At the End of the Day-Back to the Start

Earlier in the day I posted a very rare fundamental bit of analysis, you can read the post right here.

The most important part though might have been this....

"However today I will say that this is one of those days in which things look muddy, we have VERY clear signals like before the IWM breakout and before the QQQ breakout where we know what to expect and how to play it, then there are brief moments in which the market gets muddy in the short term (mostly short term) and it is in those moments that I believe the market is not operating so much on forward planning, but is truly worried about a fundamental event that the market has no way to discount.

For instance, Boehner's Plan "B" vote in the House which I believe is scheduled for today after market, although I've seen conflicting reports.

No matter how much inside information Wall Street has, they just can't poll all the members of Congress and find out how this vote will go, how Obama may react to it, how the Senate may react to it (although that seems much more certain) and whether Boehner can keep his own party on the same page-remember the Tea Party is very independent from "Republicans" on certain matters and this is one of them.

I can't tell you what the market may be worried about, but the muddiness I'm seeing does seem to reflect some worry about a fundamental event that they can't discount because it hasn't occurred yet and they don't have inside information to know how it will turn out."

In the end, this is one of those rare days in which the market truly didn't know and when it found out Boehner couldn't keep his party together, it reacted violently.

Tomorrow is Quadruple Witching, typical Wall Street writes options, retail buys them. I can imagine there's going to be a lot of volatility as Wall Street isn't going to want to take a loss on those options they wrote being this far away from the pin. This could be a great little opportunity for us though.

When it come, it will come fast

You may remember my gut feeling that when we reverse to the downside, it will happen fast, thus we have been building short positions recently as the long term charts carry the highest probabilities.

ES futures just lost an incredible 50 points!

3C is showing a clear negative divergence for about 3 hours before price falls from about $1440 to $1390-now off about 20 points which is still huge .

This is a tricky time in the market because we do have an even longer positive base from late September, but it has not been in position to consider as a long, it could be we see a shocking drop
(I have said numerous times I expect a big drop to at least new lows below 11/16) and from there we may put in another head fake move for a strong upside, but we are not at that bridge yet, it's just something on the radar.

For now, lets hope ES can hold a negative bias lie this overnight, it may be hard and we may see a coordinated Central Bank intervention before the a.m. arrives as we did last November.

If this does play out the way we have been preparing for with 3x leveraged short ETFs, this could be a major pay day very fast.

As always, it's very early in the overnight session, but this is a shocking decline that sent futures limit down.

Update on RIMM After-Hours Down Over -10%

In the last RIMM post I suggested to use the +8% after-hours move to your advantage if you have a long trade,

"If you have a long position in RIMM (I do like the idea of keeping at least half and trying to add half back on a pullback), I would consider using this AH strength to maybe take some profits. 

A warning or a reduction in guidance is what earnings are really all about, not what you did, but what the Street's sentiment is toward what you will do next."

Currently RIMM is trading down in after-hours -10.41% 

As for the signals earlier that suggested a negative reaction, you can review the charts from earlier today here

RIMM Earnings and After hours

In the RIMM post today (and RIMM is one of my favorite long term long plays, the daily and long term charts are spectacular) I mentioned a couple of things that we have seen with earnings in the past and 3C signals, specifically this happened once to RIMM on a trade we took and AMZN, what I said was,

"I can't predict what earnings will be, I just use 3C to give you an idea of what the most likely reaction is and many times that is not the same day during after hours. I would use after hours trade if it is a favorable response to your position, but if it is not, I wouldn't judge too quickly as we have seen many times the stock move 180 degrees in the opposite direction the next day from AH after an earnings report."

RIMM did beat, but they also warned (maybe guided lower, I didn't see the whole thing yet), so if that is not expected Wall St. isn't going to act on it in After Hours where the liquidity is so thin they'd shoot themselves in the foot, they'll react to it during regular hours, which was the message above.

If you have a long position in RIMM (I do like the idea of keeping at least half and trying to add half back on a pullback), I would consider using this AH strength to maybe take some profits. 

