A Look at the long term 3C charts.

How has the marekt performed since QE3? We certainly haven't seen follow through.

 The SPX has nearly retraced all the QE3 gains.

 The "Risk-on" Russell 2000 has retraced all QE3 gains and then some.

 High Yield Corp. Credit retraced its gains days ago and has added more to the downside-remember, most often, "Credit leads and equities follow".

 Yields retraced and are in a much larger negative divergence, yields have called some large reversals this year via dislocation/divergence with the SPX.

And commodities which should have reacted well to QE are seemingly reacting more to manufacturing data.

I've been looking at post QE3 data to try and figure out whether smart money priced it in or whether they'd accumulate on a pullback, in the mean time ignoring the longer term 3C signals until that is settled, but it can't hurt to look at what the important 3C charts have been saying.

 The 60 min SPY chart called the March-May top as did many other timeframes at the time, it also called the June 4th bottom, this most recent leading negative divergence is by far the worst we have seen.

 The 60 min DIA called the May top, the June bottom and again is showing by far, the worst divergence on the chart.

 QQQ also with a deep leading negative divergence

And the IWM, well, it speaks for itself.

If indeed smart money is underperforming because they've been selling/shorting in to QE3 advance discounting, then they really aren't doing anything different than what we try to do, sell in to strength, but in their size, it takes more time and demand.

I haven't seen too many long term 3C charts that were wrong and they weren't wrong at past QE periods. 3C is essentially telling us what the money flow in an asset is right now vs some point in the past, I'm not sure a QE3 announcement changes that basic function and I'm not so confident we should be ignoring these signals. This may in fact be one of the largest mass migrations of smart money toward de-leveraging and/or the short side we have seen since 2008 and in some ways, it looks even worse.

I'll continue to watch for mass accumulation on price weakness, but thus far, it just hasn't been there. Today's movement in price was so quick that some longer 3C charts need time to catch up, but as a member mentioned the other day, perhaps the massive hedge fund underperformance of the SPX (92% of all funds) isn't the entire story as their year in't over yet and we see how fast the market can move when it wants to.

We haven't looked at these charts seriously since QE3, I thought maybe it's time we just take a look.

CAT Trade Idea

As you might recall, CAT was a core short position in the equities model portfolio entered at $107.67 and covered/closed on September 5th at $82.47 for a 23+% gain in a non-leveraged large cap. The reason CAT was closed... some leading positive divergences.

Looking at CAT now, it looks like it might just be a nice short position again and if all goes well, on our terms.

Here's what I'm looking at and looking for...

 Cat closed on the 5th on a positive divergence, recently CAT has gone negative and deeply leading negative on a 60 min chart, this is quite a strong signal.

 There aren't much in the way of positive divergences, but we do have at least a 3 min intraday positive divergence, this isn't the kind of QE3 accumulation one might expect to see if price was being brought down to accumulate for a QE3 rally, but it may be enough to get CAT to a better price point with higher probabilities and lower risk-LET THE TRADE COME TO YOU.

*NOTE THE HEAD FAKE POP IN THE YELLOW BOX.

CAT has somewhat of an island top here, I'm thinking a move to at least the first gap is reasonable, if we get a move to the higher one, even better so long as CAT goes negative on any bounce and with a 60 min chart looking that bad (one of the worst I've seen recently), I feel pretty confident we'll see negative divergences in to any short term price strength.

Here's the daily of CAT...

CAT shorted at the red box, covered at the white box. It looks to me like the yellow trend was a counter-trend rally in an overall bearish trend, while we may see some short term upside volatility around the gaps, from the looks of that 60 min chart, I'd expect CAT to make a new low as it resumes a downtrend.

In any case, the stop would be very close to the entry, I doubt there'd be much more than 4 points of risk in the worst case scenario.

Forward looking

This isn't the time to go chasing shorts, you either entered some when they were at higher levels (letting the trade come to you) or it's best to wait for that to happen.

The speed at which the market has moved means it will take some time for the timeframes to catch up, as it sits there are a few relative positive divergences, but I suspect more as a function of 3C not moving as fast as price. The Price/Volume relationships available after the close will be helpful too in determining an short term oversold condition. Beyond that, there's a lot of analysis to do as everything went to heck in a handbag very quickly.

This is why when they announced QE3 I said my first instinct was to close all shorts, but I try never to make emotional decisions and make them based on fact and probabilities. The knee jerk reaction!

I'll be starting my updates and scans, but for now take a look at what otherwise was a pretty decent chart yesterday, it looked like the market would bounce a bit, the NASDAQ Futures.

This is a 1 min chart, it has been negative all day and most of last night as far back as I can see. There's not 1 significant or meaningful positive divergence on this chart, but several significant negatives.

Recall also the earlier post of the futures 5 min charts in which I said they showed a much more negative disposition.

Don't get caught up in the emotion, there are plenty of opportunities.

