As you probably know, I consider any rally unsustainable without the participation of what I consider to be the most important 3 industry groups: Financials, Technology and Energy.
With 3C when we have negative divergences on 15, 30 or 60 min charts, these are some strong signals depicting underlying distribution in large scale. We then often look for 1 of/or 2 things: we look back to the short term charts for timing signals of when a reversal is near and we look for a head fake move above an obvious resistance level, price pattern, new high or anything else that will get longs active as I would conservatively estimate (between all the timeframes) that we see some sort of head fake move before 80% of the reversals we see whether they are up or down and whether they occur on short timeframes (even intraday) or whether they are on major trend change timeframes.
So I'm going to show you the 3C charts and some charts I consider to be key among the big 3 industry groups. The signals recently and especially since last Friday have been cleaner and clearer than we have seen in a while. My original expectation was for a pullback move that was more volatile and more intense than what we would normally associate with a pullback, but recently in positions I have opened, I have looked at this move as something stronger than we originally anticipated. Remember, fear is stronger than greed and markets fall faster and harder than they rise.
Energy
The 1 min chart in Energy today isn't a strong distribution timeframe for overall big picture stuff, but since Financials were the last to cross resistance (up to 7 days behind Tech and Energy), as of last Friday I said I believed the markets were waiting on Financials, that they were the only group still holding the market up. This move today on the 1 min chart in Financials is pretty intense, a leading negative divergence.
One reason I look to the short term charts for timing is because market makers/specialists who have been filling institutional orders and have some idea of what is coming often want to get prepared right before a move-whether stocking up or selling naked short their inventory as they are allowed to do, they also trade significant volume in the stocks they make a market for. I suspect HFTs play a similar role as a liquidity provider, but this would be a more recent development. The Specialist/Market maker stocking trend before a reversal is something I have witnessed many times in the past, HFTs have definitely effected their role, but I believe it's still common practice.
Also much of what has kept Energy up has been Middle East event risk. Energy markets are WAY out of sync with their legacy arbitrage FX correlations.
Just because it is confirmation and so extreme, here's the 2 min chart, the yellow box is where the short position in USO was entered yesterday (this is not USO). The divergence is way out of recent character and it is very sharp, leading negative.
The 5 min chart was included because it shows the interesting accumulation seen market wide for 1 day last Thursday, the same day Goldman told anyone who would listen to go long the Euro, today in a GS release it was once again confirmed that GS's trade rec'd go against (they trade against) their own clients, yet they are going to treat the average Joe (us) to better information? Sounds like GS had some Euro's or any risk asset that is correlated to the Euro (which is just about everything) to sell.
By the way, here's how that Goldman Euro trade rec'd is going...
Considering many probably got in on the spike after they announced it, most are probably at or near a loss and most of that happened overnight last night.
Energy 15 min, note at the yellow box there is NO accumulation, as mentioned, energy has largely been up on fundamental risk events. There's a sharp change in character on this chart from rough confirmation to a leading negative divergence.
I'm still dumbfounded by how many "experienced" traders believe that when a stock's price is going down, they believe that is smart money selling; smart money sells in to price strength and demand and are already short by the time price goes down.
Energy 30 min-this is part of the reason I now expect a worse move down than previously, note confirmation (generally) at the green arrow as 3C makes higher highs with price and the recent leading negative trend down, confirmed on many timeframes. This is a major change in character of the underlying trade.
Financials
Again, the short term 2 min chart is included so you can see how sharp the negative leading divergence has been.
The 3 min chart shows last Thursday's accumulation which was market wide and only 1 day. Th leading negative divergence here is touching the lows and over the course of only several days.
Thursday's accumulation again in white and the leading negative divergence on a 5 min chart.
15 min Financials going all the way back to the head fake low of June 6th when we opened hedging long positions at great prices while traders went short. The small red boxes show negative divergences at tops and the resulting moves down, the current negative divergence is leading and the worst on this chart.
30 min Financials with a distinct change in character-remember it takes institutions time to sell millions or tens of millions of shares, it's not like us. However it appears they are done as the recent highs have hit an increasing leading negative divergence which was already at a new relative low.
Technology
The 1 min chart with a sharp change in trend.
The 5 min chart also now lower than where 3C was at the accumulation from last Thursday, it only took 2 days to get there.
The 15 min chart of Tech, white is a positive divergence or accumulation, green is trend confirmation and red is a negative divergence/distribution. An arrow represents a relative divergence-relative between two points, a box represents a stronger leading divergence. Often we see relative divergences first as distribution starts in to higher prices, the relative divergences may get worse as distribution continues, leading divergences almost always follow relative divergences and represent a flurry of activity, stronger than the previous activity and usually faster, I like to think of it as final preparations or in some cases, very strong institutional activity, that's what we saw market wide last Thursday, the same day GS made their long Euro call and just before the major averages were pushed above local resistance (possible head fake area).
Tech 30 min, this shows the relative divergences getting worse and ending with a leading negative divergence which is almost as low as 3C when prices were at the late July lows.