A warning or a reduction in guidance is what earnings are really all about, not what you did, but what the Street's sentiment is toward what you will do next.

EOD Signals

Since we had some really choppy volatility (which was high considering the day which is kind of sad...) toward the close, I figured I'd put out 1 more update with anything that may have changed as the last 5 mins accounted for a sizable portion of most of the gains.

As I said in the Leading Indicators post, they were mixed on an intraday basis, this really contributed to that "muddy" feel in the market and indicators today. The market was set to close pretty dull (toward the 3:30 area) if it weren't for the last 5 minutes of the day in which there was an obvious ramp to leave most of the averages closing up about 0.50% except the NASDAQ 100 at +0.09%. The Euro was not responsible, it had not moved up or offered any support since 12:30, the $USD lost some ground from 11:30-1:30 which appears to have helped the market on that 1:30-ish p.m. push which seems to be tied to Boehner's P.C.


HY Corp. Credit and Junk Credit both moved higher end of day with the market, High Yield itself was unimpressed and didn't make a single higher tick higher since 10:45 a.m. through the rest of the day. Commodities were another risk asset that didn't seem to share equities enthusiasm as they really didn't move above the 10:30 area the rest of the day, so interestingly commodities didn't even move on a weaker dollar in the afternoon. In the end, the closing indications for Leading Indicators are exactly the same as the afternoon post. 

 DIA intraday was losing underlying support until someone pushed the green button around 3:55.

 The IWM lost significant intraday support as 3C made a new low on the day, interestingly about the same time the rest of the market was showing 3C deterioration on this timeframe.

 The IWM 2 min shows clearly that the IWM wasn't seeing supportive underlying 3C flows at all as it not only failed to move to the same relative area where 3C was when price was at the same level on yesterday, but it didn't even move in confirmation of the higher high from this morning to this afternoon.

 The 3 min chart for everything else it is, added a new leading negative low in to today's move.

 I thought this 30 min chart was interesting, I didn't bother to mark every small divergence up and down, but just point out the broad 3C trend of rough confirmation up and then down and leading negative since the move up off the 11/16 lows. It's a pretty simple chart actually and pretty simple implications.

 The QQQ I think was interesting intraday in that it put in a fairly strong leading positive divergence at least an hour before price followed.

 The 2 min chart is the next step and it saw deterioration  with a leading negative divergence in to the close.

 This is confirmed by the 3 min chart as well, notice too that all of them show the earlier leading positive move so I don't think there's any coincidence here, these are real signals.

 On a longer term 5 min chart, since we saw accumulation in to the 11/16 lows the QQQ has seen a sharp leading negative divergence at the level in which we expected it to break above resistance as it did this Tuesday. The expectation was that this would be a head fake move and eventually a failed move and interestingly this is the lowest leading negative divergence since 11/16 right at the point in which the Q's broke out according to Technical Analysis, something that should be a positive right?

There weren't any interesting changes since I posted the SPY charts.

As far as CONTEXT, ES was above the risk asset model, in fact had ES not been pushed around and stuck with it's risk asset implied correlation, I don't think ES would have moved off the 9:00 levels and the S&P would have closed right about where it did yesterday.

The model in green wasn't much higher than approximately the 9 a.m. level, ES in red ramped away from CONTEXT and you can see to what extent on the histogram.

Definitely a muddy market, I'm guessing this is either to gauge the vote in the House on "Plan B" or is simply Op-Ex related.

More coming...

Market Update

I'll use the SPY as an example and add any notes for other averages that are deviating from the example.

Daily-technically today is noise, nothing has occurred today of any signifigance.

 1 min chart looks a bit worse than before, but...

 There's very little real strong migration to the 2 min which has a minor negative divergence, but nothing to really get me thinking an imminent move to the downside is in the works.


 The 5 min chart still holds some power for any additional upside or even consolidation or lateral trade, the 2 min will have to deteriorate more and then we may see deterioration here.

 Other than intraday trade or next day, the 10 min chart is part of that negative, more powerful gravitational force on the downside.

