After Market Wrap

I'll post several charts from the averages and from the Index futures to try to give you some flavor of what we're dealing with, don't worry if all the timeframes aren't exactly the same or signal, the point is the general theme is there and it's really not a question of the move up we expected (and so far have started) giving out early, I think it's pretty clear it has more upside to go, in fact I think it has barely started.

First those charts.

 Most of the averages as reported this morning did not confirm the opening gap as you can see in the SPY 1 min on the open.

OK, I know I've pointed this out several times already, but the degree to which this prediction was accurate is amazing and in my view it tells us a lot about how rigged the game really is.

Going back 1 more time to my email from Saturday with a member...

The question or discussion was about "potential catalysts" that would send the market higher, a number of ideas were rattled off and my response was the following:

"That's the obvious stuff, but I wouldn't be surprised if the F_E_D let a rumor slip, picked up by the WSJ that helps, remember they have a lot closer relationship than they disclose as evidenced by the minutes being emailed to 154 trading firms over a day early. They'd rather see them make money in the market than have to bail them out."

It seems even I lacked imagination, but was darn close. Instead of Hilsenrath rumors in the WSJ, we had 3 F_E_D Hawks come out and speak as of yesterday all calming the market and hinting that QE tapering is not as close as people think, short term rates aren't going to rise that fast (all of this is the opposite of what was actually said by the F_O_M_C). 

Then today at 10 a.m. we had the F_E_D's Dudley saying the same thing, hinting that QE tapering is not that close because the economy is still soft and rate hikes are a long way off.

At 10:30 this morning the F_E_D's (and F_O_M_C voting member) Jerome Powell, who says 2014 is the end date, but current data is mixed so QE tapering is still up in the air and no imminent, keep in mind none came right out and said it (they can't really), but they hinted enough that we got the message, but still left a lot of room for plausible deniability.

Then Lochhart at 12:30 was a bit more neutral, but still said that QE tapering was economic dependent, by that time as you can see above, 3C improved on the 1 min chart or intraday charts and jumped in to line with the gap up (seen to the right in the green box).

 The 5 min chart suggests that the distribution I talked about last night in the short term is there and it's probably enough to create a pullback or correction which would actually help our case as retail is clearly bearish and already shorting the market today, if you give them some price confirmation they'll be all over the market short. This is helpful because it gives us a better short squeeze at higher prices (like the "Slow boiling the frog " concept from yesterday).

 The 15 min SPY is showing what is clearly in my view, distribution in to higher prices including institutional short selling, but I do not think this the end of the move.

The SPY 30 min is leading, it's still strong, it suggests to me if we do get a pullback that it will just be noise (we can probably open some decent trades on the movement), but this strong 30 min chart tells me the real move, the real pendulum effect, the real emotional movement the market seeks to create hasn't even started as we are barely even out of the base, much less the mark-up area.

Although I didn't think the market would need it because I thought a short squeeze was more important, I estimated the basing area to need about 4 days, well the market figured out a way to keep the shorts involved and the basing period was exactly 4-days. How did I know this? An indicator? A lucky guess? No, simply looking at the character of price action, the size of the preceding move, historical price action and basically a sense of symmetry or scale (Neither are really the right word), "Proportionate" is a better adjective.

This isn't the best "artist's rendering", but imagine if the base was shorter like this, does that have a look of symmetry to it, does it have a look of the normal SPX character? Does it appear to be a big enough base to support a strong move to the upside? To me it looks more "V" or event than "U or W" for the basing process. This would be about as tight as the last pullback and base which was a much smaller pullback (between the two trendlines)  and a smaller run. The size of the base is directly proportional to the size of the move it can support.

Here's the actual base and today's breakout, for bears, this is the perfect area of overhead resistance that they'd assume the market would not be able to overcome, but for me, it's barely even the start of the 4 stages of any trend (base, mark-up, distribution, decline). 

The price pattern's measured move/ target implication based on what's there now without accounting for increased volatility is around $1660, which would be a break out and traders would turn bullish (they are fickle) and start chasing this new Technical move.

If we assume the minimum measured move and then add volatility and perception shift to the bullish side, we could certainly have a move toward a new high, although the May 22 Key Reversal Day should be strong resistance. Wall Street rarely does anything without a reason and they aren't likely to bounce the market without really getting something or the effort.

The QQQ today

 The intraday chart is the same as the SPY, no confirmation on the open, around 11:30 or so 3C improved and the Q's too saw confirmation, it's clear that the 6  F_E_D speakers this week so far had an effect and specifically the three today changed market underlying action from negative to at least in line. 

