How Does the Market Work? You Decide

I was reading a technician's report tonight, I guy I've met, a guy whose father had unprecedented access to Wall Street and wrote several of the best books you'll never hear about regarding the market. This guy had a lot of access to a lot of information and maybe he knows better than what he's writing, but perhaps this is all his audience knows and can digest.

In describing today's move, today's decent housing data helped push the market higher! How many good, awesome, bad or indifferent economic reports have we seen that did nothing to the market? Yet today's move was pushed up by good housing data. Another reason was the market was oversold.

To believe in the concept of an oversold market, you have to believe in a market that is searching for fair value, so AAPL's 200 point decline since September was a little overdone and it rallied from Friday's lows....

 An amazing 11.9%, a move on no news that was bigger than the earnings blast higher of 9.9% back in April. So we should then assume that AAPL has to be fine tuned a bit and barring any major developments, AAPL's fair price should be found and it shouldn't deviate too much from there. Do you believe that? In fact AAPL just got a lot of bad news from losing key people to seeing their parts from Samsung jump in cost 20% virtually overnight, yet AAPL which has been on a tear to the downside gets this news and several days later puts in one of the biggest rallies AAPL has seen in quite a long time!

 The Classic Technical descending triangle that should have sent AAPL plummeting down on the next leg lower instead happened to suck in shorts and then reverse to the upside, the classic technical pattern failed.

However, even bigger than that, a major support level was breached on high volume Friday as short sellers piled in on the new break below important support and then AAPL rallied back up the same day to close near the highs? That's coincidence? That's AAPL searching for fair value? That's AAPL reacting to good housing data today and we are just talking about AAPL, what about all the other stocks that ironically were just lucky enough to see huge rallies the same day coincidentally. Perhaps the housing data? Perhaps they too were seeking out their fair value?

Then we have these charts, charts few people see other than our members. Just a week or two ago I mentioned that AAPL which had been a big disappointment in accumulation was starting to see a change in character, a few days ago last week I said AAPL is getting close to a long position, Friday we entered Calls and we had members today make more than 150% in less than a day (I'm sure some of you did even better than that). That was just a lucky guess or could these charts tell us something about how the market really works?

 AAPL's 15 min chart saw a lot of momentum develop from the 6th, by Friday it's seeing more money flow in to the stock at the lowest lows of this move down than well over a month ago over 150 points higher!

 The shorter term AAPL 5 min chart shows an accumulation area between $505 and $552, the accumulated position is probably an average of that, say half way at $528, today it easily would be in the money at 565.73.

Just about everyone knows that if AAPL moves, it's going to pull the QQQ higher being AAPL accounts for nearly 20% of the NASDAQ 100's weight. So why would the QQQ also be seeing big accumulation too, coincidence again? Luck? Or perhaps smart money knows that AAPL moving higher is going to move the Q's higher so why not spread the money around and accumulate the Q's as well?

 The 15 min positive divergence in the QQQ ranges from about the 64.25 area to 61.50, assume the average is around $62.90, today's move alone puts that position at a profit at $63.79 on the close.

On a near term 5 min chart, the accumulation zone is about the same.

What about all the other averages though? Why do so many of them that trade totally different stocks and are totally different in volume and price look so similar?

Take a look at these 15 min charts of 3 of the majors...

 Note the dates and how the divergences appear, this is the DIA

 The IWM

The QQQ

But what about a totally different ETF, TNA, not only a 3x leveraged ETF unlike all the others above, but a small cap ETF, why does it look so similar in the same timeframe?

TNA sees distribution at the same place in mid-October, then is bland for a bit and then gains upside positive divergence momentum to a new leading positive high, this ETF is not connected to any of the others at all in any way, especially the DIA which are large caps. I don't draw these lines, this is the indicator.

How about just the Tech Industry, but lets look at a 30 min chart instead.

 Basically the same findings in the same places.

Lets really mix it up and look at Financials, but instead of a 15 min or 30 min, lets look at the trend of a 10 min chart...

Distribution at the same place, a positive divergence and a new leading positive high all at the same places.

