Looking Ahead

Friday afternoon I basically summed up where I thought we were short term, that was to say. "I don't think there's any need to rush in to anything, I think we have time to let this play out and find the best positioning". As I often mention, I'd rather miss the trade than take a subpar, rushed position.

See the link above for the gist of how the market developed Friday.

Here's a possibility I see for the market (remember as of Friday my opinion was and still is that there's more room on the upside, but I think we get an interruption here. After that, the market looks a lot closer to some very bad downside a lot closer than I had previously though).

 Whether a H&S price pattern or possibly a broadening top, it appears the SPY is going to pullback to the gap in yellow.

 As for a H&S price pattern, this is a custom cumulative volume indicator, people often don't verify a H&S price pattern with volume which is crucial. With a H&S pattern, volume should fall in to rallies and build during declines. In the red boxes you see the custom volume indicator falling as price advances and the yellow arrows show volume rising as price decline. Although this is far from a textbook H&S pattern, it does have all of the components of a H&S short term top.

 According to the price pattern implied target, $150 is approximately the implied target based on the size of the price pattern. If 3C verifies this early this week, we may very well have some short term trading opportunities. Also note that this target isn't too far away from the gap pointed out earlier.

Looking at price alone, is the market capable of such a move in a short period of time? We have almost the exact same candlestick pattern before the last, volatile pullback. The next day we saw a 2.3% move down in a day, the market is doing nothing but getting even more volatile, it's very possible.

However, based on some of the short term charts that you can see from the post linked above (
from Friday), there's a decent chance we see a short term pullback to $157.70 area, this seems more plausible for a quick short term move down, finish the short term move up and then move toward the bigger, longer term move down. I think 3C will give us a good idea if we see positive divergences as with price pulling back, again, that offers more short term trade opportunities, we'll just have to let the market tell us where the probabilities and trades are.

This is an excellent example of the short term action, the possible area of where price may pullback to, finishing the rest of the short term move before we reverse to the downside in a much bigger way.

This is where I see the short term positive divergence and a possible pullback to this area around $157.70, if we finish our short term move higher off this level, we will know early on as the market pulls back toward that level whether 3C is confirming by showing short term positive divergences like the one we see in white or not.

As to futures tonight... I don't see anything of interest as far as our short term indications go, which is usually what I'm looking for Sunday night, however as far as the bigger, NEGATIVE move I feel there's some very clear evidence.

 ES 30 min leading negative divergence, also note how volume has declined in to the advance, this is very bad news for any bullish sentiment.

NQ (NASDAQ 100 Futures) daily chart to give some longer perspective...
From a chart with pretty good confirmation to a deep leading negative divergence this entire year.

TF (Russell 2000 Futures) 30 min also showing a very negative divergence, this is part of the reason I think the downside move is very close.

As for currencies, the Euro and the EUR/USD both look like they are going to see downside based on 3C negative divergences, this would be a market negative move in the currencies which fits our short term market outlook for earlier this week.

 A negative divergence in the EUR/USD, this implies a move down in the FX pair, this would be market negative.


The Euro futures alone also have a negative divergence, it started right on the open of FX trade for this week, sending the Euro lower and has a new leading negative divergence right now.


The $USD is confirming by showing a strong 15 min positive divergence (this supports the idea of the EUR/USD moving down), this is a market negative, in fact negative for almost every risk asset.

$USDX 15 min leading positive divergence.

Then Yen has opened this week's trade by moving higher, I wrote about this 3 weeks ago as something I thought was very likely, although it goes against conventional wisdom when a central bank like Japan's BOJ took such aggressive easing steps, this is one of the potential black swans I think few people understand or will see coming until its too late, I will keep an eye on it, but just as I showed Friday, there's a strong leading positive divergence suggesting the Yen moves higher and that is exactly what it is doing, this is market negative and if it moves as sharply and as high as 3C seems to suggest, this could be the cause of a market collapse.

So tomorrow we'll see what 3C tells us and take new trading positions based on that message of the market, which we'll have a line of long before anyone sees anything reflected in price, giving us a very sharp edge.

In addition, I want to touch on gold tonight, but I'm going to post an email response I sent with the charts as it explains everything with GLD and longer term members will remember everything I mentioned, I say this now as information breaks that JPM has been responsible for 99% of all gold sales on the COMEX over the last 3 months, my email response was before I heard about this, but it makes perfect sense as far as what we are seeing on the 3C charts and as I said, longer term members will remember when we found a triangle top in GLD in 2011 and I suggested it is at least an intermediate trend top, if not a primary trend (bull/bear market), that post is coming next.