The QQQ 15 min, like the SPY shows distribution in to the most recent area of the move today, distribution is something that is happening, it's expected, it's the reason for the move, but it's not a signal for the end of a move by itself.

Like the SPY, the 30 min chart holds the promise of a lot more upside, despite any pullback/correction which I believe will be fairly strong if we get it, maybe a -1.5 to -2% move because it needs to pull the shorts in and get them frenzied, but as I have maintained since last night, I believe it's no more than trend noise.

 IWM 1 min didn't confirm on the open, but improved after the 3 F_E_D speakers today.

 The 10 min chart showing distribution in to today's move which I think saw a short squeeze in the IWM, maybe not a historic one, but a squeeze.

IWM 15 min holds a lot more gas in the tank.

ES...

 Like the market averages, ES had difficulty confirming the early action, then saw strength come in as a result os the 3 speakers today, after it had already started deteriorating badly. We ended the day in line and since the close we have seen some negative momentum in 3C.

The 5 min Es chart is nearly perfectly in line, but like the averages, the 15 min above shows there has been some distribution in to the last several days of price strength.

Not only the ES 30 min chart, but the 60 min above and the 2 hour are all leading positive and very strong.

All of these charts share one thing for sure, they all have plenty of positive activity to take the market WAY higher. The next thing I'd say is they've all seen recent distribution, perhaps they had no problem with that because they expect a pullback and a move higher so if they can sell in to some strength, why not if you already know what's coming next?

As I said earlier, there is a chance a short squeeze just takes hold and there's no looking back, but that does not seem to be the optimal use of resources for Wall St. to get the most constructive move possible. It would be my opinion that if we didn't get a pullback and skipped right to a short squeeze, that it likely was not the intention or original plan.

*Furthermore, tomorrow an op-ex Friday so perhaps a pullback lines up and works perfectly with an op-ex max pain market pin???

As far as the TICK data goes, we had a 3rd (or was this the 4th?) very strange day of data, no trends, just lateral chop and I'd never expect this from a  market that gained +.95%, +.96% and +.65%.

No trend at all, but a bias to the upside as we see +1000-  to +1250 on the upside and mostly -500 to -750 on the lower end.

I mentioned some charts that look very much like shorts, but only after they finish a move higher. I'll be covering these as they get close to a decent range, (look at AMZN, we expected +4282.50, we waited patiently, we got the area we wanted and even with 3 days of market gains, AMZN is still a profitable short, it's all about getting in at the right area).

GS is one example...

 GS 15 min from in line downtrend to distribution on a bounce/rally to accumulation on the pullback. GS not only looks like it wants to move higher (which it would have a real hard time doing if the market were heading in a different direction), but with a chart like that open, I wouldn't short GS until that signal was resolved on the upside.

However the 3 min GS chart looks like it clearly wants to pullback near term doesn't it?

 IOC is one of my favorite shorts, I closed it earlier this week for more than a 20% gain and it hardly moved, but this 60 min chart looks like I'll be able to open a short at much better prices.

However on the 10 min it looks like it wants to pullback first.

There are dozens of these among my favorite shorts. 

Before I used 3C, I had a great way of forecasting the market, it took a lot of work, but similar to what we have above... I'd look at something around 500 charts a night, I can look at about two charts in 5 seconds, I just flipped right through them.

If I found there were a lot more short set ups I knew the market was coming down and vice-versa, this is sort of the same concept.

Take a look at VXX and UVXY which move opposite the market...

 VXX 1 min

UVXY 5 min.

Do you see why I closed the VXX put today and took decent profits from the UVXY short?

UVXY 10 min

VXX 10 min

And can you see now why I CLEARLY believe we are headed for a significant move to the upside?

Finally, because I don't think I can make the case any clearer with the data we have, HYG, High Yield Credit, Smart Money's risk asset of choice, if HYG is moving up, you can be nearly guaranteed the market is following because Credit and Bond traders are a lot better informed than equity traders just because it's such a huge market compared to even stocks.

 This is the HYG 5 min chart showing some distribution late today, if I posted the 1-3 min. charts they'd look exactly like the SPY, the same forces moved HYG intraday.

However no matter what kind of pullback, it almost doesn't matter to me if it made a new low below the base, with a 30 min. Leading positive HYG divergence, I feel more than assured that we will see such a strong upside market move that for our purposes of going short, I'll consider it a gift, but I can almost guarantee that some members will be frightened to short a market that looks as strong as this 30 min chart is telegraphing. Just remember I said that when the time comes.

It's always easy to make a plan when nothing has happened, but like I said last night, "Every boxer has a fight plan until the first punch is thrown".

My point is, EXPECT a monster strong move, but remember it's a gift, it's a means to an end.

I'll check back in on futures in a bit.