There's no way all of these assets could possibly look this way by accident, these assets rarely ever look almost exactly the same. Coincidence? Luck? Somehow all of these assets that trade different volume, different prices, all have the same signals in an indicator that has no way of making them look the same unless the underlying action itself is similar, the moves smart money are making are largely the same not in one or two stocks or groups, but across the market. I could show you dozens, maybe hundreds more of these charts that are all similar.

I always tell users of 3C that you'll never know why the signals are there at the time, you can wait to find out why and be sure, but there's no money to be made in certainty; by that time the move is over  you lost your chance to make money.

I just had to vent because I know these people are smarter than to say this is based on an oversold basis, some search for fair value across all these different asset classes and individual assets and most laughably, the decent housing data today. Something big has been building here for a while, we've been expecting it since before it really even started and here it is.

French downgrade or not, something big is going on and in a few weeks or maybe longer we'll be able to look back and see how this all played out and I think we'll all have an even better understanding of just how controlled this market truly is.

Putting ES in Perspective

Last week I showed you the positive divergences in ES, timeframes I've never seen them in, especially multiple longer term timeframes all at the same time, this hopefully helps you understand how unique the situation the market is in right now truly is.


First the charts you may recall from last week...

 ES 15 min leading well above the last relative price high.

 ES 30 also leading significantly to the upside

 ES 60 min which is a very long timeframe to be leading like this, as I said, I don't recall every seeing anything like this.

 Is we roll back to earlier this year, to the left on this 4 hour chart, that's where we were entering our core shorts (all of which were closed in the green or are still in the green. Note the positive divergence after that, you may recall that as the June 4th lows.

 Here we are now,  the green arrow is the announcement of QE 3, there was a negative divergence shortly after and the market moved lower, but now we have a similar positive divergence to the June 4 the lows.

As yo know my big picture view is very bearish, there are a lot of charts that have led me to that opinion, this is just another, ES 1 day, a clear negative divergence in leading position. This is a longer term trend, there's plenty of room before this kicks in for the market to move up down and sideways, but ultimately, this is where the highest long term probabilities lay.

In any case, we'll keep an eye on overnight trade

Moody's DownGrade of France AAA Aa1

Coming across the wires in After Hours, Moody's downgrades France a notch:

• MOODY'S DOWNGRADES FRANCE'S GOVT BOND RATING TO Aa1 FROM Aaa
   
• FRANCE MAINTAINS NEGATIVE OUTLOOK BY MOODY'S

The initial reaction in the EUR/USD is probably as to be expected, but looks worse in the EUR/USD than it does in ES at the moment.

 This is the NY 9:30-4 pm regular hours trade at the green and red arrows...

 Here's a close look at the knee-jerk reaction in the Euro as Moody's announced the downgrade...

 Here's ES during the regular NY hours, as you can see it has held up much better thus far than the Euro/USD.

A closer look at ES since the 4 p.m. close, ES was closed as usual in after hours when Moody's made the announcement, many expected ES to re-open much lower.

NQ/NASDAQ futures are holding pretty well also considering.

With the markets closed, the only real 3C indication we can get outside of the futures is EUR/USD which has been pretty reliable so this is a bit surprising...

This is actually a positive divergence in the FX pair.

While some are making a big deal of the downgrade, like one website that has accurately pointed out the last 2 times Goldman has come out with a market opinion, the market has done the opposite, the first time was when they said it was going higher during Q1 of 2012, the same time we were shorting and the market never went a percent higher from the GS endorsement. The next time Goldman said the market had a lot more to go on the downside, shortly thereafter the June 4 lows were put in and the market rallied from there, however this time when Goldman is giving out free advice to all of the same people they fleece everyday, this website has decided to give GS some credibility!

Like I mentioned many times today, even with an undeniable move up, Wall Street will never make it easy whether you are short or long, they make their money keeping you guessing and on the wrong side of the trade.

Before the Moody's news I was looking at charts, what I saw would make me think we would see some downside maybe early tomorrow, however the longer term charts have actually improved. A pullback with the longer chart continuing to improve would put in an amazingly strong divergence above where we already are.

