Longer Term ES Indications

I haven't used the 3C longer term ES charts because of the lack of history on TOS and the confirmation problem, but there are several events on the ES charts that I can confirm from what we saw on the 3C charts so I have a lot more faith in them after seeing these areas of confirmation.

What do the longer term ES charts say?

 On the 15 min chart we see the sharp accumulation from last Thursday during market hours (darker blue background) , we have excellent 3C confirmation among all the averages for last Thursday's 1-day accumulation, as the SPX was moved above the bull flag today, a perfect area to bring in longs on a bull-trap, we see a negative/leading negative divergence today at the highs.

 At 30 mins,  we see again accumulation sending the market higher, a negative divergence to pull it back to Thursday's lows where we see another positive divergence (confirmation here) and a leading negative divergence at today's highs.

 On a 60 min chart, the 1 day positive divergence from last Thursday isn't big enough to show up, contrast that with the leading negative position we are in now as the market has been moving in what is like a large bear flag, as we have moved higher in that flag, you can see plainly that 3C has moved consistently lower which would be in line with distribution in to higher prices-it's a process, not an event.

 The 1 day goes back to the highs to the negative divergence at the highs where we were establishing core shorts and the flag portion of the pattern is clear to the right, again, 3C in a leading negative divergence, the first formed the flag pole, the second has grown more negative as the flag has ascended.

The 1 week has the least noise, the 2011 late July negative divergence taking the market down 20% in a flash is visible as well as the higher prices in to the seasonal adjusted, BS (excuse my french) fundamentals of the start of 2012, here we are at higher prices yet 3C at lower levels, exactly in line with what we were saying as those seasonal adjusted beats came in driving the market higher early in the year.

In any case, for the near term, it looks like the trend down we have been looking for that I have said should be a pullback, but much worse, may even be worse than that.

SPY Update

Last Friday I posted a pretty comprehensive QQQ update, tonight I'll add the SPY as I think there are some concepts discussed today and in the AAPL post that make sense in the SPY update.

First we'll work from the shortest timeframes and look at both how the trend and the intraday readings are both useful, then we'll work to longer timeframes which show more important underlying action (accumulation/distribution), the longer the timeframe, the more important the signal, however we often have to come back to the shorter timeframes for timing. Divergences almost always migrate, meaning if a 1 min divergence is strong enough, it will start to show up on the 2 min chart, if the 3 min is strong enough, it can show up on the 5 min chart. Just remember the longer the timeframe, the more important, so a 15 min divergence has much stronger implications of underlying action than a 5 min chart.

 Today's price moved above local resistance, often longs will wait for price confirmation (a breakout) before buying, I call that chasing and rather let the trade come to me. Today also filled a gap from Mat to the far left in yellow. The Doji star at the yellow arrow is a concept I have mentioned often, a bullish candlestick (in this case-thye can be bearish as well), with heavy volume are often reversals and occur on all timeframes. The reversal has no target implication, it can be a day, a month, or a half a day with only an open in the reversed direction.

Also note volume falling off as we had a "Breakout" today, this isn't bullish behavior to see light and diminishing volume in to higher prices and especially not on a move above resistance.

 Traders still use the 50-bar 5 min moving average as an intraday stop, here at the white box you can see the break of that moving average triggered some stops as volume was about double compared to volume before it-this has been used since the late 1990's, that's how stuck in their ways Technical traders are. Also note the volume pick up as intraday support levels were broken at the end of the day. Traders view support and resistance as EXACT levels, but if you understand the human psychology behind support and resistance, you'll know they are best viewed as areas. You never want a stop at an exact level like this as anyone can see it if you place it with your broker (I prefer mental stops) and it's bound to end up in the same area as everyone else's stop, an easy target for market makers/specialists looking to generate volume rebate income.

 SPY 1 min trend shows a local negative divergence around July 1 as price is about the same, but 3C is lower, we then see last Thursday's accumulation mentioned and a longer relative negative divergence from June 31 to today as price was higher today than June 31, but 3C lower.

 The same 1 min chart used on an intraday basis, a small positive divergence late Friday sending the market higher today, but 3 negative divergences at the 3 reaction tops today, ending with a leading neg. divergence as 3C makes a new low and price hasn't yet.

 2 min trend-We see the same distribution on July 1 and the same relative negative between the 26th of June at lower prices and today's highs at much higher prices. We can also see Thursday's accumulation from last week, I think GS had a lot to do with this, not the stock, the company itself.

 The 2 min chart on an intraday basis... We see a neg. divergence at the highs today and a leading negative around the 3 p.m. highs, compare price at 3 p.m. and 10:15 a.m. which is about the same, yet 3C is much lower (3C in the red box vs the orange box). If 3C was at the same level we would have price/trend confirmation, it is not, it's a leading neg. divergence.

