Quick Market Wrap

As you know we have several different signals representing several different trends which is unusual. Our analysis led us to believe that the first trend would be the shortest in comparison to the other 2 trends and it would be a sharp move to the upside, it would also likely be so strong that we even fail to appreciate how strong it will likely be. I also have a gut feeling that this trend will (when it's time) reverse in an event kind of way rather than a process, meaning much faster than normal, perhaps even intraday.

Trend 1 came, here's what it looked and still looks like...

 This is the IWM which made an all time new high on Trend #1, it's also been about a +6% move thus far.

The QQQ was even in decline and made a move of over +5%.

Here's the SPY which has been the focus of our attention for tactical purposes being our strategic view is for trend #2 to be market downside.

As trend #1 created a range, it became more and more likely that we'd see a head fake move as there's too much money for Wall Street to leave on the table when they just need to make a slight move above resistance and tag all of the orders on the books which most of us can see, but they can see the full depth of orders and know where they need to take the average. Friday (to the left), we had a 30 min break above resistance at the end of the day, it's enough to tag orders, but there's another reason for a head fake move, it's to draw in retail, get them to buy and create demand and higher prices which Wall Street can sell and short in to.

If you haven't already seen the two article of the 3 part series, Understanding the Head-Fake, here they are...

Part 1: How Technical Analysis Went From an Asset to a Trap

Part 2: Motivation

Since last Friday, this week I've been looking for the market to make another move above Friday's intraday highs, for Wall Street's purposes (in creating and using Head-fake moves), price needed to spend some more time up there. How much more? We let the market tell us that, but the size of the head fake is usually related to the size of the move it's working on which would be trend #1.

The larger trend started at the 11/16 lows, a move up that had been accumulated right in to the 11/16 lows, the QQQ 15 min chart best illustrates this cycle, I call it a "cycle" because it was clearly planned out ahead of time.

There's early accumulation at the first white arrow, but the really strong accumulation was near the lows as the divergence went leading positive (in the white box). From there we saw distribution of the move, a larger head fake move above the yellow trend line that saw distribution and then Trend #1 which has a deep leading negative divergence suggesting heavy distribution in to higher prices.

IBM is a good example, it's a short position that's currently open at a gain of nearly 9% and not only shows how we stalk a trade, let it come to us (because we get the best price, lower risk and higher probabilities and timing), but also how we use the head fake move to enter positions which is only possible because technical traders are so predictable that it makes Wall St. predictable in many ways. This is just 1 trade, but nearly every one of our core positions was entered like this...

 This is a daily chart of IBM, at #1 we have the resistance level traders will be watching in the future, at #2 we have a bullish "Bull flag, but we already knew there was a negative tone to IBM at that point, now it became a matter of the entry. At #3 IBM breaks above resistance which pulls longs in, this is the day we shorted IBM as you'll see below and #4 is a head fake set-up.

Zooming in on the tactical area or entry, You can see the bull flag at #2 and from that a breakout that should have move much higher according to the measuring implication of the bull flag, but we just needed a break above resistance. We also went short at #3 as you can see below at a price of $210.74. Between #3 and #4 there's a bullish ascending triangle that is taken by technical traders as a consolidation/continuation pattern to the upside, instead it broke to the downside and IBM failed quickly and hard, "From failed moves come fast moves" and that's part of the reason head fakes occur just before  reversal.

Here's what 3C looked like and this was our edge in knowing the difference between a real breakout and a head fake move that is best used as a short entry.

 I've rolled the history back to the entry area and just before. This is a long term 60 min chart. At #1 we have the bull flag, but 3C is already telling us there's distribution in IBM, we now have a strategic view, we just need a tactical set up. At #2 this is the breakout above resistance and where we shorted IBM, notice the 60 min 3C chart is now in a worse leading negative divergence.

While the 60 min is one of the strongest indications of what's going on, it's not the best timing timeframe.

I can only go back 5000 bars so I can't show yo how all the timeframes came together, but this important 15 min. chart also shows the bull flag at #1 and the breakout above resistance at #2, the same day we entered just about as close as you can get to the absolute highs i IBM. Again, the 15 min chart was confirming what the 60 in chart was telling us. Shorter timeframes gave us more confirmation and when IBM broke out, instead of 3C confirming it or leading it, it showed us distribution so we knew this was being used as a Wall St. Head Fake and they were selling and selling short in to the new highs, we did the same.

Essentially we are in the same position now in the market, we have broken out to the area that would be like the new highs in IBM, we just need confirmation of the 3C charts showing us distribution of risk assets as the breakout came very late in the day, they'll usually run price up a bit if the demand is there and sell in to that.

We just wait for the message of the market and objective data to confirm.