Things were a little confusing yesterday, but cleared up pretty well today, this is why it's important not to marry your opinion and be open to what the market is telling you.
5 years ago
Wednesday, July 11, 2012
Market Update-Closing Indications
As I said last night, we just needed a little more time to let the charts develop and develop they did.
DIA 1 min-for those of you using 3C, I just wanted to point out that relative divergences are often followed by the stronger leading divergences such as today's leading positive in to the close.
Again, DIA 2 min from relative to leading positive
DIA 5 min at a new leading positive high above price high of the 5th.
DIA 15 min in a leading positive.
DIA 30 min is where the leading negative and longer term pullback trend we expect after a move up is.
IWM 2 min leading positive, very strong on today's price weakness, also at a new leading local high.
IWM 3 min relative positive, look for a leading positive next.
IWM 5 min relative positive.
IWM 15 min leading negative-this represents the pullback trend we expect to develop after a move higher, although we always have to watch for changes and listen to the message of the market.
QQQ 2 min leading positive in to today's price weakness.
QQQ 3 min relative positive
QQQ 5 min leading positive in to today's price weakness, pretty impressive move that quick on a 5 min chart.
QQQ 15 min in line more or less with price/downtrend
SPY 1 min really turned around fast today to hit a leading positive
2 min SPY trend has remained leading positive, this is what started the curiousity yesterday that this trend didn't break down in to yesterday's price weakness, although difficult to understand at the time, it was a good signal and not noise.
SPY 3 min with a great positive divergence at today's lows and a leading positive in to the close
SPY 5 min has remained in lading positive, it never saw any damage like some of the shorter term charts (smaller distribution on shorter charts) and is hitting a new local leading high.
The 15 min lading negative trend. On price strength, we want to be looking for a place to unload longs and enter shorts in anticipation of this negative price implication/pullback.
Things were a little confusing yesterday, but cleared up pretty well today, this is why it's important not to marry your opinion and be open to what the market is telling you.
Things were a little confusing yesterday, but cleared up pretty well today, this is why it's important not to marry your opinion and be open to what the market is telling you.
The anatomy of a bear trap
Initial Reaction post from 2:32 pm today
Under the first chart of the post...
" This looks like an intraday bear flag, watch for gaming of this flag such as a break below to a new local low followed by any upside activity, which would create an intraday bear trap."
We could be discussing bull traps as we have seen some of those as well, especially when we were putting together core short positions from March through May 1, we used bull traps (BIDU being a perfect example) to enter shorts on the trap's price strength.
One thing I like about the market is it is fractal, patterns that we may see, like the bear trap on the daily chart of May/June, will also play out on an intraday chart or even a weekly chart, the reason? Because these are based on taking advantage of human emotion, psychology and technical analysis.
For instance, here's the bear trap of May/June on a daily chart.
This shares many of the same features of today's intraday bear trap. Both of these were bear flags or to be more precise, bear pennants as the flag part of the formation was a triangle/pennant. First the flag pole which is the decline, this gets emotions and sentiment on the bearish side, humans and traders especially don't quickly adjust to changes in the market; for the most part people have opinions and they think that changing their opinion is admitting they were wrong. Over the last several months if you had information that gave you cause to change your opinion and you didn't, you probably lost money.
Next the flag or pennant portion of the bear flag set up, that's the triangle (I don't know why, but most of the bear flags we have seen have formed pennants instead of flags, but they serve the same purpose). The flag tells traders that it is a consolidation/continuation pattern and the next move is going to be a new leg down, some traders will enter on the flag formation, others will want price confirmation of a break below the flag. We identified this as a trap long before it broke down and were able to use the price weakness to establish hedging long positions. When price broke below the pennant, volume increased as shorts now had price confirmation. If you don't have the tools like 3C to tell you what is going on, then waiting for confirmation is a good idea, however the move in this market have been so fast that waiting for confirmation usually means you are entering right at the trap reversal.
