I want to thank everyone for all of the great letters today, I really learned a lot about what many of you are picking up and learning, some of it I was surprised by, but it's exactly what I want to offer and the fact that some of it was more than what I thought I was offering really hit home and makes me want to work that much harder for all of you, you are a great bunch of people, hard working, think for yourselves and are deserving of every bit of success, so thank you very much. I'll have an update on the new site. I looked in to text alerts for trades, they are incredibly expensive, I think I figured it would cost about $40 to send the current members 5 trade ideas, I can send that many in a day, multiply that by 22 days, so I'll see what else is out there, of course any suggestions of what you'd like to see are welcome, but get them in as we are getting closer to our launch date.
Remember this increasing volatility is there to make as many people wrong at any one time as they can. For the very immediate future they are going to give bears what they want in order to give them confidence to hold shorts, the longer they hold them in to a short squeeze, the more effective the squeeze. Just like they conditioned everyone to "Buy the dip", now they are conditioning them to "Sell the Rip".
Europe
Just as some background information for what will be the next big fight in Europe between Germany (Merkel has an election in several months, she'll not want anything to do with yet another Greek bailout), the Troika (less Germany if that is possible ) and the IMF over a new Bailout for Greece (Deja-Vu, the second verse same as the first or 4th or 5th verse as it were).
It was only 6 months ago that the EU and IMF agreed on Greek GDP targets and essentially said that their last round of severe and extremely controversial bond-holder haircuts had been effective and put the country on the path to sustainable growth for ... what? The fourth time?
Tonight as part of a recent ongoing situation starting with a leaked IMF document, the IMF says Greece needs another bailout, but this time refuses up front, to participate in one unless funding for the next 12 months can be secured to fill a $4.6 billion Euro shortfall. Troika's Greek GDP forecasts have been overly optimistic and real GDP has missed the Troika's dreams for each of the last 5 years consecutively.
According to a confidential IMF document (leaked and obtained by the WSJ), "The International Monetary Fund is set to admit to major missteps over the past three years in its handling of the bailout of Greece, the first spark in a debt crisis that spread across Europe."
In an internal document marked "strictly confidential," the IMF said it badly underestimated the damage that its prescriptions of austerity would do to Greece's economy, which has been mired in recession for years....
If you recall, we knew the moment we heard the final deal that this would be yet another filed Trokia/IMF bailout, it doesn't matter which country, they are always wrong.
The IMF said that it bent its own rules to make Greece's burgeoning debt seem sustainable and that, in retrospect, the country failed on three of the four IMF criteria to qualify for assistance.
And as for their Greek GDP targets vs. reality and as proof positive that installing a regime of harsh austerity couples with an Ex-Goldmaite for the post of Prime Minister (whether that be Greece, Italy or even the head of the ECB) was never going to work, here's a chart of their expected GDP targets and reality.
I drew in the arrows, but it's quite clear that not only have the targets been a major foul-up, but the trend isn't even close. This is of course ASSUMING that we are talking about fixing Greece at "Face Value" as the honest objective of these bailout efforts, if we look at reality, the bailouts were nothing more than adding more debt to a country struggling with debt (that has never worked well for me with credit cards, maybe I just haven't tried hard enough) for the sole purpose of essentially stealing bond holder value and transfer that not to a resurgence in Greek economics, but rather to pay back the banks that Greece owes money to, this is the real and only reason the bailouts were given.
Perhaps this explains why Greek GGB bonds that had rallied +119% , have fallen -10% over the last week, $4.6 bn Euros need to be secured and just as the last time in Greece or the Cypriot bail-in which was nothing short of pure theft from those with savings accounts in the money laundering nation's banks of over $100k, Greek GGB bond holders know that they will be targeted again for another haircut or blatant thievery of their asset/value and are getting out of them while they still can before the Troika decides to take another 50%-70% of their value.
In more immediately pressing matters, such as near term market direction, the Vampire Squid has issued a new proclamation....
As you may know, my expectations that started fleshing out over a week ago and were put in to fine detail Monday and Tuesday of last week have thus far gone just as expected, although the finer details of exactly when and to what degree are almost impossible to forecast, the main gimmick and what it leads to have been spot on allowing us to make some trades and get in to position just when all of retail was expecting the exact opposite.
