layout has a lot of leading indicators, not because I read somewhere they were leading indicators, but because we've used them with so much success in supplementing our analysis. So I took a look at them to see what exactly is going on today.

 The market today-very consolidative, positive, but consolidative. I don't typically get wrapped up in intraday trade or day to day trade, I trust my indicators and I try to keep my eye on the big picture. When you get "Lost in the lines" all you do is create emotional burdens and uncertainty, when in doubt, look at the bigger picture. Looking at charts in multiple timeframes from 1 min (when I was day trading I used 3C successfully on TICK charts, every tick!) to 1 month, you'll be surprised what you find, most traders have 2 or 3 timeframes they look at, but usually 1 that they depend on, that's only a fraction of the picture.

 Commodities today look a whole lot like the SPX, that tells me something is going on with currencies, specifically the Euro/$USD.

 The bigger picture... When we get a potential head fake move as we expect to get, it's important to confirm it, commodities did just that as they moved higher while the SPX moved lower. What do you think 95% of traders in stocks were watching? Thus they missed this signal, it's only 1, but we don't make decisions about probabilities based on 1 signal and never market action alone as market action is deceptive.

 High Yield Credit is one of my favorite leading indicators, it isn't negative today, it's right in line with the SPX and considering where price is relative to the pennant, that's a bullish signal.

 HY Credit is the second signal in a row showing the probabilities are the recent move down in the SPX, below the pennant and 200-day average is a head fake move. We already know that any easily recognizable pattern in the market is likely to see at least 1 head fake move, I'd guess at least 80% of the time and on EVERY timeframe. The more obvious the pattern is, the more likely it will see a head fake move. I have explained in the past why head fake moves are important to reversals, if you don't recall, just think about it for a minute, it will come to you.

 Here's the 3rd signal, Yields which are like a magnet for stock prices, but they almost always lead, note them giving a signal before the SPX even bottomed, why is this important? If you have good confirmation you can use the market weakness to enter long positions. Today's action is consolidative.

 Here you can see it closer, consolidative, but improving.

 The overall position of Yields vs the SPX points in the direction of highest probabilities. Probabilities are the best we have, the only certainty is after the trade is over and there's no money in that.

 The Euro today since the 9:30 US open-consolidative.

 The $AUD as a lading indicator among currencies (the Yen works too), that's what, the 4th signal of 4? As you can see it too is consolidative today.

 A closer look at the $AUD

 The Euro itself, positively divergent at the bottom, we now have 6 of 6 all giving the same bullish divergence?

 Here's High Yield Corp Credit, another risk on asset class, not a flight to safety trade. However looking at the 1 day timeframe this tells you NOTHING.

 Looking intraday this makes 7 of 7 calling the SPX bottom and the probability of a head fake move is much higher.

 Intraday HY Corp. Credit (Credit leads-stocks follow) is pulling ahead of the SPX.

 Sectors, Energy bottoming before the SPX, it's been fairly volatile today.

 Energy Intraday

 The volume at the lows today is interesting, we'll have to take a closer look at that.

 Financials, I think it was yesterday I said I thought Financials were about to rotate in, and another confirmation in relative momentum vs the SPX.

 Financials really made up for lost time today, they are outperforming the SPX easily.

 As for head fakes, on this daily chart the large bearish ascending wedge which TA teaches should break to the downside when it reaches the apex put in a decent size upside had fake, but these patterns are still useful, you just have to know in the near term they will be manipulated, so a big upside manipulation, short traders entering on the bearish wedge are stopped out, TA says a when you find a failed pattern reverse your position, traders go long and are stopped out again, at the yellow arrows recent head fake moves around the bear pennant, first an upside breakout that fails, exactly what traders are looking for to go short, then what they view as confirmation with the downside break, yet we have plenty of evidence it's a head fake move, now we have a bunch more shorts that will feed the initial short covering spark and provide momentum on a reversal.

 Tech-as long as I have thought we's see 1 more volatile (even scary) upside bounce before the market tanks, I have thought Tech would lead it, Tech certainly was much more positive than the SPX or any other major industry group on the move down.

 Intraday though, consolidative. How does this ultimately resolve, once again, when in doubt look at the bigger picture which is above.

 XLK's/Tech's consolidation today. It's little wonder the market has been in a consolidation today. We just have to watch for Wall Street games as nothing is as easy as it appears to be.

Finally Sector Rotation, I just want to point out Financials at the bottom, yesterday I thought they'd come in to rotation based on charts, today they have rotated in.

Consolidation of a consolidation...

Two simple charts...

 In my first market update there was a negative divergence around 10 a.m. and then the market was pretty much in line, it appeared to me to be a consolidation and then the consolidation formed. In my last market update I said there are some early 1 min positive divergences suggesting the consolidation may be about to move higher...

The bigger consolidation is today's intraday bull flag and then it broke out on that 1 min positive divergence I mentioned and has formed a second smaller consolidation!

I really don't care for consolidations here, I'm not saying it's bad, it is simply that whenever there's a recognizable chart formation, Wall Street usually plays with it and creates those head fake moves. We'll see what this one does, as you saw in the first market update the overall position of 3C is good, but in the near term and with intraday trade, it's all about shaking people out of positions, this is why I try to keep my stops EOD for trending positions as intraday trade is often just a lot of manipulative noise.