 SPY 5 min trend shows from left to right, accumulation at the July 12 lows and a negative around the 19th sending price lower, 3C didn't move lower making a leading positive divergence and the area around July 23-25 is accumulated, price moves up and is distributed again at the 30th area and Friday and today see even lower 3C readings at higher prices-a leading negative divergence.

 5 min chart intraday, the 3 reaction highs today all see successively lower 3C readings, on this chart the last one in the red box is leading negative as it hits new 3C lows.

The 15 min chart with a relative negative divergence, SPY was higher today, 3C should have been higher if the price/trend was to be confirmed, it wasn't.

 Here on the daily SPY chart we have a downtrend from May 1 and a bear pennant, technical traders expected the bear pennant to do what hundreds of Technical Analysis books have taught for almost 100 years and follow the red arrows with a break below the pennant/triangle and a new leg down roughly as large as the first leg down, instead that was a head fake move which we saw positive divergences and were able to buy long positions at great prices with little risk.

Note the 4 green arrows marking resistance/reaction tops and the last white arrow from today and compare this trend to the 60 min chart below.

The 60 min chart shows clear distribution at the March-May 1 highs, this is where we built our core short positions. 3C moves lower with price, confirming the downtrend until we reach the bear pennant (the yellow pennant is seen here in May). We already knew there were positive divergences there and expected a head fake so letting the trade come to us was easy, there was accumulation at the June 6 lows where many of us entered long hedging positions. The first moves in 3C confirm the trend until a small neg. divergence between mid and late June, the next divergence was worse from late June to mid-July, the mid-July to late July divergence was even more negative, not only because 3C was lower, but because price was higher making the divergence that much bigger, finally the late July to present divergence is even worse.

In 3C vernacular, what this would indicate is the process of distribution, as mentioned, Institutional positions can't be closed in a few days or a single trade like we can, they are often tens of millions of shares so they are sold in to higher prices until the selling is done and then they often sell short for the next trend. As selling and selling short both come across the tape as a "sell", there's no way to differentiate between selling and short selling, except short selling is often seen when the divergence is at its worst or leading negative.

EOD AAPL Update

This isn't just an AAPL update, but AAPL is one of the biggest bellwethers if not the biggest, out there.

Before the last re-wieghting of the NASDAQ 100, AAPL accounted for nearly 20% of the entire index, it had the same weight as the bottom 50 NASDAQ 100 stocks combined! If you want to know what NASDAQ's proprietary weighting schedule is now, you can always pay the $10k a year and find out what AAPL's real weighting is now, but I assume it's still way up there.

The AAPL Put position today didn't suffer too much at all, in fact as of the close...

 The position looks to have only taken a -0.20% hit, which is well within my tolerance when you are trying to let the trade come to you and time an options entry (which is different than an equity entry for a number of reasons, but time decay is certainly one of them).

 For a break out above a bull flag, it's curious that AAPL was up intraday about 1.5% and ended just above 1% on very average volume.

Now that we have some time being the market is closed, for newer members, I'll briefly touch on the head fake concept as AAPL is looking like it's going to give us one of the more rare, "Crazy Ivan" head fakes.

This all comes back to the fact that Technical traders are doing the same thing they have been doing for nearly a century, but when the Internet and cheap online brokers came along, there was a huge shift away from value/fundamental analysis and in to Technical Analysis, I think partly out of laziness. When Wall Street sees that Technical traders will react a certain way to a certain price pattern or break of a certain support or resistance level, they see the predictability of the reaction and it makes it very easy for them to use Technical Analysis against its practitioners which is nearly everyone now.

Above we have AAPL, a stock that a lot of traders LOVE, literally they love it; go on an AAPL message board and say you are short AAPL and see what happens, it's like a cult. In addition we have a bullish price pattern called a bull-flag, this is a consolidation/continuation pattern, meaning technical traders expect it to break out to the upside from the flag portion. If you want to trigger volume and make money on volume rebates (just read your brokers agreement, you'll see they make money for routing orders or volume ) one of the easiest ways is to send price below the bull flag and do something technical traders didn't expect. You can see on the day that happened volume swelled to 2Xmore than average at least because traders put their stops under the flag as that (according to hundreds of Technical Analysis books) was not supposed to happen. That huge supply of AAPL stock available from th sell-stops is easily accumulated by Wall Street, someone HAS to take the other side of the trade.

T.A teaches that if a pattern fails, then reverse positions and in this case, go short AAPL (I doubt many would in AAPL), so when price once again moves back in to the flag as it did, the shorts are stopped out as the bottom of the flag is typically their stop-lots of volume rebates/$ being made just from playing some simple games.

