Putting the Pieces Together

I won't act like a guru and claim with absolute certainty that I understand what dynamics are either in play or about to come in to play in the market, but I will show you what I have found and hopefully we are on the right track. We have a huge advantage over the Sheeple, 3C isn't perfect, if it was I'd already own my a private island, but I can say in all honesty, it is one of the most unique money flow indicators and effective at that. While we may not know why, we certainly know what.

For example, 

 Take a look at the $USD, there's a clear reversal there.

 3C 60 min $USD not only warned us, but warned us with plenty of notice. The shorter term timeframes actually pinpointed the May 1 reversal in the market/FX market, we even knew what the decline would look like later in the afternoon as the morning saw a parabolic move up.

If we had used the long time Technical Analysis standard money flow indicator, On Balance Volume, this is what we would have seen...

Do you see a signal in the $USD suggesting a reversal?


As for the Euro...

 As Greece was without a government, elections polls looked like Syriza would win and throw the EU in to chaos, there was a French election that ended the Franco-German era of cooperation, numerous banks and sovereigns were downgraded, and on and on; who would have predicted the Euro would reverse to the upside?

We may not have known why, but 3C told us what was going on. In my experience and just as a matter of common sense, if you wait for the answers or certainty, your opportunity to make money has already past.

If we were to look at the market as the sheep who blindly follow the dogma of Technical Analysis without observing, learning and adapting, how do you think this would have turned out?

The SPY shows a traditional Head and Shoulders top, the break of the top is one area technical traders would have shorted, a bear flag/pennant formed telling traders that the next leg down was ready to begin; the SPY broke below the bear pennant where traders would have shorted the market, then it broke the 200 day moving average, another place traders would have shorted the market. However, from 3C signals and other indicators, we not only predicted the false break down, but also the move up to follow. It's not a matter of luck or being a guru, it's a matter of thinking for yourself, observing and adapting. Many members have made many excellent money making trades nearly every single day and as far as being short (as the primary trend is very ugly), our shorts were opened at the top of the H&S pattern. Right now in the equities model portfolio (where the longer term primary positions are), 9 of 11 positions, both long and short are all in the green with gains as high as 18% (using no leverage at all), the 2 long positions still in the red are at  loss of -0.31% and -0.91%!

As for the F_O_M_C meeting and policy statement tomorrow, I can't tell you what will happen, but we have some interesting findings. The Euro looks like it wants to move higher in a short squeeze, the $USD lower. The market averages look like they want to move higher (I'm talking about the sub-intermediate trend as I believe in the short term trend we will see a pullback).

We know gold has been acting as a sentiment indicator, today's GLD update was pretty much in line with the GDX/Gold Miners update , although GLD seemed to offer more in the way of the big picture. The gist of the update was GLD looks like it will pullback, yet the daily chart is more positive now than it has been since this time last year. As you will see below, Treasuries look to be under accumulation which is at odds with the market and FX signals we are getting and the same signals that have kept us on the right side of the market since March.

I shouldn't be speculating like this, but after looking at the Risk Asset close and some other indications, my best guess is that the F_O_M_C will disappoint the market with a lack of QE, in fact I don't even think it will be mentioned (as in the Jackson Hole Speech of 2010) beyond some possibly more dovish than usual, "We stand ready with an array of policy tools to step in should market conditions warrant intervention" or something along those lines. This may bring the market pullback I've been expecting and the Euro may be the catalyst for the short squeeze, meanwhile GLD I expect to pullback, but most probably be accumulated for QE possibly later this year. By the looks of treasuries, I would not be surprised if some policy adjustment was made that may be favorable for treasuries.

That's my gut feeling, but I would not go betting the farm on a gut feeling in front of a total wild card. Perhaps 3C has looked so positive lately because the F_E_D is going to do something that will be a market positive, just not immediately a gold positive. Of course I could be dead wrong, but that's my take and relies on a lot of assumptions.

As for the risk asset layout...

 Commodities performed well today vs the SPX.

You may remember last week I said the risk asset layout indicators were going to need to get back in line and soon as many had diverged negatively, like commodities, today commods are back in line, which is supportive of higher prices over the sub-intermediate trend.

 High Yield Credit has been the most bothersome lately, today it performed well and closed at its highs on the day.