In yellow, price moves up after the shorts have already committed and anyone short within that range is at a loss.
Today we saw the same thing, except on an intraday basis and I only point it out so you know how the market really works and how you can use this to your advantage.
Here's the flag pole of the bar flag (the decline) and then the flag/pennant forms, the psychology is exactly the same as above. Traders want to see declining volume during the formation of the flag, that's what they saw in both instances.
Then the confirmation, the break below the pennant and volume picks up as shorts see this as price confirmation-the trap is set.
Remember I said watch out for the SPY $134 area for a trap/short squeeze, that's the red horizontal trendline. As price breaks above that level which is a whole number so there will be stops there based on that alone, but it also moves ABOVE the pennant, shorts are at a loss, they start to cover as the snow ball effect takes over and that can be seen in volume to the right. Just like the chart above, any current short that entered today on this price action within the yellow area, is now at loss.
Obviously buying the break below the pennant offers a good price entry and ultimately lower risk. 3C was showing us many signals that there was accumulation by smart money in to this trap, that's your edge in knowing that the probabilities are on your side when buying the trap.
This is a technical price pattern described almost 100 years ago and Wall Street has been manipulating it increasingly for the last 10 years, traders just won't adjust, making them very predictable and this is where it helps you, that makes Wall Street's response more predictable.
Under the first chart of the post...
" This looks like an intraday bear flag, watch for gaming of this flag such as a break below to a new local low followed by any upside activity, which would create an intraday bear trap."
We could be discussing bull traps as we have seen some of those as well, especially when we were putting together core short positions from March through May 1, we used bull traps (BIDU being a perfect example) to enter shorts on the trap's price strength.
One thing I like about the market is it is fractal, patterns that we may see, like the bear trap on the daily chart of May/June, will also play out on an intraday chart or even a weekly chart, the reason? Because these are based on taking advantage of human emotion, psychology and technical analysis.
For instance, here's the bear trap of May/June on a daily chart.
Next the flag or pennant portion of the bear flag set up, that's the triangle (I don't know why, but most of the bear flags we have seen have formed pennants instead of flags, but they serve the same purpose). The flag tells traders that it is a consolidation/continuation pattern and the next move is going to be a new leg down, some traders will enter on the flag formation, others will want price confirmation of a break below the flag. We identified this as a trap long before it broke down and were able to use the price weakness to establish hedging long positions. When price broke below the pennant, volume increased as shorts now had price confirmation. If you don't have the tools like 3C to tell you what is going on, then waiting for confirmation is a good idea, however the move in this market have been so fast that waiting for confirmation usually means you are entering right at the trap reversal.
In yellow, price moves up after the shorts have already committed and anyone short within that range is at a loss.
Today we saw the same thing, except on an intraday basis and I only point it out so you know how the market really works and how you can use this to your advantage.
Obviously buying the break below the pennant offers a good price entry and ultimately lower risk. 3C was showing us many signals that there was accumulation by smart money in to this trap, that's your edge in knowing that the probabilities are on your side when buying the trap.
This is a technical price pattern described almost 100 years ago and Wall Street has been manipulating it increasingly for the last 10 years, traders just won't adjust, making them very predictable and this is where it helps you, that makes Wall Street's response more predictable.
I'm starting to lean toward a short term bottom
Late last week from the charts, the idea was that we'd see a short term move (intraday-to a day) up in to the gap area from the SPX's drop from Friday. This move I'm leaning toward would more or less be an extension of that short term move which is a scenario I mentioned yesterday.
The gap was entered yesterday and quickly failed, but I'm leaning toward another expedition in to the gap area. I don't have all the pieces to make a really solid case, I do have the call positions today that were entered for a move along those lines. I'd want to see better confirmation before taking any position larger than the spec. position taken today. When considering market moves and the reasons for them, there's often a set up and that often requires a more extreme move than one would expect. Just filling the gap like we saw 4 months ago has given way to a more aggressive, volatile and choppy market that is knocking traders out of positions left and right so this part is more speculation based on market behavior, but I'd assume we'd see a similar "very volatile move" that does more than just fill a gap, it would need a reason to make a move and that reason generally is to set traps for traders.
