A Choppy Week Ahead

Tomorrow the major averages close at 1 p.m. for a Christmas Eve. early close, Tuesday the market is closed; Wednesday we are back to business although I suspect most of Wall Street is in the Hamptons already until the New Year so light volume, window dressing, more HFTs and algos than usual all sounds like some very volatile trade. If I have it figured correctly with the T+3 Settlement rule, this Thursday should be the last day institutional money can make any trades if they want them settled before the end of the year so they reflect on next year's portfolio and prospectuses, so with a day and a half out, there's only 2 days this week they can achieve that.

Last week the market showed us a couple of things when the Republican party led by Boehner couldn't get enough votes in the House that they control to pass their own, "Plan B" bill, which was symbolic as the Senate would have never passed it, but what it showed the market with regard to the Fiscal Cliff is that even if Obama and Boehner can come to an agreement, it looks unlikely Boehner can deliver the votes, so under the best of circumstances (Obama and the Republican leader agree to a deal), it looks like Boehner is a lamer duck than Obama and won't be able to muster up the votes needed for anything he might agree to!

This is what really spooked the market and if you saw the last post and where 3C is on a daily chart, it's in a very delicate place so any bad news gets an over-reaction like that, sending S&P futures limit down (halts trading) on a 50 or so point plunge which is huge.

I don't expect much to happen this week that will be truly meaningful to analysis and positions, I'll watch, but it looks more like just a time for melee.

Here's how ES and NQ (A7p and NASDAQ Futures) opened tonight... A Hint, they moved pretty close to Friday's lows early.

 ES gapped down a bit tonight as Futures open for the new week, this was from a 1 min negative divergence in closing trade Friday, there's a slight positive divergence forming now, but this is very insignificant considering the timeframe and how much time until the NY open tomorrow.

 NASDAQ/NQ futures look similar and also gapped down a bit on the open tonight with a slight leading positive 1 min divergence.

 This is the EUR/USD currency pair, they also gapped lower on the new week's open, a positive divergence can be seen around noon Friday and a negative divergence from 2:30 through the close on Friday. Currently no significant signal.

 Although the algo's were tasked with holding the market in position Friday, in the last Market Update I showed several charts in the 5 min time range that were showing some positive divergences so a move in to the gap wouldn't surprise me, the QQQ 2 min with a leading positive from Friday above...


 However bigger picture on a 60 min chart you can see how small the divergences that turned the Q's down and up were compared to the size of the leading negative divergence in place now, so this is ominous bigger picture.

 SPY 2 min intraday from Friday with a leading positive divergence

 5 min chart as well... Remember I closed out some of the AAPL Call (long)

 Again the 60 min in leading negative in a bad way.

 This is Friday's closing SKEW, the CBOE indicator that shows increased probabilities of a Black Swan market crash as it moves higher, you can see where it was and is now over the last 3 days, moving up quickly which is typically not a good thing.

 As pointed out last week before SKEW even reached the dangerous levels it is hitting now, the Rate of Change in blue is pretty sharp, showing increased ROC right now, meaning someone is taking precautions to protect against a Black Swan event.

Although there are some indications on the market average charts for a move in to the gap, Friday was also heavily manipulated by algos and I'm going to try not to assume anything and just let the data come in and tell us what's going on, there was just too much muddiness and manipulation on Quadruple Witching, the biggest Options Expiration event possible.

We'll look to see if any new trends develop (as I suspect a lot of Friday's signals were noise meant just to hold the market in place Friday) as well as any new opportunities, I do have the feeling a I said before that volatility will rule the week, but I wouldn't take any of the price action too serious as there are a lot of cross currents and agendas playing out the last week of the year from funds trying to lift the market to retain clients to tax selling to the Art of Looking Smart-Window Dressing.

If anything develops in futures while I'm awake tonight, I'll bring it to you, otherwise, have a good night, a great holiday week ahead and look forward to a fantastic, profitable New Year!

Must See

Earlier today a long term member sent me some information and I'm sharing it with you because it is so incredible. As soon as I saw the chart, I said, "I know every one of those moves!"; it gives an unprecedented look at what smart money was doing and is doing.  The level of 3C confirmation here is second to none, except we receive the data in real time every day and don't have to wait for a COT report to be published.

Here is the chart that struck me because 3C was giving these signals in real time and they formed the basis of our 2011 Summer-Fall (and beyond) market views as well as our early 2012 core short positions and current market outlook.

Here's the CFTC chart from SentimentTrader...

This goes back to about April of 2009 through the present. The indication below shows the commitment of smart money and whether they were positioned bearishly or bullishly in being whether net long or net short.