 Yesterday I said that High Yield credit was at least making higher lows, it remained to be seen if it would make higher highs as well, today that was answered and while HY credit is still disconnected from the SPX, it is now moving in the right direction.  HY Credit is one of the assets used by smart money in a risk on move as the credit markets are so much bigger than the stock market, also credit is traded almost exclusively by smart money, hence the expression, "Credit leads, stocks follow/confirm".

 High Yield Corp credit has been behaving much better than HY credit, however I was concerned that it was just trading to the top of its downtrend channel and once it reached the top, it would turn down to reflect HY credit's less enthusiastic (at least as of the last several days) reality. As you can see, HY Corp. credit has blown through the top of the channel, it is likely there will be a short squeeze in the asset which should further lend support to the market. At least for now, that concern is allayed.

 Intraday HY Corp. Credit acted well.

For the sub-intermediate uptrend, HYC credit is now in line and supportive of higher equity prices.

 Yields which are another leading indicator have recently been a cause for concern as they have diverged away from the market, today they acted well, although the market closes an hour before the stock market.

 In white, Yields lead the market, in red they are negatively divergent; I mentioned yesterday it looked as if the found some support, today they rallied off that support.

 The $AUD acted well today

 For the sub-intermediate trend, $AUD is in line and supportive.

 Here on a longer term chart you can see how the $AUD has been a leading indicator at important inflection points.

 The Euro and market acted well today

I was a bit concerned about the Euro diverging, but it has moved in line

 Energy which had horrible relative momentum yesterday, improved today.

 Short term Energy looks as if it could pullback, but it also looks to be the strongest short term between Tech and Financials.

 Longer term or sub-intermediate trend, you can see the negative to the left and the positives in Energy at the bear flag, at the market new lows and leading positive now. This suggests higher prices.

 Financials were ugly yesterday, today they had much better momentum

 Short term 1 min there's that negative divergence (pullback I've been expecting).

 Longer term (60 min), Financials are positive enough.

 Tech was looking better yesterday momentum wise, today it slipped a bit; I feel good about having taken some risk off the table and locking in some profits in AAPL, the AAPL calls were sold today near the high of the day on the floated rumor which as predicted was subsequently denied, so the rumor was a gift and I feel good about using it to lock in profits.

 Tech 2 min looks like it wants to pullback

The hourly shows several divergences and looks good.

As for sector rotation today, as you can see Financials were in rotation, Tech fell out, Discretionary, Industrials, Basic Materials, and Energy were all in rotation. The flight to safety trades all went out of rotation today.

 While copper itself is close to confirmation with the SPX, FCX is in confirmation (SPX in red).

Transports are also confirming if you are in to Dow Theory.

 Here's TLT/Treasuries saw some intraday negative action, but...

 as mentioned, there seems to be accumulation here which is odd considering it usually trades opposite to the market.

The daily chart is even more positive, this is why I suspect something positive will be announced tomorrow in the Treasury space.

As for ES tonight...

Because of the move higher in ES, 3C is not scaled properly, there was a leading negative earlier in the day which I have marked, there was another at the rumor that ramped the market and then was denied, as I said, it was a gift and I'm glad I used it. In context to the normal hours, we have a large negative divergence in ES right now, perhaps this is the start of our pullback.

EUR/USD

The Euro is above the resistance zone, but looking a little out of gas here, this would also make sense with a market pullback. The red arrow is the close.

So that's where we stand, what I feel are the probabilities, however tomorrow will be a very volatile day; as I always warn in front of a F_O_M_C policy announcement, "Beware the knee-jerk reaction", it is almost always reversed.

I got about 3 hours sleep last night, but I will be back with more later.

The Other Side of the Coin

Clearly as you can see in the 30-60 min charts of the market, it looks like something is going to drive this market higher in to a short squeeze and we could see a significant move higher.

I'm not going to have time to post the Risk Asset layout before the close, but there's improvement there today, specifically in High Yield credit, both HY and Corp. Overall the layout is moving back in to line , suggesting higher prices as well.

Between what we are seeing in 3C and the Risk Asset layout, it seems there's going to be something to drive this market higher, the F_O_M_C policy statement is tomorrow, that would seem like an obvious answer, however GLD looks like it wants to come down first.

