Market Update

First as far as skin deep predictions go, the rotation between the IWM and QQQ this week thus far has been flawless, even last night's call was the Q's would outperform the IWM, but they weren't quite as strong as the IWM was as of Monday's signals and thus yesterday's percentage gain. So far the Q's are up +.39 and the IWM down -.29 (at the time of this writing).

The market is definitely getting more complicated now at least when looking for the best spot to enter shorts/ exit longs. If we simplify things, the market is very simple, the probabilities are heavily skewed toward the downside which is in line with Trend #2.

Here's a simplified example.

Looking at the 60 min SPY (one of the strongest 3C signals), price is around the same area as September after QE3 was announced, 3C is at the deepest leading negative divergence on the chart.

When I talk about 3C analysis and the near term action is ambiguous, I always say the same thing, "Go out to the longer term charts, that's where you'll find the trend and the highest probabilities".

I sometimes wonder whether we should apply that concept to positioning, things are getting complicated as we get closer to the end of trend # 1 and to add to that complication the market is fractured and moving in different directions rather than the typical risk on/risk off relationship; for example the performance of the QQQ and IWM yesterday and then today. It was easy to predict the last couple of days and may be easy to predict as the signals develop with trade as the day goes on, but we are really starting to get in to micro-management and there's a very thin line between the best entry and getting lost in the lines.

If it's just me, I'd probably be at about 75% of my intended short position, but we have so many members and some trading in options and weekly options need the closest point I can provide.

I think overall it's pretty safe to add and fill out shorts in the area as long as you have decent risk management and are using it.

Now here's what I have, it may have already changed as things are moving fast and it's more complicated than usual because we can't look at analysis as "The Market", it's the NASDAQ, the S&P, the Dow, the IWM, Sectors, etc. Then there's the AAPL chart, AAPL accounts for nearly 20% of the NASDAQ 100, how can the NASDAQ fall with AAPL having strong signals? It can, it's just more difficult.

Starting with the NASDAQ/QQQ (This may be a little confusing a each average is different and approached a bit differently-just remember that the longer timeframe the divergence, the stronger it is, the intraday movement is found mostly on the 1-3 min charts and new divergences start on the fastest chart (1 min) and if they are strong enough they move or migrate to longer timeframes, where they eventually stop tells us how strong the divergence is).

 QQQ long term 15 min chart since the trend #1 pop higher has not only been range bounce which is a common area for distribution, it is showing the signals of distribution with a strong and deep leading negative 3C divergence. The thing I see in the QQQ is a trend line/resistance that has money above it in the way of the bid/ask spread, volume rebates, short term market maker trading, setting up larger positions, all the head fake things, etc. So I'd think the highest behavioral probability is a move above that range like the IWM did yesterday which creates the momentum for a downside reversal with a bull trap and then the downside reversal-ironically it's very similar to the AMZN analysis and situation we just looked at.

Probabilities though for the larger move are very negative.

 Looking at the 15 min chart closer on more of an intraday basis, we see where the Q's were weak earlier in the week with a negative divergence at the highs, then a small positive at the lows and an in line status. I'd think the 5 min, then 10 min would go negative and then finally the 15 min on an intraday chart like this goes negative and that's a good signal, especially if we get the move mentioned above, first.


 The QQQ 5 min is in line right now so I don't think it's quite ready to turn the 15 min chart negative, this makes some sense as the AAPL positive divergences were so strong, yesterday I even said I thought we were seeing positive QQQ signals short term (1 day) because of the positives in AAPL.

 Now the 3 min QQQ is negative as of this capture, if it gets worse it moves to the 5 min, then to the 10 and then finally the 15 min at the top and we are ready to break, Since this chart was captured, this divergence is a little worse.

Bottom line, I don't think the Q's are quite ready as AAPL is probably a big part of the reason. Whether that should dissuade you from entering a short you may like such as QID or SQQQ, I can't say as it depends on your risk tolerance and patience. I'd want to have a good chunk of that position already in place, as far as filling it out, if I had the time (which I don't), I'd probably try to wait a bit, not only for potential better prices, but whenever your money is in the market it i at risk no matter what the probabilities are, the only time it's not at risk is when it's out of the market so there's that and there's the fact that most days are noise days that do nothing to contribute to the trend, for the trade they are dead or wasted days.

Now the IWM.

 The daily IWM did cross above resistance yesterday and so far today it's putting in a bearish downside reversal candlestick patter, Harami. If it stays that way near the close and volume exceeds yesterday's, it's a high probability reversal, but they carry no target-it could be a day or the final reversal. As for the break through resistance, it's not only the Q's that haven't made it, it's the SPY and I'd say the Dow as well.

 Here's the Q's under that resistance level.

 IWM 10 min chart since trend 1 started and since we got the move above SPX Jan 4 highs on Jan 10th, we find the leading negative signal expected. Intraday note it is negative unlike the QQQ.

 The IWM 5 min in in line earlier today and slightly positive at this capture, right now it's slightly more positive, the intraday 1-3 min charts are meaningless right now.

SPY

 Since the November 16th cycle lows that started this entire move and especially since the pop of expected trend #1, the 15 min leading negative divergence is huge, as I pointed out in the post the other day, "Nerve Racking", this is a huge divergence and we've seen bad breaks in the market on much less.


 The 10 min chart here also is more or less in line like we have seen above, now if I zoom out and show you the trend, it's more like the 15 min chart above, it's horrible in a deep leading negative divergence, but we are trying to look at near term trade, we already know what the longer term probabilities are.

The difference is between strategic views which are set and tactical action which is what we are looking at.

 SPY 2 min chart doesn't look good here, it's leading negative and despite some intraday improvement, it remains leading negative. It needs to migrate to make it to the 10 min.

 SPY 5 min is leading negative, as of this moment the SPY is moving up (1:35) and this chart is still leading negative, so that's good, that' telling us that any strength is being sold or sold short.

DIA

 It's also ironic in the URRE post we talked about wedges and how they have been manipulated to shake traders out, like this ascending bearish wedge that is expected to break down at the apex and retrace its base, but instead it runs a head fake, knocking out all of the shorts, moving up, suckering in longs and then trapping them-but the bigger picture is what I said before, they build tops so they are still bearish, they just don't act like Technical Analysis says they should.

The other point is the SPY has an area of resistance it could break through locally and a much bigger target which I doubt, but it is worth pointing out around $136.

DIA

 Long term 15 min is leading negative, the intraday 15 min was in line, it's now moving negative.

 This 10 min chart also looks more negative since its capture-kthis is likely some Dow rotation like the IWM/QQQ.

 The 5 min chart is negative and that is what has changed and migrated to the 10 min above making it more negative than it was at capture.

 This is all hardly a surprise as the 3 min chart was leading negative, so this is an example of a negative divergence strong enough to migrate to the 5 min and now the 10 min charts.

I'd like to look at leading indicators too before I make any big decisions today.