There are several areas I'd like to point out and long term members will recall many of these areas as we traded through them.

First the broad daily SPY daily 3C chart...

On the Sentiment Trader chart it's not as obvious, although long sentiment wasn't very strong, 3C was calling the late July 2011 decline of nearly 20% in the market, it looked like this at the time.

Unfortunately the 3C intraday charts can only go back 5000 bars so we can't se the intraday charts like 15, 30 and 60 min that we showing a sharp negative divergence between the late June and Late July 2011 highs, this is when the market fell nearly 20%, it is somewhat visible on the 3C daily chart at the first red arrow from the left.

You may recall as the market moved to the August bottom we were calling for an end of the decline about 2 days before it stopped, no one knew at the time how long this might go on, but we were getting ready to position long for the end of the decline in early August.

From there, the SentimentTrader chart shows a large net long starting around that August. As a member you may remember this time as a choppy meat grinder market that was tearing traders up, but we traded every single swing up and down for what I figured was about an 80% portfolio gain from August to late September using leveraged ETF, nearly a double of portfolios while everyone else was being chopped up and spit out.

As we were swing trading these short moves up and down, by mid September it became clear there was large accumulation through this choppy area that most Technical Traders would have taken for a bearish consolidation that would eventually make another new leg down., but we saw heavy accumulation signals and called for a new low followed by a strong rally.

If you look at the SentimentTrader net position, this was the largest net long on the entire chart, we saw a new low in October just as we had predicted followed by a strong rally from the October lows as we had predicted, it looked like this...





















This chart shows the July 2011 Fall, the August low we called, the August-September Swing Trade area that was so successful, then we saw large accumulation through that range, called for a new low which came at October (which we anticipated would come and be a head fake move as it was) and a strong rally off the October new low/ head fake move.

If you look at the SentimentTrader chart again...

Smart money was selling in to that strong rally exactly as we said it was as the net long position fell precipitously during that time. In fact, by Feb-March of 2012 there was a net short position. This is the EXACT time the market made several new highs and we shorted each one of them to build our core short positions from March to May 1st 2012, from there the market fell, every one of at least 10 core short positions was in the double digit gains.

This is a look at 3C/SPY during that period.

 On a SPY/3C daily chart, the October 2011 low & positive divergence at the white arrow; the strong rally we predicted to come after a new low , then a 3C negative divergence through Q1 of 2012 where we built our core short positions to the last day, May 1 2012.

We held the shorts until late May 2012 and early June when we saw a bearish price pattern setting up, but we saw positive divergences and new it would make a head fake low and go on to rally, that was the June 4th low in green.

On a 60 min chart, in yellow the Oct 4 new low, strong rally, the Q1 2012 negative divergence/distribution that fits well with the SentimentTrader net shorts during that period and our June head fake bearish price pattern and break below it on a head fake move leading to a new rally. On the SentimentTrader chart you can see right at June 2012, the indication pops up to net long.

I said during the rally that followed that it was being sold in to, 3C showed the same as does the SentimentTrader chart as new shorts take over again.

I now it was hard to believe at the time, but the rally off the June 4th head fake low that broke below a bearish price pattern was being sold in to, this is what people don't understand about Wall Street, they have large positions and they need: Demand, Higher Prices and Time to unwind those positions and that rally gave them all of the above. This brought us to this September's QE3 announcement that everyone though would send the market higher, but 3C was telling us something different after all that distribution in to a rally.

 a 15 min 3C chart showing a negative divergence after the initial 1.5 day rally after QE3 was announced, but we had much stronger signals and while many members were worried about the signals as they kept emailing me, "Don't fight the F_E_D", I have to go with the evidence.

 A very strong signal on a 4 hour chart not only shows our Q1 2012 distribution and core short positions, also the 6/4 low we called as an accumulation area leading to a new rally and a VERY strong negative divergence in to the QE3 announcement, believe me, even for me it wasn't an easy all to make, but the charts were clear as day.

As you can see at that same time (QE3 announced), Net Shorts hit a record high position!

This is why the current daily 3C chart looks so bad with such a strong leading negative divergence (this is the BIG PICTURE, not week to week trade)....

3C has been right on about every major signal and not later, in real time, as it happened and happens.

This is why I say the market is in a very delicate spot where a bit of bad news can now send S&P futures limit down on a 50 point drop.

I'll be bringing you tonight's opening indications for the week next. This is not just a confirmation of the power of price contradiction signals and how we can use them to our advantage, this is an excellent way to see and understand how the market really works and why.