I'd like to say it's surprising given the move today, but this is what we've been seeing clear signs of, the longer term charts whether the Q's, the IWM, the SPY or the DIA, have all improved today, sending some leading positive divergences to the 30 and 60 min charts! With a move like today's, most of the time we'd expect to see distribution in to a move like that, not the case, at least not where it counts.

If we can get some downside/pullback, I'd be watching very closely for another opportunity to open a call position in something like AAPL, maybe GOOG, or several others. Making a 100+% gain in 1 day sits well with me, especially if the big picture actually improves on a pullback/consolidation (this wouldn't be an issue I'd be bringing up if the longer term charts weren't so much stronger today despite a move up which they could have easily sold in to in large size.

As far as leading indicators, the other thing I was watching for today as wether they confirmed the SPX move or diverged negatively, in many cases they actually diverged positively, meaning they performed better (on a relative basis) than the market itself!

As far as how these indicators relate to tonight's events, these downgrades usually make their way in to the market somewhere, the fact leading indicators held up either means the market wasn't aware or it really doesn't care as much as the initial move in the EUR/USD would make you think.

In any case, it's certainly an interesting event after a day like today.

Another notable performer today was the TICK Index, as mentioned earlier it barely moved below 600 area more than once today, most of the low side range was -500 which is very mild, whereas on the upside we saw nearly +1800 (almost unheard of) with a strong close in the  +1400 area.

We can speculate all we want, but the market is obviously the final arbitrator, the advantages in the market are solidly built in and have been for sometime with huge improvement the last 3 days of last week. So does a downgrade of France that is hardly a surprise to anyone throw off the bigger picture? I lean strongly toward, "NO", in fact I think this could open some great opportunities to get in to positions like Friday's AAPL calls closed today for a 115+% gain.

I'll keep an eye on the market overnight and let you know if there are any interesting developments. 

QQQ Move

I know you've seen this divergence, but one more time...

 This is the signal seen in a number  of places and assets, this is the cycle and like I said at the start of the year, each one would be more intense and more unpredictable until Wall St. loses control.

However...

Did you realize that the QQQ has pretty much taken back about 33% of the move down from October 18 and in the process has retraced nearly 33% of over 4 weeks of trade in 1 day?

What are my expectations for AAPL

I've had several questions along these lines today and I understand you want to plan as do I, but this is why I not only opened the options position on Friday (and you know I only do that when I think we are right there with options), but also why I wanted a equity position so I don't have to worry about draw down and time decay and just let the AAPL position work like the 30 min chart has been warning us.

We can look at AAPL, but every market is different, AAPL did not cooperate or put in a positive divergence for a while and then just about two weeks ago I told you something was changing, it was starting to go positive.

 In one day AAPL has nearly taken out the last 2 weeks of trade to the downside, this is why I don't ignore these divergences and I rarely question them, but I've had years of experience with them and know that the chances are very high they pay off.

AAPL charts...

 Talk about changes in character and this is something people just do NOT pay enough attention to, AAPL is putting in the biggest 1 day move thus far since earnings back on April 25th and you may recall we saw that coming to and were long AAPL 2 days in advance of that, but the biggest 1 day move up since April.

 I know the shorts are still out there, they still are preaching about the "Trend is your friend", but they haven't seen the 3C trend. I'd say $600 is a major psychological point, it's a century mark that the mind gravitates toward and it will likely be the place AAPL really surprises some people, but I can't imagine AAPL can go up too much more without starting to trigger a short squeeze.

Now I know you want to plan and look for a new entry, this is all I can show/tell you right now because we were warned AAPL was going to move and we had a lot of time to phase in and prepare as we watched not only AAPL, but the broad market.

 As it stand s we have a 3 min negative divergence, this to me really doesn't mean much, maybe it moves AAPL intraday, but I could very well see a follow through day tomorrow-Remember what I said last night about consumer confidence and Black Friday and how it would need to be an extreme move and fast! In any case, I don't see what I would call distribution of a serious nature at all.

 Even this 5 min chart doesn't really phase me, in normal times I'd say yes, AAPL will likely be down tomorrow, but look at today's gain, these aren't normal times and all of this on no news or even bad news.

 15 min chart is in line so there's no damage there.

