Note TF and NQObservations and the old NYSE Specialists' Trick

I was going to point out part of this before ES's 3C chart exploded higher and the open gave me more to work with.

 NQ (NASDAQ 100 Futures)  overnight, note there was a positive divergence before that comment out of Japan which is a VERY sensitive topic as USD/JPY is the last carry trade open and at 200:1 leverage, every pip (the smallest measurement of price-usually out to the 4th decimal) can mean millions of dollars. 

The pre-market positive is like ES's, except ES shows a very clear change right before the open with a leading positive spike.

  TF (Russell 2000 Futures)  overnight also were building a positive divergence, of course its impossible to say, but perhaps this was strengthening of the "W" base before carry traders hit the Panic (Super Fast Sell USD/JPY red button).

USD/JPY futures  overnight with a positive divergence, actually quite large which leads me to believe we are seeing an old NYSE opening tactic, I needed to see the open to try to confirm.

We knew yesterday that the charts in intraday and further out were negative so a drop this a.m. is no surprise, however on a short term intraday basis, the SPY just caught down to 3C, so far they are now in line which is an improvement over leading negative.

So far my theory is right, but it played out faster than I can type, we'll have to see where it goes from here.

Oh, the theory...

A lot of independent professional traders, especially day traders, will or would not trade any NYSE stocks at all. Why?

There's a difference between NYSE and NASDAQ stocks and the primary difference is the match-maker or middle man. On the NYSE they are called "Specialists", when you see the floor of the NYSE and traders holding up tickets and screaming, many of those traders are "Specialists".

Since the NASDAQ is not a specific place like the NYSE, but rather a series of networks that makes up the market, they have what is called a "Market Maker". Both middlemen have a function, they usually work for a big house like GS or MS and represent 1 or several stocks and make a market in those stocks, there job is to facilitate the smooth flow of transactions.

By law, even if a market is dumping and there are no bidders willing to buy shares you want to sell, "If" you sell them at market and are willing to accept the bid from the market maker, the MM has to, by law (in exchange for many perks like naked shorting, etc.) take the other side of your trade- same for Specialists.

The main difference is that the best bid/ask are the opening for NASDAQ stocks and they open at 9:30, by contrast on the NYSE, the specialist determines supply/demand and the opening price, they also determine what time the open is, I have had NYSE stocks open at 10:30.

One of the Specialists tricks use to be to see a negative/ugly pre-market and gap the stock they represent down to below the level of the sellers, then they'd buy that gap and since the entire ask stack was taken out (sellers), the stock would rise so buying the opening gap down would usually net you money, but traders don't like the arbitrary nature os Specialists powers.

It looks like that's what has happened at least on the open, it's clear in the all of the averages this morning.

From here we watch 3C, we still have an Op-Ex pin to contend with. We may see a small base here before we can head up which would be useful, IF we get a strong divergence with it.