Start of Trade for the new week

As of late Friday, I expected a bit of a pullback from Friday's gap up, although we are above major resistance in the SPX and were above major resistance in the EUR/USD, both of which could create a short squeeze.

The SPY chart that summarizes my view Friday of some backing and filling Monday can be seen below...

As you can see the trend was in line on this 5 min chart on the 26 and part of the 27th, later on the 27th a negative divergence made a pullback the next day likely which happened, late in the afternoon on the 28th we saw a jump in 3C on some of the longer intraday timeframes leading to Friday's gap up. Although that played havoc with some of the shorter term intraday charts, the 5 min looks like the SPX is ready to back and fill in to the gap. I don't see this as a major move, but we'll see how it develops, it may very well open some opportunities to set up some long trades in to price weakness, assuming the EUR/USD and ES don't jump higher overnight, which would increase the chances of a short squeeze.

As for EUR/USD and ES opening tonight...

 From Friday's confirmation of the move up, we have a negative 1 min divergence in ES tonight as it reached highs near the open of trade tonight. The divergence in place now suggests that Friday's assumption of some backing and filling was correct, but we have a long night ahead and the European open at 3 a.m. EDT which can obviously change a lot.

EUR/USD...

 Last week we broke above the major resistance level for the ER/USD, but not yet above the June highs, that's where a short squeeze becomes much more likely.

Longer term you can see the June highs in the Euro, this is the level that needs to be broken above to see the chances of a short squeeze increase.

So far the sub-intermeduate trend expectations from a 3C perspective have held up pretty well, also our risk asset layout has held up pretty well, in other words we are not seeing the kind of divergences that suggest a return to the primary downtrend that we see in the longer term 3C charts.

As mentioned above, we have a long night ahead of us and a lot can happen, but thus far we seem to be on track with expectations. We just have to keep in mind the insane choppiness and volatility of the market and not get "lost in the lines", but rather use that to our advantage, which often means using your greatest edge over Wall Street, patience and the fact you don't ALWAYS have to be in the market.

Here's the economic calendar for the US this week:

As usual though, most of the focus will be on Europe. I'm particularly interested in the yields on Spanish and Italian 10-year debt to get a feel for whether bond traders really believe the EU will drop the debt seniority of the bank bailout in particular which makes sovereign debt holders junior to any EU bailout (that which caused Spanish yields to jump above 7% in the first place). It will also be interesting to see if a new ESM treaty on the bailout mechanism will be needed and if it will be ratified, there's a lot up in the air in the bond markets and that flows to the stock markets.

Everyone have a great week ahead and don't forget the markets will be closed in the US Wednesday with an early close of the NYSE Tuesday for the 4th of July.

A New 3C Timeframe

I consider myself a student of the market, not a guru or anything like that. With the market changing so fast, how can you not be an eternal student of the market? Just last Thursday we witnessed a 3C event, a literal event, that differed greatly from the normal process of a positive divergence. What I mean for some of our newer members is that distribution and accumulation are typically a process, Thursday we witnessed an event which is rare, in fact I don't recall the last time I saw something like this, so there's always something new to learn.

One of our members who has picked up on the proper use of 3C much faster than I did as its creator, shared with me a new timeframe that I hadn't used before (I learned something new again) and as yo know, I commonly say, "When in doubt, go to the longer timeframes" as they show more of the trend and less noise, although they lack the intraday detail, they are indispensable for understanding the big picture from micro to macro. So it is with much appreciation (thank you Tina) that I share this new 4 hour timeframe, which just so happens to confirm our view that we would see a strong short squeeze move up before the next primary leg down.

I'll share both the sub-intermediate view as well as the longer term charts representing the primary trend view.

 The DIA 4 hour chart shows the distribution that we saw through various charts back in March when we started building Primary trend core short positions, this divergence ran right through May 1 which  was the last area we were actively building primary trend short positions. As many of you know, by mid-May we were looking for a halt to the down trend (among some gimmicks and a bear trap) and eventually a short squeeze move higher. The leading positive divergence in the DIA now suggests that short squeeze move is still coming. Key notable positive divergences were at the bear trap lows of June 4th and the perceived failure of a test of resistance and the lows that came after that at June 25th.

As for the larger picture and primary trend...

 I'm using a DIA 3 day chart to show quite a bit of history going back to distribution during mid-2007, the leading positive divergence of March 2009 and how QE has created the rally from 2009 which I call a "house of cards", as we have a new leading negative low below the 2009 3C lows. Other notable negative divergences other than 2011 include the very fast and sharp March 2012 divergence.

 The 4 hour QQQ chart which I would equate with the sub-intermediate-close to intermediate trend, also shows the negative divergence in to March 2012, the final May 1 high negative divergence and then the positive divergence we watched build in to a bear flag/pennant through May with a positive divergence at the bear trap lows of June 4th, a leading positive at the perceived failed test of resistance and the low that followed on June 25th and a current leading positive divergence that is well above the 3C reading at the May 1 highs. Again, this suggests the market DOES have more upside as we have felt for well over a month now, most likely a short squeeze move which I have said, "Could be VERY impressive", which would also allow us to add to or start new primary trend core short positions in to price strength.

 The daily QQQ 3C chart showing the distribution "process" during 2011, the August lows we called as the market was in seeming free-fall, the October low we also called and the March 2012 negative divergence, since a leading negative divergence suggesting the Primary trend is alive and well and very bearish, however as you know, nothing moves straight up r down and the market is never going to make things easy. In fact I often say, "If it does look easy, you are probably being set up".

 The SPY 4 hour chart is the one that Tina was telling me about, that ultimately got me working on getting the 4 hour timeframe on the layout. Again, the March 2012 distribution process is evident going in to the Mat 1 highs, the bear trap we expected at the June 4 lows with a positive divergence and at June 25th, 3C is in leading positive position, currently leading positive well above the 3C readings at May 1 and moving toward the readings from the March highs.

The daily 3C chart shows the primary trend with a positive divergence at the Oct. lows, th sharp distribution at the March highs and a leading negative divergence since then.

For perspective, the 2 day chart showing the major primary trend...

Here we see the positive divergence of the 203-207 bull market rally with confirmation of the ptrend at the green arrow, a negative divergence starting in 2007, the positive divergence of March 2009 and negative divergences at 2011 and March 2012 with a current leading negative divergence below the 2009 3C readings.

This should hopefully help to illustrate our view of the market from the near term sub-intermediate trend to the major primary trend.

Thanks again Tina for your help and dedication to bettering our understanding of the market.