Strategy Update

Sunday night I laid out a strategy or a "theory" that one of our members (credit where credit is due) who has taken in our concepts, seen the proof in market behavior and understands to the point in which he can "Think like a crook".

I explained the ONLY reason for a volatile upside move is to create selling/short selling opportunities for smart money, a new high should have done it, it should have got retail excited enough to create that demand, but it didn't. He put forth the idea that the shorts, after having been beaten up so many times, but still having objective evidence on their side (this is the market can stay irrational longer than you can stay solvent behavior, which makes risk management and understanding what to risk and when, a very important market "feel" that comes with experience), would be happy to step in to the market in size on a severe momentum downside move, we have the volatility for that and the ATR, then the shorts may have a few days, maybe a little longer before the market is run up again, scaring the shorts and forcing them to cover. When you cover a short you are buying, it's no different on the market's tape than a long buying, the only thing the market sees is buying and that's what the market needs so if the longs don't have the attitude to do it, maybe the shorts will. That is in essence the thrust of his argument which I found VERY compelling and it made me incredibly proud because as you know, I don't give "Buy, sell or hold" calls like some self-proclaimed gurus, I try yo show you the best set up, if the market comes to you, then you take it, if not, then there's a bus every 30 minutes and you look for the next one.

Not only did this make sense from a "What Wall Street needs" point of view and it really doesn't matter how they get the buying, from longs or shorts covering, but it also made sense with what I'm seeing in some of my core short target stocks like GOOG, AAPL, AMZN, NFLX, IOC, GS, IBM, DE, CAT, XOM, TJX and others. Obviously I don't want members to enter all of these positions, there's too much correlation, there's too much over-diversification, but there are enough targets that we'll find a high probability/low risk entry in one of them for you when you need it.

Yesterday I mentioned our strategy and how I'd prefer more generic shorts for the initial break to the downside because a lot of the specific stock ideas look very close, but not 100% there yet, exposure to the broad market is generally going to be more consistent than to a stock specific exposure that has news, earnings, etc, in other words, at this point, I'd rather be short the entire financial sector than GS, but as we get to the bigger set up which the 3C charts and short term leading indicators suggest are not quite there, I'd rather wait. I'll use AMZN, which a lot of people including myself are interested in getting a short position in place as a core equity short (no leverage, just a longer term trending trade, a lot safer, easier and a good profit).

As I've already shown you the near term leading indicators, what they need to do and what they have been doing, I'll use AMZN as an example for the other side that leads me to the same conclusion...

 2-day trend in AMZN, the green arrow is a healthy trend, the yellow shows AMZN pulling away from the bottom channel and likely getting ready for a Channel Buster which it does twice at the orange arrows, note the yellow arrow right before the last channel buster. Although these look bullish, they tend to be bearish and often lead to reversals. After the first one, note price pulled right back to the bottom of the channel quickly (first red arrow from the left).

 MY MACD Heat Map, if you look at it closely and compare price, you'll see how it works, when Blue diverges and goes negative the high probability trend loses probabilities, when green and yellow do the same, it's usually time to be out or moving back in to the trade and by the time red does it, often the trend is over for that leg. More importantly is how small the last blue peak in 2013 was (white trendline) vs. the first in 2011, momentum is falling off as the trend has developed. This indicator is great for all timeframe trades as a momentum indicator, even intraday or swing.

The 2-day long term 3C chart shows accumulation in a big way at "A", a rounding base, "B" a flat base, but it does have a head fake move in yellow just before it launches and "C" which is a stronger head fake that breaks all support, accumulates those lows and takes off to the upside, again these head fake moves are valuable in almost any timeframe.

In red you can see where the 3C trend has gone negative on a very important, long term money flow timeframe.

 At the other end of the spectrum the 1 min chart shows the recent trend, it's the closer chart below that is more important.

 Here we have distribution, a head fake move and then the decline, a small positive and a deep leading negative divergence, this almost makes me want to open a put position in AMZN for the short term like yesterday's positions, but as AMZN made a lower low in price today, there was a positive divergence, this may not hold out all day, but...

The fact it is on a 2 min chart also doesn't give me high confidence in a put. It does make me think a downside move is possible and this is the market getting ready for that final move in AMZN where equity core shorts are opened in to price strength, 3C weakness.

The 5 min chart shows the same with this a.m.'s new low also being a head fake move at a positive divergence. This is why I don't feel a short -at least a leveraged short like a put right now is worth the risk, I'd rather have exposure to the broader industry group.

Overall, the 60 min which is very important shows a strong negative at the last high, I personally don't think AMZN can make it above the yellow trendline where the next head fake level would be, if it could that would be ideal, but I don't see the strength there yet. If the market does make the downside move expected, AMZN can accumulate in to that move and this chart may then look like it has enough in the tank to make a run above the yellow line, that's the highest probability/lowest risk short right now.

I hope you get the gist of where I'm going with this.