To be clear, it is retail that is being targeted in this entire exercise which has several chapters all leading to the big ending.
Here's what I expected last week and EXACTLY what we got. First, increased volatility in the form of daily ATR or the daily amplitude of the moves was expected and second increased volatility or almost "Random" price action to accompany in another sort of volatility, that which is best summed up as a meat grinder for most traders. For example, take the Dow-30 last week.
Since the Key Reversal Day "A" the Dow's daily range from then until now Friday has been 2,296 points or what would be 15% of the Dow. If you shorted the Key Reversal day ("A") and were able to stomach all of the intraday and day to day volatility, your gain from over 2 trading weeks until Friday's close would be +0.39%. There are very few areas there where you could hold a trade for more than 1-2 days without being chopped up and that's looking back with the benefit of hindsight, this is why I announced a more, "Hit and Run" strategy going in to the increased volatility.
However the real plan that I outlined last Monday has been nothing short of a bear trap, which will lead to a bull trap in my opinion, which will lead to a horrific Black Swan event to the downside. I don't want to get too far ahead of myself as we are still in the bear trap area, but this is what I was looking for and continue to look for and I'll tell you how I'd like to use and continue using it.
Before you go further, especially for new members, let me say that a bear trap is not random events, it is manipulation, it is a form of what I call a "Head Fake move". If you have time, please review the two articles I wrote explaining all the dynamics of a head fake move from why to how. These articles are always linked at the top right of the member's site for you to read any time.
Retail Technical traders expect the triangle to hit approximately 5 points of contact between the upper resistance and lower support and as it narrows to reach an apex (point), they expect the triangle to breakout to the upside and continue the next leg of price moving up, however, that never happened, instead the triangle broke to the downside which matched retail bearish sentiment. This is the important part of the set up... Technical Analysis teaches, "If a price pattern fails, reverse your position and trade in the opposite direction". That means as price broke below the triangle, many traders would have gone short at "C".
Technical Analysis also teaches as one of the mainstays of trade set-ups and stop placement, to wait for a "test of resistance" to fail which happened at "D" then to enter or add to your short with a stop just above the resistance trendline or the apex of the triangle. Now even more retail traders will go short as price moves down the day after "D" as Technical Analysis dogma teaches to, "Wait for confirmation", which actually makes technical traders late and chasing prices rather than what we do, let prices come to us. At this point, a large amount of stops are congregating just above the triangle's apex.
On Friday at "G" we see another move, that would have shaken out some of the weaker shorts, right to resistance again and again fail to break above resistance, giving traders even more confidence to short this area with a stop just above.
From what I saw Friday, it looked very much like we'd see some downside early this week (Monday), this would serve as "confirmation" for traders that the test of resistance has failed a second time, more stops for new short positions will congregate on limit orders just above the apex of the triangle and above the triangle pattern itself. So from what I saw intraday Friday, I expect the direction of highest probability for Monday (perhaps part of the day, perhaps more than a day) would be down to draw in more shorts or bears, but remember, THIS IS A BEAR TRAP IN MY VIEW AND SINCE I DESCRIBED WHAT I EXPECTED LAST MONDAY.
The goal of Wall Street is to get enough shorts in place that when they run prices ABOVE the apex of the triangle, all of those stops are hit sending price higher, which will hit more stops sending it higher which at some point will change sentiment among retail traders from bearish to bullish as the move to the upside looks strong, then longs will come in to the market sending prices even higher.
I believe the upside move will also be a head fake/ Bull Trap and it should be quite impressive, but again this is not random, it is not bullish although we have some short term speculative long positions for this move, it is to set up yet another move to the downside, this one real; just reverse all of the sentiment, the head fakes and emotional manipulation and you get a very strong downside move but we aren't there yet.
If you look at the 3C chart of the SPY during the triangle, instead of seeing bearish distribution as you'd expect, instead it looks like smart money has been buying the lows and getting ready for the next move to the upside in which prices will move fast and high because of the retail shorts caught at a loss and covering (buying) to get out.