Market volatility and volatility

With a move this fast it takes indicators time to catch up, while I feel a bit better about the way the analysis was pointing and this move, I'm also cautious; oversold bounces are the least of my concerns, it's what is the nature of the market after QE3 as I have been stating all along-it's either priced in, it isn't or we have some strange dislocated risk on/off move.

In any case, I'll be looking carefully at the market after the close for any hints.

As for Volatility instruments, I have long been saying that it appears someone has been accumulating volatility, as mentioned this week even as the VIX was close to 5 year lows, the risk premium on the VIX told another story, one that traders were more nervous about the market than the VIX reflected.

As for the volatility instruments such as VXX/VXY, here's a look at them.

UVXY

 15 min

 10 min

 1 min

VXX

 4 hour!

 60 min

 10 min

 3 min

2 min

As you can see, many of the divergences are hitting new leading positive highs.

AAPL 5 min Leading Negative

AAPL has had quite a sell-off in the last hour, I am not a believer in markets moving in one direction so I would certainly anticipate a bounce or something in AAPL as nothing goes straight up or down, but the entire AAPL set up before the I-phone 5 release was based on a leading positive divergence in AAPL's 5 min chart and I have said that I'd feel more confident when that same chart leads negative to the downside. We are there.

 AAPL 1 min was deeply leading negative BEFORE AAPL fell on the 21st. I'd still like to see this 1 min chart lead negative like the blue arrow I drew in. An earlier short term positive divergence that looked like a gap fill was just obliterated.

 2 min is very clear from confirmation of the move up to a strong leading negative divergence on the 21st, again well in place before AAPL moved down hard and currently this chart is in line with price or trend confirmation

Finally the 5 min that went relative positive to leading positive before the IP5 release went negative at AAPL highs, but was not deeply leading negative, you can see that has changed quickly today.

Still holding AAPL equity short.

GOOG Coming Along Better Than Expected

I thought GOOG's process would take longer to start effecting longer term charts and maybe wouldn't at all on a first move, but within a day it has moved to longer term charts that don't usually move in a day. I posted an earlier update of GOOG today in which the 10 min chart was the longest to go negative, although the extreme nature of the divergences in the charts from 1-10 mins said quite a bit.

As a reminder, GOOG is important fora few reasons, 1) A potential low risk/high probability short trade 2) A market leader that can offer us just as much information about the market as some of the market averages and 3) I have mentioned numerous times now that there is some evidence that the market's response to QE3 may be a surprise to all, instead of being either a risk on where most risk asset stocks rise or a risk off where most risk assets fall together, there have been some signs of bifurcation in which it's kind of an extreme version of a stock picker's market. If #3 is true, it's going to chew up most retail traders as they can't judge risk on or off and don't know what stocks or Industry groups to target, it would be an advantage for us. I can elaborate more on why, but we'll wait until we have a better view of the probabilities.

In the last update I mentioned the probability of GOOG turning lateral and choppy,  I also said the same yesterday, not to expect a "V" shaped reversal and not to rush in to the position, it's likely to be volatile as well in that chop; that has started to take shape. GOOG isn't looking good.

 GOOG made a very parabolic move on the way up (daily chart) so I suspect that it will not make as large of a rounding reversal, parabolic moves have tighter reversals, but still not "V" reversals. As you can see in the white box, the lateral chop I warned we'd likely see has developed, it is now starting to break down from that chop, but I wouldn't be reckless and I would say you should still expect choppy volatility. If you phased in to an entry today, it was likely a good move with a potential stop very close.

 The 1 min chart shows the deterioration in GOOG today, it also shows just enough 3C activity (I wouldn't call it positive, but neutral) to maintain that lateral consolidation, this is often where the divergences get worse.

 2 min chart is leading negative.

 3 min chart has the same leading negative, but a little 3C support to halt the slide and keep GOOG lateral instead of down.

 The longer 5 min chart has a more important signal which looked really bad yesterday, today it looks much worse at a new leading negative low.

 The 10 min chart is leading negative as well, this is where the negative divergences were held up at, that changed today.

 a 15 min chart is making a lower low in 3C which is leading negative, it's even worse now since the capture.

Even a 30 min chart is leading negative at a lower 3C low, this too has grown worse since the capture about 10 minutes ago.

GOOG downside

Ironically I'm just finishing a GOOG update and before I can even finish it, GOOG is breaking price alerts I set to the downside. Update is coming...

AMD Charts

One of the reasons I was a little disappointed in AMD's break below support is there wasn't a lot of volume/stops hit, when there is it creates supply at cheap levels that can be accumulated without anyone suspecting anything as someone has to take the other side of the trade, unlike accumulation in at support where there isn't the same level of supply and any larger orders would drive price against those picking up shares or accumulating.

There are a few tell-tale signs as well as signals.