I can jump tight to the 60 min and show the same.

Other averages:

DIA: The DIA still has some of the best longer term underlying positive action of all of the averages, but it is seeing more rapid deterioration on intraday timeframes like 1, 2 & especially 3 min whereas we haven't seen the same in the SPY, although things are starting to move faster now.

QQQ: Deterioration here is worse than the SPY and DIA, it's getting pretty close to an area where I might start to consider adding to shorts like SQQQ or QID, not quite there, but the deterioration is further along.

IWM: The IWM is in a world of its own, I would have no problem starting or adding to an IWM short here, by far the worst looking, there's nothing looking good on the IWM charts even intraday, horrible.

Leading Indicators Mixed

Leading Indicators are also more mushy than usual, several like yields, High Yield Corporate, and 1 or 2 more look like tomorrow could either see a little upside or be in the same range as today-remember what I said earlier about Op-Ex Friday's closing pretty close to the Thursday before them, it's as if they use Thursday to get the market in range of whatever the pin is and Friday to hold it there.

Intraday there are a couple of other indicators that are on the other side such as the $AUD which is not only negative intraday, but longer term as well. The Euro intraday has lost momentum and that is weighing on the market, making it more difficult for the SPX to escape arbitrage players and certain algos that depend on the $USD to determine value.

There are some other indications as well including High Yield Credit that don't look so hot.

Interestingly VXX and UVXY have taken off, this is not a good sign for the market at least short term. Remember the earlier update, while they had been negative on intraday timeframes (confirming  the market move up intraday) their longer term charts remained very impressive.

I'll be taking a closer look at everything right now, but I think one of the first things effecting the market is the EUR/USD losing upside momentum while longer term negatives are still exerting gravitational pull on the market.

Market signals next...

RIMM UPDATE EARNINGS TONIGHT

As you know, I really like RIMM especially long term, check out the last update in which it also looked like a pullback might be brewing

As RIMM reports tonight, the question is, is there a leak that we can take advantage of.

I do see some odd things on the charts that worse than the last update.

I can't predict what earnings will be, I just use 3C to give you an idea of what the most likely reaction is and many times that is not the same day during after hours. I would use after hours trade if it is a favorable response to your position, but if it is not, I wouldn't judge too quickly as we have seen many times the stock move 180 degrees in the opposite direction the next day from AH after an earnings report.

I personally am not fond of shorting RIMM, but I might take some profits off the table on these signals as they do not look good for very near term trade (as is at least a pullback, maybe something bad in earnings).

Remember the longer term charts are spectacularly strong.

 2 min intraday


 15 min chart looks worse now in a leading negative divergence than at the last update linked above.

 Here's the 15 min chart's trend, while it doesn't look good for near term trade, it's not that bad in context of the longer term trend.

Even the 30 min chart has a leading negative divergence here.

I'd be careful, maybe take some profits, using options here (puts) may be very difficult as implied volatility before earnings and after make it very hard to make money even with a trade going big time in your favor.

First Signs of Distribution?

Of course I'm talking specifically about today's move out of the triangle, but there are initial signs, they are still on short timeframes like 1 min which can lead to a consolidation rather than a pullback or reversal, but these are the first signs all day and as such we need to pay attention to how they develop from here to identify what they are and what we want to do with them.

 SPY 1 min chart went from positive to in line with price to the first negative divergence of this move.


 The 2 min chart is in line with price still so the distribution has not become strong enough to carry or migrate to a longer chart, but it has to start somewhere so this needs to be watched. You can also watch the SPX vs the intraday TICK index and see if any divergences between breadth and price at new highs show up.

 ES 1 min with a positive and its first negative divergence

NASDAQ Futures 1 min as the S&P futures above, showing a bad negative divergence in to the open, you see what happened to price and now the second negative divergence of the day under way.

MCP Update

I suspected there might be  little game playing with MCP, there's still the possibility of a Crazy Ivan shakeout (the first shakeout is on today's move above the breakout point and back down, a second can be run to hit all stops and orders with a move below which is the move I was more concerned about) Wall Street never makes it easy, they want your money.

