Step Back

I spent a good many years running a very high-end interiors finishing department, our clients were half way across the country, in Bermuda, Tourneau stores, to give you some idea, here are a couple of pieces of my work.

 This is the living room and Media Center in an 8000 sq ft. house. All of the wood (except for the bumble bee table which I also finished) is Bird's Eye Maple, very expensive and a very pale, almost skin tone wood naturally. This is about 10% of the job and the sample piece I had to match the color for the entire house was about 2x2 inches. Now it may seem like you just slap on some stain and finish the wood, it's not, not when people are paying $1.25 million for the interior, all of this is a sprayed on die. Because each piece of wood is unique, no two panels can be finished the same and end up looking the same and you only really notice it when all of the panels are installed so it's a lot of work, adding a little red tint if the wood has too much of a green hue or some purple tint if the wood is a bit too yellow and that's after the main color is put on.

This may look like an old piece of junk, but when it was delivered to me it was brand new, shiny white paint. I was given a 3x3 inch piece of fabric that the Duvet would be made out of and had to paint this by hand, matching every color on that fabric and make it look like it was 100 years old in the process. If you look carefully you can see areas where the paint was rubbed off, after hand painting all the accents, I went back over them with a grey glaze to make the unit look old and dusty. There's probably 100 hours of finishing work there and that's a $20,000 piece of custom furniture, those were the kind of clients we had.

The point is this, when you are looking at a 2x2 inch sample, you have to be able to take what you see and scale it for the larger job, if you spend too much time trying to make too many details, the job doesn't look right and it's almost impossible to match more than 1 square foot to the next so I use to tell my workers, "Don't get lost in the lines".

It's funny that it's the same way with the market, if you are looking at intraday charts all day then some of the moves seem really important and you end up missing the big picture because you are truly lost in the lines, this is why I always start looking at a stock with a 5-day chart, why I use a Stochastics setting of 50 or a MACD setting of 52/104/9, I don't want to see what everyone else sees and more importantly, I want to see the big picture. If you can understand what the big picture looks like, then it's easier to understand what the shorter term action will most likely look like, its just sometimes we have to make assessments as we go and often long before the bigger picture materializes.

While there's probably a lot that I can share with you tonight, there are only a few things that I need to share with you, so we'll step back a bit and try not to get lost in the lines.

Yesterday I said several times that a reversal is more often a process rather than an event and it too has a scale or anticipated size to that process. Yesterday's was very tight and I thought that this could be possible because smart money hadn't really sold any of their longs on Friday or in to yesterday's higher prices so they didn't really need to accumulate, but today when we take a look again, it is evident that yesterday was part of the process, it was not an event reversal.

Here are the only charts that are really important tonight, the market averages in the 10 min-15 min timeframe, which is a decent move, not just a flash in the pan, but it's not a change in longer term character of the market either.

I'm going to try to explain as little as I can and just let you look at it and get a feel for the scale of the price moves, how 3C acted in particular over the last two days, what that tells you about these charts and then we'll look at some of the Index futures.

With 3C, I always tell people, "If you can't make heads or tails of the chart, there's either nothing there of interest or you need to back out to a bigger picture point of view".

 This is the SPY's move as of the close yesterday, you can see this is more of a "V" reversal than a "U", "W" or "Rounding Bottom", it's more of an event than a process and there's a reason for the process.

Institutional money trades in size that we can't comprehend, we don't need more than a minute to put an order together, they need a lot more time as there are so many of them putting together such large orders and trying not to tip anyone off to what they are doing so they have to do it in smaller pieces over more time. After a while, you just get use to the flow of price action and have an idea of what to expect in terms of size or duration.

Here's the 10-min. SPY with today's close, what kind of process do you see? What is 3C doing in that process?

 How about the 10 min DIA, do you see the process in price action, what does 3C tell you about the process?

The 15 min IWM, I usually use yellow trendlines or arrows to denote a stop-run or head-fake move, they are excellent timing signals for a reversal within the context of the overall scale of course.

 Or the QQQ?

Now to look at the Market Index futures, ES (SPX E-mini futures) and NQ (NASDAQ 100 e-mini futures).

First this chart of ES may look familiar, I've been showing you a 15 min version, this is a 30 min version, you know what it means when divergences are on longer timeframes, they are more important.

Do you see anything about the process or 3C in the process that looks similar to the averages above?

How about a 30 min NQ chart?

Now that's one perspective for one move, but if we move to a longer timeframe, there's a different perspective, this is the bigger picture, again the ES and NQ charts, but this time the 4 hour versions.

ES 4 hour. What does this tell you? How would the 30 min chart above fit in to this picture?

This is NQ 4 hour, same question because the 30 min chart does fit in to the picture, it's just a different signal, one is the bigger picture, one is the more immediate picture. How do they compare to the market averages above? Can you confirm similarities?

Now finally because confirmation is essential to any signal, these are the 10-year Treasury futures-not yields, the Treasuries themselves. Treasuries move opposite the market and this is a 4 hour chart of them the same as ES and NQ above

Does this chart make sense with what you see in ES and NQ 4 hour charts above? Is the story starting to emerge?

I'll give you a hint, while scale may have changed a little bit since yesterday, nothing in the story has changed at all since last Friday.