Broader Market Update

This is a look beyond just intraday timeframes. The way I would explain this update would be:

We expected Trend #1, which is to say the first significant move in the market that means something, that was a strong move up, but shorter in duration than the signals we have for trend 2 which is a longer move down. As I reminded you, the duration of trend 1 being shorter than trend 2, did not mean the amplitude or intensity of trend 1 would be insignificant, in fact I said it would likely be stronger than most of us (including myself) would imagine.

There are certain things that happen in a cycle, in a trend and in a reversal, one of the key events is the head fake move and it's important for a number of reasons which I laid out in the first 2 of the 3 part post, Understanding the Head Fake move, which is linked in last night's first post.

So far the way the market has moved has been right on track with expectations for behavior, events and their order. Now we are looking at trend #1 in a strategic way, where it is along the course trends and cycles take and where it is in the up cycle that started on the 11/16 lows, but was being accumulated before that.

Now we are looking at trend #1 in a more tactical light, where and when are the reversal, what other events might occur, this means I have to REALLY keep a close eye on things. If I don't respond to your emails in a timely fashion, that is why, but I will check them and check out stocks and other assets you may be asking about, if I find something interesting I'll post it for everyone, but with the number of emails right now, I can't keep an eye on everything I need to and that's my first priority, to all the members.

So here's an update of the market using the SPY as the example symbol and some confirming assets.

Just as early Friday I anticipated the SPY and the broad market (but specifically the SPY) to cross above recent resistance as a range had been formed and it did at the yellow arrow, I would expect it to spend some more time up there. The reason I expected the move is because it opens up opportunity for large transactions by smart money to take place, they need prices moving in their favor and they need demand with the size of their positions so they don't move the market against them, that is why these head fake moves tend to be a good sign post of where we are along the trend and how close we are to a reversal (assuming the break-out is a head fake move and not a real break out which we confirm with 3C).

So since we spent so little time above the resistance zone on Friday, from a behavior perspective I'd expect the SPY and broad market, to lift back above that resistance area. At the same time we are seeing negative divergences as we'd expect to see, they are using the demand to sell or sell short in to, both transactions come across the tape as sales or distribution. The negative divergences are fairly strong and right now I can't make much of an argument for a move higher other than behavior.

 The SPY 1 min has held up so far in a leading positive position, this gives us at least a consolidation in this timeframe, if it builds out and to longer timeframes, then a short term reversal to the upside.

 As you can see the 2 min chart is not seeing any kind of positive action from the 1 min as of yet, that means longer and more important timeframes are also in negative positions, this puts the market in a very precarious place in which it could break to the downside VERY suddenly which has been one of my gut feelings about trend #1 since the start, a fast reversal.

In white you can see short term accumulation in to last Friday 12/28 right before the move higher.

 At the 5 min chart of the SPY we have a leading negative divergence at Friday's highs or breakout, this tells us the move was used the way we expected, to sell in to, but I'd expect they need more time, I may be wrong, they may have already completed all positioning, but it seems like a waste to be so close and not use that opportunity. I suppose it depends on what the order book loos like and if there's enough demand above resistance to make it worthwhile. The 5 min chart is not positive, but the white arrow is showing recent movement that is more positive that it should be at this point, even though the entire area in the rd box is leading negative. This still hints at the chance for that move to the upside.

 This is a closer look at the 2 min chart, it i showing short term distribution in to the break above resistance as well and no migration of the 1 min divergence, therefore no signal yet for any mov back above resistance here, yet, this can move fast though.

 The more important chart is here on a 10 min, it's a more important timeframe, it shows the cycle up from the 11/16 lows, the selling in to strength and the accumulation for the Trend 1 move up, that also sees heavy distribution as the 10 min chart (far right) is in a leading negative divergence, thus this makes the position of the market even more precarious.

Treasuries as the Flight to Safety Trade...

 Longer term the F_O_M_C minutes may totally change the outlook for Treasuries, but for now they have been seeing strong 15 min chart leading positive divergent signals in to their lows, suggesting money is moving from the market or risk assets back to the Flight to Safety trade.

 Even short term we are seeing leading positive divergences in Treasuries, this is also strongly suggesting trend 1 is the head fake move is was always expected to be (even before it even started).


Volatility (This moves like Treasuries, opposite the market)

 VXX (short term VIX futures) have been seeing short term positive divergences, these we normally see when we are very close to a reversal, this is also strong as it is a leading positive divergence.


Here on a very important 15 min chart (the longer the chart, the more important the signal), we see a positive divergence around mid December that takes volatility higher, then a negative divergence guess when? Right in to that Friday, the 28th before the market popped the following Monday, odd isn't it how all these asset classses seemed to know which way the market was going as did we as we entered calls on that Friday. The current signal here is leading positive also, this suggests the cycle starting at the 11/16 lows is close to failing, that starts trend #2 which should easily move below the 11/16 lows and should be longer in duration than trend 1, quite a bit longer I suspect.

The easiest and best thing for us would be a move in the market higher, but with strong leading negative divergences in the market, confirming positives in Treasuries and Volatility as well as leading indicators.

We have built some short positions already for trend #2, but I'd still love to use this price strength to enter even better positions and other positions. All in al, the strategic outcome is exactly as expected, but we have to wait on the market to give us the signal on the tactical entry/exits and the market right now is very weak in a lot of timeframes, more or less at the point where it could break any minute.

However, I don't make decisions based on fear of missing a move or guess work, I make them on objective data.