Charts..

 There's the initial breakout and "apparent" failed move, but is it?

 You can see by volume where the buyers stepped up and almost the exact same place where they sold which was also a hammer/support candle. The current pattern (intraday) right now is a bear flag so this could set up another failed move to the downside to shakeout any remaining longs, perhaps trigger a few short orders for a little squeeze.

 The 1 min chart today is in line on the move up and you can see where 1 min distribution steps in at the high of the day, there appears to be a little accumulation at the bear flag so that would also suggest a move down on this bear flag is more likely to be another shakeout ploy.

 The 15 min chart is still in good shape, but I found this very interesting....

 The 30 min chart, which is longer and more important, representing heavier institutional activity went from flat to a move up here, this is not a huge move, but it is a rather fast move for this timeframe and overall positive for MCP.

Everyone's instinct is to place their stop just below the triangle, that's why you don't do that, all stops will be congregated there and it makes it very easy for specialists, HFTs or anyone else to take out those stops, take the shares on the cheap and in size, so I might use the daily Trend Channel at about a move just below $9.35, that should be far enough away.  To reduce risk on a wider stop, just reduce position size, you can always add to it later.

Market Update Charts

Since I captured these before the last post was published (IWM/SRTY) price will look a little different, there may be some slightly different 3C signals, but it's pretty early so if there is anything that is substantial I will be sure to update you and make sure you are aware.

First of all these are the charts that went along with this Market Update about 45 minutes ago

In the update I said,

" The averages are showing intraday positive divergences on the shorter timeframes as the market has been forming a triangle since the open...look for some intraday upside volatility shortly."

Here are the charts as they were captured right after that post so you can see what I saw at the time of the post....

 SPY Daily with resistance at the red arrows and a break above at the white with yesterday's "Dark Cloud Cover' downside reversal candle. This was captured about an hour ago right after the Market Update post warning of intraday upside.

 SPY intraday today on a 1 min chart up until about 12:53, as you can see after I posted the update and captured this chart, the SPY was JUST STARTING to break above the triangle.

 Here's the DIA and a 5 min chart showing several days, the reason I wanted you to see this is this: Technical Traders see a symmetrical triangle which has NO inherent bias, with these triangles, although they are considered consolidation/continuation patterns, the bias comes from the preceding trend within the timeframe-that trend was down. So to summarize, Technical traders would expect this triangle to follow the red arrows and continue the trend to the downside, I drew in  yellow arrow which I use to represent head fake moves as a break to the upside would likely be revealed at some point as  head fake move, essentially clearing out any early shorts and perhaps giving the bulls some confidence.

Bottom line- Technical Analysis has been manipulated and used against Technical traders AGAIN.

 The QQQ resistance area that we expected to see a breakout above last week even before the first hint of  price move in that direction, the breakout in white, the "Dark Cloud Cover" downside reversal candle at yellow and price lingering around support/resistance.

 QQQ intraday 5 min with today's triangle and the break below support (former resistance) with volume picking up. The red arrows are what technical traders would expect to see, the yellow arrow is what 3C was telling us was coming.

3C and the averages at this triangle and market update...

 This is why I said "Watch for an upside move", the DIA 3 min has a leading intraday positive divergence

 At 10 mins the divergence is not strong at all, so we know this isn't a large or powerful divergence and is likely to fail, thus making it a head fake move which we can use to our advantage with tactical entries or exits.

 QQQ 1 min is in line with price until about 11:30 when a leading positive divergence starts.

 QQQ 2 min showing a longer trend of negative divergences sending the Q's lower and a leading negative position right now, within that a small relative positive divergence, but the most important signal is the leading negative divergence, it is not intraday.

 QQQ 60 min, this is a very long timeframe, very large institutional signals, we see a positive divergence to the left, a run up in the QQQ, then two large relative negative divergences and the second one is at the breakout we expected this week above QQQ resistance.