 30 min chart is making new highs, "IF" we get a pullback in AAPL and this chart hold up or moves up, this could be even bigger than I can imagine, but again 1 bridge at a time.

Now we have a 60 min chart leading in a day, compare to the negative divergence that brought AAPL down so far, it looks a lot different.

My only advice would be to watch the updates, look for the pullback and then we verify the probabilities on these charts, but I can almost guarantee they will be there.

MCP starting to Rock

I was asked to take a look at MCP because this is one that I never officially exited, I wanted to give it some time and see how it developed.

This I think is a neat set of charts because you are almost seeing this process occur in real time.

The idea of 3C is divergences that jump off the chart and are obvious are the ones where our probabilities are highest. They usually start on the fastest timeframe and migrate out to the longer timeframes where we can gauge just how serious the potential move may be. Then the process starts over and when the longer term charts are positive and our short term charts go positive (as far as I can figure this second half is the market makers/specialists who filled a larger institutional order and know the stock is going to move, start to adjust their own inventory as they trade their own accounts too, they aren't there as a public service, they are there to make money. So when we see the MM's starting to take acting, especially on a head fake move that they often create, then we know something is going on.

I assume I was asked to look at MCP because it hasn't made a move today, until just a bit ago.

 Here are a series of charts that show positive divergences, a 15 min

 10 min

Then the 5 min was positive, 3 min, etc.

 I backed this up to before MCP made a move higher at 2:02 today on a 1 min chart so you can see the divergence here taking shape, and then an hour later...

There's the same chart with MCP up 5+%. It has some decent longer term divergences so I'm not closing the position, but will let it develop some more. I didn't close it because of what I saw on the longer charts so why close it now when it's starting to make good on those divergences?

TICK Remains Impressive

What we don't want to see is prices up like they are today, but the TICK diverging and showing low readings, that would tell us that the market was being propped up by a few heavy weight stocks like AAPL on the NASDAQ.

Just like last week as prices moved lower and the low range tick kept moving higher, we could see fewer and fewer stocks were participating in the move down, breadth was turning positive and that is one of the bullish signals that led to today.

Today the move we are seeing, despite having some flat spots is not seeing a negative tick and this is unweighted so it's all of the NYSE stocks and good measure of intraday breadth, the bottom line is, so far so good. This doesn't look anything like a market manipulated up using the typical gimmicks of using the most heavily weighted stocks in an average to lift it while the rest languish.

Earlier we saw a nearly +1800 reading, that's an extreme we don't see very often on the up or downside, the lowest tick today was about -689 which is in the normal range of average, even on a big day up like this. To not see at least a few spikes at -1000 / -1250 is very rare.

In other words, the market seems to be telling us this is the real deal, this is what we have been seeing signs of and we are just getting started, if we have a near +1800 tick today, imagine on a short squeeze. We could REALLy see that intense, fast move up that takes the bears by complete surprise.

ZNGA Update

I had a few emails about ZNGA and people concerned that it didn't participate today, at last check ZNGA was down -1.36 and FB was down 0.93%, obviously the two stocks are very closely connected. I'll say I have no concerns about ZNGA, but lets take a look.

As a matter of fact, take a look at how they trade next to each other...

ZNGA in green, FB in red, they trade very much alike, FB saw a recent pump which was most likely because of the options becoming available and the underwriters of the IPO trying to do their job, otherwise they'd probably look nearly identical.

Some other charts...

 ZNGA looks to me like its progressing along a base nicely. These bases have a particular look and feel and if you see enough of them you'll start to know what they tend to look like, ZNGA looks like it's around the lows of the base and ready to start turning up slowly before it accelerates up. Why? There wouldn't be a base in ZNGA of FB if someone wasn't creating it, someone seems to be interested in both and chance are very good, especially in ZNGA's case that those groups interested in ZNGA are not done putting their position and tactical move together, they aren't going to let it launch and pay a premium for the stock if they can help it.


 Even a simple 50-day (and I'm being generous using an expo m.a.) shows ZNGA starting to round up and likely come off the bottom, that makes for a great low risk entry, but doesn't necessarily mean ZNGA should be up 7% today.