Ultimately though, we are back to a bullish flag and expectations of a breakout to the upside, some traders will enter just on the bullish pattern, others will wait for breakout confirmation which came Friday, but without a doubt today, so more longs enter. What's the easiest way to make more money now? Another shakeout with AAPL blowing the new long position stops, when a shakeout happens on both sides of the pattern, I call it a "Crazy Ivan" shakeout. When AAPL moved above the flag today and longs entered, that created demand that Wall Street can sell or sell short in to; there's a couple of reasons for a head fake move.

The last reason for a head fake move is the snowball effect or as a friend puts it, "From failed moves, come fast moves". Now, imagine AAPL crashes back below the $580 area (below support of the bull flag), a lot of stops get hit which creates a lot of selling (and volume rebates), shorts see the failed pattern and they enter (when you sell short, you sell so there's more supply hitting the market), the end result of all this supply hitting the market so quickly with no demand to soak it up is lower prices, it's simple supply and demand and usually it's a big/fast move. That's another reason, the snowball effect.

 If we look at the 3 min (intraday timeframe) chart, we see last Friday a small patch of accumulation, this certainly and probably came from Wall Street, a little something to send AAPL higher today, but not just higher, specifically above the bull flag where all these things come in to play. Once above the bull flag and longs are soaking up supply, Wall Street/smart money can sell/short in to that demand and I have a strong feeling that's what we are seeing with the negative divergence today, not demand, but selling or shorting in to strength, the exact same thing I want to do because it gives me a better entry and less risk than shorting AAPL below the bull flag at $575.

 Looking at the 5 min chart, the trend shows a negative divergence for a while, Wall Street's positions aren't like ours measured in 100 lots, they are huge and it takes time and supply to move in and out of positions without driving the market against your position.

 Here's our bull flag again with a 30 min 3C chart overlaid, how come there's no positive divergence in this bullish price pattern? In fact we have a negative divergence suggesting it was used by smart money to sell in to strength/demand. The only place there's a positive divergence is once the bull flag saw the first head fake move below the flag (at the white arrow) when volume doubled, that would make it very easy for smart money to accumulate shares on the cheap with lots of supply to send AAPL back up and above the flag, they can also make money on that little trip. It appears from the 30 min chart that they did sell in to that price strength as 3C is even lower although price is higher.

 I have said for a long time that I didn't expect to see any major accumulation in AAPL after we saw the accumulation at the white arrow at the far left at the price lows (again another area where supply would be abundant at cheap prices). It appears AAPL saw price/trend confirmation on this chart until prices were high enough, then we see the negative 3C trend in to higher prices, this would be selling in to strength, but a very large position. If Wall Street were to sell a position that big all at once they'd knock price down against their own position and lose profits, instead they do it a little at a time and the end result is a negative divergence like this that shows where they were active sellers, but unlike amateurs that place orders for everyone to see, Wall Street does this quietly.

 The Crazy Ivan shakeout? We have the downside head fake, we have the upside breakout, all we need is the breakout to fail, volume certainly didn't impress today for such an important breakout. This is why we want to understand the underlying trade, be patient and let the trade come to us, in effect, trading like Wall Street/smart money.

 The 60 min chart at the bull flag also shows no positive divergence in this bullish price pattern, but rather a negative divergence, again it looks like smart money was selling in to the bullish price pattern because technical traders are so predictable, they know that they will buy the bullish pattern. The positive divergence is on the downside head fake and it looks like those accumulated shares are being distributed as we have another negative divergence to the far right.

Here's a closer look at the same 60 min chart, note how the negative divergence really kicks in the last 2 days, the same last 2 days that price in AAPL moves above the bull flag, the area Wall Street knows that technical traders will buy. The volume isn't huge today in my opinion because the only buyers were retail in their 100 lot orders, it doesn't appear from volume, price action or 3C that smart money was buying this bullish move.

We'll see how this all pans out, but trading is all about seeing what the crowd missed and probabilities.

MCP 3rd Update

The action in MCP reminds me of the action in the market on Thursday except MCP's looks even more explosive.

Check the 5 min chart, both trend and intraday (remember the SPY 5 min didn't even show a positive divergence that far out last Thursday).

 There's been a longer accumulation period before sending MCP higher, I don't think it was as sharp as this one though.

Here's the intraday view of the same chart, it certainly appears something is going on here that price alone would never show.

UNG -Opening Options Position

The answer for me was the options model portfolio, so I will open September UNG $19 Calls, it's probably a bit shorter expiration than the trade I envision, but I'm sure there will be some pullback in which I can roll-over to a later expiration.

UNG

As you know, there's only a couple of stocks that I like for the long term on the long side, UNG being one.

A pullback in UNG had seemed likely over the last several weeks as Stage 2 volume didn't hit yet, however with UNG having recently pulled back, it's looking like an interesting area to consider it as a long (I'm already in there, but may look if there's room somewhere).

 weekly UNG chart and where we first started following the change in character, an exercise in patience!