 AMD's stops hit on a continued move lower, at the white arrow this is a concept we see quite often, a bullish candle (in this case a hammer) with a volume surge, these tend to be reversal points and work on all timeframes, this is 15 min. Then the flat range we often see accumulation or distribution and the lower volume that often accompanies it.

 The 1 min chart leading positive or adding to it since breaking support this a.m.

 2 min chart leading positive at the flat range.

 3 min chart is putting in a nice leading positive divergence here.

 Even the 5 min has a large relative positive and leading positive at today's flat range.

Since the 15 min chart turned down, we now have a large relative positive on an important timeframe.

AMD looking a lot better, charts coming...

S&P and NASDAQ Mini Futures

The Futures timeframes are more influential, for example a 1 min ES is more influential than a 1 min SPY, they also are a bit more consistent so far. I'd guess we are near the intraday lows based on the 1 min chart, based on the 5 min charts there are certainly some questions that aren't visible on the market averages.

 ES-SPX futures 1 min have a positive divergence here at the intraday lows, I'd guess that this will hold, although if support becomes too obvious there's always the chance they run the stops.

 The 5 min chart shows a leading positive divergence at the lows in the middle of the chart, prices moved up and as they did, 3C went negative implying they were sold in to. The question remains whether they were sold in to to de-leverage (sell/sell short positions) in to any strength or whether they were purposefully brought back down to a level in which a larger round of accumulation could occur. This is exceptionally important as until today there was no sign of the kind of large accumulation that we see on say the USO 30 min chart.

 NASDAQ/NQ 1 min was very positive yesterday and today in to the highs, very negative, sold in to, again the question is the same.

The 5 min chart, like the ES/SPX futures is leading positive (accumulation) at the lows in the middle of the chart, the run up from there was distributed and it looks pretty serious, but again, is it so they can build a larger position or are they just selling any strength.

The market has been trending down since the 14th, that's a long time with no upside correction.

Market Update

Like I said, I don't recall seeing a market this screwy since 2008/2009 and back then there was a lot of F_E_D Plunge Protection Team intervention. Those of you who know David DT, he and I were trading together back then and we could literally call PPT intervention within 10 minutes, all it took was price moving toward a break of support and they were there. I don't know if we are seeing similar action from the PPT, they seem to have been out of action or not needed since all of the F_E_D's LSAPs, but there's definitely a hint of that same craziness going on now.

This market update from yesterday shows the extent of the positive divergences we saw in the afternoon that are not as clear now due to scaling and then how fast it fell apart. You may want to look at those two posts.

So here are what seem to be the key charts right now, what I'm really trying to watch for is anything slipping in to a timeframe quickly that changes the complexion of the market, the market is moving fast enough that it could do that and today's move lower is the type of environment that it would occur in. These are more important than just intraday updates, these are the pieces of the puzzle to understanding what smart money's take is on QE3 and what they are doing.

 The DIA 1 min chart was the closest to in line yesterday...

 Obviously it went negative today around 11 am and dumped from there, that leading positive divergence in place now needs to be treated with caution as you may recall yesterday how quickly they formed, moved price up and then fell apart, if you don't recall, I linked both posts from yesterday above.

 2 min DIA relative negative divergence and another leading positive-they were on 2 and 3 min charts yesterday as well.

 The 10 min is one area I'm watching to see if a divergence sneaks in, so far it was looking decent yesterday, went negative at today's highs and right now is in line, no positive, no negative, but a key timeframe right now.

 IWM 1 min looked pretty positive yesterday, it went negative in the afternoon and again around 11 today, there's a hint of a leading positive divergence now, but recall again what happened yesterday.

 IWM 3 min shows the positive trend that was part of last night's analysis that we'd see a move higher in the averages after drifting lower since the 14th, it went negative near 12 and is in line with price right now.

 The 10 min trend since QE3 has been negative or in line with price, there is a relative positive here that is what I'm concerned about in so much as they may form very quickly and change the complexion of the market.

As an example, mentioned last night, the 30 min charts were and are very ugly with this leading negative divergence. The way things stood yesterday a bounce seemed likely with this 30 min negative capping the move off to a bounce. If longer charts like 10-15 min start going positive, it could change that view, this far though this looks like for the most part, the price action since QE3 has largely been distribution.

 QQQ 1 min, is leading positive, I need to look at AAPL as I'm sure it has something to do with it.

 The 2 min is starting to lead positive, the negative around 11 am today is clear.

 5 min is more or less in line, but I'd say overall still in a positive position for the kind of move described last night.

 And remember I mentioned 10 min charts looking ugly, here's an example of a leading negative 10 min QQQ chart, but there's some relative positive action that developed at today's lows.

 SPY 1 min isn't doing much

 Nor is the 3 min, this is the kind of bifurcated market signals I have mentioned.

At 5 mins today's lows formed a relative positive divergence.

So the point is to keep an eye out and see if the drop in prices today was volatility or specifically caused to accumulate a larger position at lower prices, it has a large impact on our analysis moving forward.