 SPY 1 min with an early positive divergence and a leading positive as the triangle became more mature and reached its apex.

 SPY 2 min is not showing much of a positive today at all, in fact price is simply in line with 3C.

 The same is true on the 3 min chart, the only divergence here is a longer term negative at the highs.

SPY 15 min at A and B show two long term relative negative divergences. At point "C", although ther was some accumulation to make the SPY move up, it was not strong enough to appear on a 60 min chart, the leading negative divergence however at D does appear.

The take away is the accumulation cycle was not as strong as the distribution cycle, this is inherently bearish for the SPY and the resolution of this trend.

Finally a predicted, here's the breakout...

SPY breakout.

The TICK chart confirms the breakout had decent breadth, we just watch now for any ngative signals we can use for tactical entries.

AAPL

For those who are like me and like to hit and run on the options trades, you might take a look at AAPL, if it is worth it for you here as it should be making a move to the upside shortly. I will try to continue to hold this a while longer.

Russell 2000 / IWM / SRTY Trade

*The market update charts promised in the last post are coming, I wanted to get this out to you first though.

I have explained many time that the market doing what we expect as it has last week, this week, more broadly, etc IS NOT reason enough to enter a trade, WE HAVE TO HAVE THE SIGNALS.

This is why I still haven't entered a Financials short like FAZ, because the signals weren't there.

Yesterday however the signals were therefor a short on the R2k / IWM which I chose SRTY (3x short Russell).

Remember that the Russell should be the leader of any rally or risk on move. Over the last few days I have been pointing out the Dow's better 3C relative performance (large caps vs the R2K's mostly small caps).

While I was putting together the charts to go with the last market update, I ran in to the IWM again and saw what are continued negative 3C signals, flying in the face of short term signals in the other 3 major averages.

The SRTY position entered yesterday is at a small gain, nothing exciting yet, but if the IWM drafts the market intraday, I would consider adding to the SRTY position, if you like it and don't have any coverage on the IWM and mall caps in particular, you might consider using any price strength in the IWM that is a result of the IWM drafting the broad market (as there is no underlying strength in the IWM itself) to consider a partial position or an add to. I'll be looking at it for an add-to position as the current position is 2/3rds of a normal size position for this very reason.

Here are the charts for the IWM and some confirming SRTY charts as well.

IWM

 1 min is bucking the overall intraday market trend and is leading negative here. This is not important as far as the probabilities for the success of the trade go, this is more of a timing indicator and being able recognize a false move or a head fake move which can be used to get the best entry and lowest risk.

 The 3 min chart is still an intraday timeframe, but a bit more important and we see negative divergences in the IWM at all important highs and a current leading negative divergence in the red box, leading divergences (represented by a box around the 3C indicator-white for a positive or red for a negative divergence ) are always stronger than relative divergences (represented by arrows usually).

 10 min is showing price / 3C confirmation at the green arrow and then a leading negative divergence and another deeper leading negative currently.

 The 15 min chart- although with any other indicator a 15 min chart sounds like a not very influential timeframe, with 3C it is very influential and represents fairly large underlying smart money trades. This leading negative divergence is very important. It's pretty rare that we see a divergence like this and price does not respond, which in this case would be to the downside.

SRTY (3x short Russell 2000/IWM) *Be careful with asset allocation as a short position in small caps will move a lot like a short position in the IWM, you usually don't want too much correlation in your portfolio for risk management purposes.

 On a 3 min intraday we see a huge leading positive divergence in SRTY, which is the opposite of the IWM so this is also confirmation of the signals in each.

 10 min leading positive divergence, agin an important timeframe-the longer the timeframe, the heavier the accumulation or distribution.

 15 min leading positive divergence, again since SRTY is the opposite of the IWM and the IWM is leading negative and this is leading positive, the two ETFs are confirming each other on another timeframe, this increases probabilities of a successful trade.


30 min leading positive in SRTY.

Hopefully you can see why I liked SRTY so much yesterday and continue to. I left a little room in case I could add to the position at a better price (long SRTY).