I'll use AAPL as an example of what I'm thinking as of now, which isn't too far from original trend expectations.
I would think AAPL would put in a little more lateral action, but it may not be needed as on many timeframes, the drop today saw some aggressive positive divergences, that means the shares were available to accumulate in some size, therefore the normal process of accumulation could be sped up. We are still talking about short term price movement.
AAPL's 2 min is leading positive, it seems it wants to move higher, although I'm using AAPL as an example, it's more of a market move I'm trying to express.
3 min positive and in to the weakness of the minutes today.
5 min, perhaps a lateral base the size of the former one on the 6th.
The 15 min chart will be key as to whether this is just a move in to the gap and maybe then some or something more aggressive, as it stands, the strong pullback would still be expected and the 15 min chart here supports that idea, so really the different trend expectations from last week wouldn't change much, except the short term trend would be a little longer than first expected as the charts yesterday and today did not cooperate with confirmation of the next move, which is the pullback.
The 30 min chart is leading negative, not positive at all and this is where I get the idea of a strong pullback. You may recall, because of the 60 min and 4 hour chart, it still seems likely that after a decent (stronger than most would expect) pullback, we could still see that short squeeze move that only saw a few sputters and spurts on intraday moves.
I'll use AAPL as an example of what I'm thinking as of now, which isn't too far from original trend expectations.
And There's the intraday bear trap mentioned
I warned this was a good possibility...
The bear flag that set up intraday gave price confirmation, volume went up as shorts entered on price confirmation, the trap was set. Now the SPY is above the levels I said to watch out for as they would create an intraday short squeeze of the new shorts, look at volume on the move up.
The market taking advantage of technical traders' predictability once again.
The market taking advantage of technical traders' predictability once again.
Gold and Miners
Overall I'm not impressed with gold/GLD.
However GDX-Gold Miners, is interesting. I'm not a big believer in "V" shaped reversals and the fact of the matter tends to be, "The larger the base, the greater the move it can support", so in light of GDX's price position, I personally would prefer to see a larger base form before considering GDX as anything more than a VERY speculative long.
This is what I mean, to see GDX just attempt a rally from here would be disappointing and I wouldn't have much confidence in it, however if GDX continued to make a base and 3C continued to improve, I think GDX could very well be worthwhile trade to consider.
Trend of the 1 min chart shows a recent, obvious change in character in the underlying trade (3C).
1 min chart close up
2 min chart is also seeing some positive changes.
The 5 min chart is as well.
5 min chart close up
Even out to 15 mins we see some interesting changes.
That's where they stop for now, the 30 min below is not showing anything interesting, but if GDX were to continue along this path, we may very well see a 30 min positive which would give me a lot more confidence. For now, it's interesting, it's worth keeping an eye on, I probably wouldn't want to consider shorting gold miners at this point.
However GDX-Gold Miners, is interesting. I'm not a big believer in "V" shaped reversals and the fact of the matter tends to be, "The larger the base, the greater the move it can support", so in light of GDX's price position, I personally would prefer to see a larger base form before considering GDX as anything more than a VERY speculative long.
That's where they stop for now, the 30 min below is not showing anything interesting, but if GDX were to continue along this path, we may very well see a 30 min positive which would give me a lot more confidence. For now, it's interesting, it's worth keeping an eye on, I probably wouldn't want to consider shorting gold miners at this point.
Market Snapshot
Finally there's some improvement on the SPY 1, 2 and even 3 min. charts with the 1 and 2 min starting to lead price to the upside.
DIA 1 and 2 min continue to improve, making new leading positive highs, the 3 min chart has stayed in an overall relative positive divergence but is not in the leading position seen in the 1 and 2 min charts.