 The recent UNG 5 min chart starting to lead positive after a pullback.

 The 15 min trend leading positive to a NEW HIGH!

Eventually the already great looking 4 hour charts will catch up, for now, that 15 min has me wanting to look if I have room to add UNG somewhere.

Quick Market Update

All over, whether averages, ETFs or momentum stocks I see one thing today that ties them altogether, they are all above very obvious resistance. For newer members that may sound like a bullish thing, for members who have been around and seen it on every time frame, you know that approximately 80% of the time, major trend reversals end with a head fake move (in this case above resistance, for an upside reversal below support like June 6th). If 3C were confirming or leading positive at these areas, we would assume they are true break out moves, but with the negative divergences we have seen so often on similar moves, the probabilities are a head fake move and that is one market behavior we have found to be an excellent timing indication, even though the stronger the head fake move, the stronger and faster the downside reversal as a general rule.

Here's a quick look at the 5 min charts today in the majors...

 DIA with last Thursday's accumulation, that was the same day GS put out their FREE long Euro call which is the same as saying "long the market". Is it just coincidence that the same day we saw heavy short term accumulation as we were just below those very obvious resistance levels everywhere? There are a lot of reasons for a head fake move before a reversal, we'll talk about that later.

 QQQ 5 min longer term chart.

 QQQ 5 min negative divergence, compare to Thursday's accumulation zone.

 SPY 5 min trend...

The SPY 5 min chart doesn't even show accumulation, compare to the leading negative divergence in place, as well as the flat intraday trading range.

FB Update

FB is one of the few stocks I have seen that can buck the tide or the trend of the market which is unusual. As you know, when everyone else hated FB, we saw something and had a GREAT run on the long side in FB. I have waited for nearly a month and a half for that "FB pullback" to start a new position in FB and while a lot has happened that was surprising, the bottom line is we saw something the crowd missed and made good money, hopefully we are on the same track again.

I really thought I had at least started a position in FB recently, apparently not until just a few minutes ago.

 This is about where we really got interested in FB, although there had been hints before that. Remember the 60 min leading positive divergence? How could I not take a long position. I ended up closing out a bit early, but many of you made a killing on options. Here we are again in the most hated stock seeing some things it appears the crowd missed.

 The 1 min leading positive 3C FB trend, I figure if you average the cost of the range where the positive divergence is, the accumulators are probably already at a profit or break-even and we are still leading positive.

 The 2 min really leading positive, this is why I'm surprised I hadn't opened a new position on a signal like this yet.

 The 5 min chart went leading positive, Friday you can see a negative with price pulling back, but today 3C is moving up again.

 The more important 15 min chart not only has a huge relative positive divergence, but also a leading positive

 The 30 min shows the flat area in which FB apparently was under distribution, to the far left the positive divergence in which we first entered long, but the point is the long term relative positive divergence now.

Here's a closer look at the 30 min chart, a relative positive locally and a leading positive the last 2 days.

I feel that FB is worth a shot here, as usual, with any longs right now I think they need to be speculative given the overall market analysis, but still worth at least a spec. position.

Opening FB Sept $21 Calls

I really thought I had a recent position in FB after our recent analysis, apparently I didn't so I'm opening a 3/4 normal size position in the options model portfolio for FB September $21 Calls.

Charts coming.

MCP Follow Up

It looked like something was going on in MCP and again, it's not time for victory laps, but we do have some encouraging price action.

 While some of the longer term 3C charts in this post have a current price stuck at $11.39, I just confirmed price at 11.73 so on those charts there's just a temporary glitch as to price.

 I updated MCP twice in a short period of time because the charts were moving fast, now we see price is moving, up about 3% earlier and over 2% right now. I'm certainly expecting more than 3% based on the charts, but it's an interesting start and follow up to the very fast positive divergences in 3C.

 The 1 min chart is an excellent intraday timeframe, for day trading this would be my choice. While we have a hige leading positive divergence, 3C was also VERY clear about calling intraday action.

 Here we have confirmation intraday, another positive divergence and as MCP reached the 3+% highs, 3C shows some profit taking or some kind of very short term distribution intraday-this has nothing to do with the longer term outlook the trade was opened on.

 As you see the 1 min negative divergence intraday wasn't even strong enough to effect the 2 min chart, which is even more positive than the last update.

 As is the 3 min chart.

 Now the more important 5 min chart is hitting a new leading positive high.

Ultimately the 15 min+ charts are where we see signals that really mean something, this leading positive 15 min chart is encouraging. I'm not willing to say that MCP won't pullback and perhaps create a larger base, but it does look like there was a lot of institutional/underlying activity in MCP very quickly today.