In looking at futures tonight I'm not convinced of anything regarding the Euro, $USD and $AUD (although it seems to me $AUD sees near term weakness as there are good signals there.) The Yen however which has had an increasingly strong gravitational pull on the market largely due to carry pairs, looks very much like it is really getting ready for a strong move higher which would be largely market negative. This is entirely consistent with the "Currency Crisis posts" (both can be found at the preceding link) that centered almost exclusively on the Yen's increasing influence in the market and not in a positive way as well as the $USD's increasingly bullish position (again not market positive).
However what I do see in the Equity Index futures tonight is entirely consistent with the distribution signals of Thursday and Friday and here's where market concepts come in to play.
The reason for a bounce/rally in an environment of declining fundamentals as well as market breadth and the evidence that helps confirm them (increased volatility, extreme moves that are meant to change market sentiment from one side to the other as well as increasing unpredictability and increased ATR) is almost ALWAYS to achieve a goal, it is nothing like the goal that would seem obvious, for instance new highs in the SPX would seem there's market confidence, few would see that as a bull trap in which Wall Street is trying to create that confidence to sell in to and sell short in to, but then again, few have given much thought to how different it is for "us" to move in and out of a trade vs. the way Wall St. must move in and out due to sheer size and the fact that if they give away their position all is lost (price goes against their position, the market goes against their position and predatory HFTs attack them).
The concept here and that we have proof of is to create confidence iin the market, to create retail buying, the demand and higher prices needed by Wall Street to sell large positions and start new large short positions in to, they need retail believing in the rally and buying it to do all of this so it is not surprising to get new SPX highs before a weekend when it can be pasted all over the news and entice retail, it's not surprising that centennial marks like 1600 are hit as the human mind gravitates toward whole numbers. It is not surprising that we have seen distribution signals in to this move because it just confirms exactly what we thought the move was for and that was well before it started when the signals of it getting ready to start were becoming obvious.
The question really is, where do we buy in to the reversal that is the second part or the real part of this concept? I have mentioned the distribution signals are there, but two days I held off from entering new shorts and both days I was proven correct as the market moved higher because there were a series of red flags telling me, "Something isn't right, we are not there yet, be patient".
Leading indicators told me the same, consider High Yield Credit making a new high on Thursday in to the market close, a clear signal Friday would not be a down day. This doesn't mean we want to buy the market Thursday because it was a LONG way from giving strong confirmation signals of a high probability trade, this is where we pick and choose our battles and wait for the high probability/low risk trade to set up, not just the direction of greatest probability, that doesn't always make for a profitable or smart trade.
The one thing that has not escaped my notice is that many of the long term Leading Indicators are in the worst position I have seen them in ever (very market negative), but their near term versions have not yet turned and that can take some time or market volatility (market chop-big moves up and down such as Wednesday and Thursday of last week).
The other thing I noticed is even with SPX $1600, the thing Smart Money needed the most, Retail buying, did not elicit the kind of volume that the move was designed to create, this was the entire basis for the move, to allow smart money the demand they need to move positions and start new ones.
Part of me has wondered if we get market chop, if we head higher trying to get retail to bite or if the, "He who sells first, sells best" concept takes hold on Wall Street and something like AAPL happens, every large fund is trying to sell at once knocking 300 plus points off AAPL and about -40%, when one moves they all move.
Then one of our members who has embraced the concepts sent me his theory, I put the concepts out based on observation and try to show you the proof and you embrace them and make them part of your thinking and trading (if I do my job well). Here's what he suggested and them more I think about it, the more it makes sense.
Retail didn't give Wall Street the volume and excitement about the new high that Wall Street really needed, so why keep beating a dead horse, if SPX $1600+ didn't do it, what will another 10 points do, especially when it's becoming very obvious that it is very difficult for them to manipulate the market up as we have seen in the SPY Arbitrage and confirmed with our Leading Indicators.
An alternative theory... What if they knock the market down and they draw in the willing and ready shorts? There are plenty who know this market is a house of cards and some who realize the F_E_D is carving out their exit from accommodative policy, if you have kept up with F_E_D and F_O_M_C announcements since Sept. 13, 2012, it's almost impossible not to see that. Shorts are more than willing to step in, especially after so many have been burnt, market breadth and many other basic indicators they have access to show this market is as Ron Paul called it this weekend, "A House of Cards". We have the volatility to create a convincing downside move, a good 2+% move will change sentiment real quick.
So we have our shorts in the market in pretty large size, since retail wouldn't bit to give Wall St. the buy-side volume, what's the difference if the buying comes from excited longs or scared shorts who have to "BUY TO COVER"? The keyword is "Buy". On the tape there's absolutely no difference between buying and buying to cover, both are buying, but perhaps with excited shorts scared off in another volatile move to the upside, Wall Street can get the volume they need.
This would also give leading indicators plenty of time to diverge short term like I think they need to do and as we have seen them start to do.
So far this is nothing more than theory, but one which we can confirm and one which we can use to our advantage. Whichever way this plays out, we'll be using evidence based methods to make our decisions ahead of the crowd, this just happens to be a particularly brilliant use of the volatility, the unpredictability, the large ATR and true market sentiment or at least sentiment that is more widely believed than another 100 S&P points to the upside.
If this is the case, there are several short term plays we can make a good chunk of change on and really know where the perfect spot to back up the truck and load up on positions truly is. I'm very proud to see members understand the concepts so well that they can really understand what Wall St. needs, what their options are to get that and what the market conditions are that would allow it.
Of course this is a theory for now, but one that is well thought out, that understands the market dynamics and the games Wall Street plays and personally, I like it a lot, this is truly, "Thinking like a Crook". However, as always, we'll let the market confirm or tell us where the probabilities are and take positions based on that.
As of tonight, even though the 3C Market Index charts look horrible, ES for CONTEXT (even though many markets in the model are not open yet), shows a positive differential.
However, what could be more perfect than a setup I drew on a daily candlestick chart of HYG (which will move similar to the market, if not lead it a little) on Friday in this post.
Again, I don't want to get too caught up in a scenario that I'm blinded to other possibilities and I don't want you to either, but I do want to present this idea so you better understand the concept, the objective and how there's more than 1 way to get there and how we can use it to our benefit both short and long term.
As always, if anything changes tonight while I'm awake, I'll update, otherwise I'll see you in the a.m.
Have a fantastic week ahead.
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