The QQQ 1 min is hitting a new leading high, the 2 min looks ok, not leading though, the 3 min is leading in a stair-stepping pattern, making higher highs
The IWM 1 min is in an overall positive divergence, although it has lost some of the early leading momentum, the 2 min is making up for that though with a leading positive that is making new highs that have actually surpassed the highs from anything from today or yesterday.
There's some interesting activity in GDX (Gold miners ) that a member running 3C pointed out, I'll look in to that closer as well as GLD
DIA 1 and 2 min continue to improve, making new leading positive highs, the 3 min chart has stayed in an overall relative positive divergence but is not in the leading position seen in the 1 and 2 min charts.
The QQQ 1 min is hitting a new leading high, the 2 min looks ok, not leading though, the 3 min is leading in a stair-stepping pattern, making higher highs
The IWM 1 min is in an overall positive divergence, although it has lost some of the early leading momentum, the 2 min is making up for that though with a leading positive that is making new highs that have actually surpassed the highs from anything from today or yesterday.
There's some interesting activity in GDX (Gold miners ) that a member running 3C pointed out, I'll look in to that closer as well as GLD
ES Update
As for CONTEXT, I don't have time to switch templates to our risk asset layout, but CONTEXT seems to be indicating that the risk assets they track are positively divergence and the CONTEXT ES model is higher than ES itself.
High Yield Corporate Credit is pretty much flat since the release and is holding on to a slight gain for the day.
Most Interesting Charts...
Probably the IWM although the DIA is a close second. Levels to watch for intraday bear trap/squeeze, $134 SPY and $134.10
DIA 1 min leading positive
DIA 2 min leading positive
IWM 2 min leading positive
QQQ is interesting just because it has seen longer term time frame migration than the other averages. One min. relative positive.
QQQ 2 min relative positive
QQQ 3 min leading positive.
Update
The SPY is pretty much in line on the 1-2 min charts with the move lower intraday. As far as the trends of these charts, there's only confirmation of the price move down in the SPY on the 1 min, the 2 min, 3 min and especially 5 min were in such strong leading positive positions that there's nothing even close to confirmation on the longer term trend of the SPY.
QQQ 1-2 minute are in a relative positive divergence.
The IWM 1 min is in a relative positive divergence, the 2 min is in a leading positive divergence
The DIA 1 and 2 min are in a leading positive divergence.
Initial Reaction
It will take a little more time to see other timeframes react and any trends develop, but here's what I've seen so far. I'm still holding the call positions from earlier today in SPY/IWM
There's not much apparent in the Euro, but the 1 min and 2 min $USD charts are at new intraday price highs, 3C is not confirming those highs, if the $Dollar drops, that will be supportive of equities or at least that's the normal correlation.
This looks like an intraday bear flag, watch for gaming of this flag such as a break below to a new local low followed by any upside activity, which would create an intraday bear trap.
DIA 1 min hasn't confirmed the downside in the move.
The 2 min chart hasn't turned up yet so it's not quite a positive divergence, but as of the capture it's in the area of one.
GLD initially was in line, then a small leading positive on the 1 min.
GLD's 2 min trend is not confirming the downside move as of the capture.
IWM 1 min actually has a leading positive position here.
The 2 min IWM has an even stronger leading positive position, I'll be the first to admit, more time is needed before celebrating this divergence.
QQQ 1 min is in leading positive territory, but needs to turn up before the divergence is complete.
The 2 min QQQ divergence is complete and positive so far.
SPY 1 min was in line, there's a slight leading negative
The 2 min divergence isn't complete, but thus far not confirming the move down.
Treasuries haven't seen much movement
The only real movement came right before the release.
There's not much apparent in the Euro, but the 1 min and 2 min $USD charts are at new intraday price highs, 3C is not confirming those highs, if the $Dollar drops, that will be supportive of equities or at least that's the normal correlation.