 Looking at the trade in closer detail, ZNGA hasn't made a lower low today so today is considered a noise candle or insignificant in the clear method of swing trading which I do subscribe to, but even if it did make a lower low today than Friday, it's still very much within a bullish candlestick pattern called "Rising 3 Methods", here's what it looks like below...

 The pullback candles have managed to stay within the body of the bullish up day to the far left, ZNGA is doing the same, it hasn't broke below that up day's body and this is a bullish consolidation formation. Don't get hung up on the 3 days down, it can be 4 or 5, it just needs to stay above the body of the large up candle to the left.

 Now longer term, along the lines of a big base, the 2 hour chart shows clearly the negative divergence (leading) taking ZNGA lower and also a positive divergence in building what I can only call a large base for a stock like this.

 The 60 min chart has more detail as it should and it looks great, this is the process of building a base or accumulating.

 The 10 min chart also shows even more detail, when ZNGA was a bit too high and out of the accumulation zone it was knocked back down to the zone and the positive divergences resumed.

Even on a 3 min chart we see the positive accumulation that eventually leads to a move up and some shares fed out to try to bring price back down to a level in which it can be accumulated according to plan and today we even see some signs of that in to the pullback.

I don't see anything here I'm concerned about, maybe we'll even get a great opportunity.

A Look at AAPL as a Broader Example

From what I understand, the Twitter-verse is in a bearish uproar, "Short", "The time to short was 2 hours ago", etc, etc.

Doesn't it strike you as odd how incredibly comfortable I felt with adding long positions on Friday, but only after having seen charts/evidence to give me that peace and then in overnight trade we see ES gap up and in day time trade it moves even higher? Here was the post from Friday, I wouldn't have said it if I didn't really feel it.

"I liked today's end of the week, it didn't leave me with an annoying question in my head that I knew I'd spend hours over the weekend trying to solve. The market showed some real changes in character, even though that process has been underway for weeks (which should give you an idea of what we could be dealing with) and did so on an op-ex day."

Here I'm just saying how nice it will be to have a weekend where I'm not digging through the market trying to find the highest probabilities because I had already seen them and I could relax and enjoy the weekend.

AAPL, Can You Ask For More?

"I think only the profits that (will) accumulate in your account"

Another post from Friday about AAPL, up 6% or so today

And there were lots more.

Don't take closing out Call positions as a sign of doubt in the market or AAPL to move higher, I've just developed a very low tolerance to draw down in heavily leveraged positions like options so I'd rather close them at a 100+% gain and re-open them at a better price than sit through even an intraday pullback.

As for AAPL charts... Here's what I see, here's what I think we'll see and how I'd probably play it.

 The daily chart of AAPL today has really confirmed that reversal Hammer Candle from Friday, even if AAPL closes below its open, it still can confirm that reversal candle. I did highlight a couple of areas in AAPL on moves up and down (they aren't the best examples, but I had the AAPL chart open) and I wanted to point out that strong moves up and strong moves down aren't straight lines, they have days that cause doubt and certainly intraday moments that cause doubt. Look at the start of the downtrend in thE second box, AAPL REALLY fell hard from here, but after a couple of days we see a big move up of about +2.5%, believe me, back then when AAPL had just come off a all time new high, that particular day caused some doubt in the hearts of the shorts and fear, so I'm trying to acclimate you to what is normal in the market and what is unreasonable because a lot of the time we expect a reversal will be easy since we waited for it and did all of our home work, that's not the case. Like I said, it Wall St. can't trade against you, they can't make money so they aren't going to make it easy and the shorts in AAPL are feeling that today and the longs in AAPL are starting to feel that right now as it comes off the day's highs. DON'T GET LOST IN THE LONES, LOOK AT THE BIG PICTURE.

 AAPL 5 min negative divergence, yes the short sellers are out following the trend and selling short, that's fine. Some of you probably made well in excess of 100% in AAPL in 1 day and there will be more opportunities.

The 30 min chart is the bigger picture, remember I wanted to see this hit a new leading positive high? There it is. So imagine price pulls back like my green arrow and 3C moves like my blue arrows, you have an even bigger, better, higher probability trade to make 100+% all over again.

The main point though is this chart shows a large positive divergence, it doesn't get satisfied with a 1 day move.