That's the basic scenario we are looking at. I was hoping I wouldn't have to have my hedge in place by the time the F_O_M_C meeting came around, but one of the reasons I added the long positions was in case I needed a hedge in place.

There's so many different ways this could go I can't even begin to imagine, but one thing we often see on policy statements is an initial knee jerk reaction, sometimes an hour, sometimes several days and then a reversal of the knee jerk reaction, just something to keep in mind.

GLD Full Update

I would think if smart money knew what the F_O_M_C was going to do (and we have seen instances in the past in which it looked very much like they have known in advance-not often, but there have been several very odd instances) it would be reflected in gold. "IF" the F_O_M_C creates some sort of QE3 program, historically gold has been one of the biggest beneficiaries. I'm going to show you the charts as they are because there are two themes here that contradict each other, both have seemingly good signals.

I can't guess what the F_O_M_C might do, I can't guess whether it will be effective as circumstances are vastly different, I can just show you what I see in GLD.

 GLD's daily trend leading to a triangle top-like formation at the yellow arrow. There was the typical first break in the yellow box that was shaken out, at the orange box there was an upside head fake move we made nearly 215% in 3 days or so with Puts and the recent white box that suggested GLD was about to fall, 3C gave a long signal and GLD saw it's biggest 1 day move up since 2009.

 At the red arrow is our head fake 215% put trade, at the Green arrow, our long position, both head fakes that traders would have expected to go the other way.

 Here you can see some trendlines, this is the 60 min chart of the most recent signal. The trendlines formed a bearish triangle that suggested to technical traders that GLD would break to the downside, the 3C positive divergence gave us a long signal and the biggest 1 day move in years, but now this chart looks bad, it is leading negative as you can see the move up was sold in to.

 The 30 min chart shows the breakout to the upside-the exact opposite of what technical analysis teaches and 3C showing distribution in to that big move up and a recent negative divergence as well. To me, it looks like GLD is coming down.

 The 15 min chart, positive at the lows of that bearish price pattern, then the gap up, again we see distribution in to the price strength and another negative divergence now.

 The 5 min chart even shows the trade from positive divergence where GLD was "supposed to break down" according to TA, and a negative divergence in place now.

 3 min chart is negative here, much like the GDX findings


 The 2 min showing detail of the selling in to the gap up and a leading negative now

The 1 min chart doesn't seem very important considering the above, but intraday there's a small positive.

Everything looks like GLD will fall, which would suggest, "If smart money knew what the policy statement would be, it doesn't look good for QE and doesn't look good for gold". There's only 1 problem...

The daily chart...

This shows GLD negative in to the highs that formed the left side of the triangle, there's a positive at support in December, then GLD is run back down and now there's a positive at the support area from May/June.

If I had to guess, I would say there's no QE and GLD comes down, however perhaps there's QE later in the year.

I would think for GLD to come down, the F_E_D would not hint at QE coming. That's just my initial thoughts.

SPY Full Update

 SPY 1 min stayed negative even with the rumor ramp, it's leading negative, but again I want to stress that this doesn't look like major distribution, it looks more like a pullback move that we have been seeing signs of since yesterday.

 The 2 min chart also negative at today's rumor ramp highs and leading negative at a new low, again, not horrible like we have seen at some other true distribution events.

 The 3 min chart is negative after being in confirmation, but it's really not that bad, again, it looks more like the kind of divergence seen at a pullback.

 The 5 min has been in line today just as it was yesterday, it is seeing some of the shorter charts' negative divergences bleed through and has a slight leading negative, again, not looking like much more than a pullback move.

 The 15 min, for those of you using 3C there are some details there such as the negative divergence at the May 1 top, the positive divergence in to the bear flag/pennant and the positive divergence at the bear trap break below the flag/pennant and currently a leading positive divergence that looks very strong, which fits well with a pullback and additional upside gains on a real and strong short squeeze. This makes me really wonder about the policy statement tomorrow so we will look at GLD next.

 The 30 min leading positive.

And the long term top with distribution areas where we were actively shorting and a current leading positive divergence, this is a very strong signal.

I suspect a pullback as I have maintained for the last 2 days, from there it looks like the market has plenty of juice left.