The 3C chart is very positive at the most recent low, in fact leading positive.
Something came out of Goldman Sachs tonight that just reinforces my view...
Goldman rec'ds going long Nikkei NKU3 ahead of the Tuesday BoJ meeting with a target of $14,500 and stop below $12,700.
Whenever an Investment bank, especially Goldman Sachs who is known for trading against their own clients, comes out with FREE analysis and trade ideas (which I'd assume costs them a lot of money to put out the accompanying research report) you can be sure there's a reason and the most likely is they have Nikkei long exposure that they have built up in to the recent 20% decline and are looking to sell it at higher prices. Because the Nikkei and U.S. markets often trade in the same direction, this is little different than saying, "Go long the SPX".
Goldman's take and reasoning...
"Our central expectations for Tuesday’s BOJ meeting are relatively modest – we expect the term period for fund-supplying operations against pooled collateral will be extended to two years. But the incentives for Governor Kuroda to use the meeting to signal a firmer and clearer commitment to the easing course, and to highlight the potential to do more, are high and rising."
"Based on these measures, on the way up the equity market did overshoot other markets in mid-May and so the subsequent damage there has been particularly large. But if anything, Japanese equities now appear somewhat “cheap” to where FX and rates are trading, based on this analysis."
The Bank of Japan's next meeting is this Tuesday, the last was April 4th. Here's what the Nikkei looks like which confirms my suspicion, Goldman has bought the Nikkei as the media has reinforced this 20% correction non-sense and now we have seen the Nikkei hit the -20% mark, I believe Goldman has bought the Nikkei over the last several days and will sell to retail buyers as it moves higher and will start selling short to retail buyers and the bottom of the Nikkei and thus U.S. market will fall out while everyoine is still bullish, a Bull Trap.
Also note that my custom DeMark inspired indicator gave a sell signal 4 days before the collapse and if you got out that day you'd have made more money than if you sat through the close at the yellow arrow. Also note the recent buy signal my indicator is giving.
Finally note the size of the candles went from large bodies to most recent small bodies, signaling a loss of downside momentum.
Looking at a 60 min 3C chart of the Nikkei Futures, note the negative divergence/distribution before the -20% drop and the recent positive divergence/accumulation-I believe this is Goldman's buying as well as other institutional money that saw Goldman's order flow.
If the Nikkei moves up, it's almost certain the SPX / US markets will do the same as the main risk catalyst is the last open carry trade currency pair, USD/JPY as I have been showing the last several weeks as it has had a nearly perfect 1.0 correlation with the SPY.
This fits PERFECTLY with my expectations of a bear trap leading to a strong upside move, setting up a bull trap which will lead to a major catostrophic failure in the market, probably right in time for the F_E_D to announce they are backing out of QE and moving to normalize policy- THE LAST THING THE MARKET WANTS!
As for tomorrow, as of Friday my opinion was we'd see some downside, this is why a few speculative short positions were opened Friday in small size like VXX Calls, Gold Calls ( as gold has been moving opposite the market recently), UVXY long, added to the AMZN short position, FAZ long and otherwise took profits off the table in several long positions such as USO, AAPL, IWM and XLF calls as I believe I can re-open them at better prices Monday. I also left several long Call positions open as I am not worried about a short term pullback early this week.
Here are a few charts of what I saw Friday,
QQQ 3 min leading negative divergence Friday.
As for futures...
These charts of ES (SPX E-Mini Futures) as well as the FX (currency) pair, USD/JPY (which recently have been leading and moving in the same direction as the market, for example, USD/JPY moves up, the SPX moves up) seem to confirm my short term view of tomorrow's most likely direction, then the springing of the Bear trap with a move higher and ultimately that becoming a bull trap and sending the market deeply lower.
Why would a pullback be important in setting up a bear trap? Because technical traders like to wait for price confirmation, Friday they saw the market not able to break above resistance, some may have entered short, but when they see confirmation with prices moving lower they will enter on the short side and at this point the more shorts we have and the longer we can hold them, the faster and higher the reversal to the upside will be when the bear trap is sprung.
However, this is short term action only, I'm not saying that a move to the downside won't or can't be strong, in fact the stronger it is, the more convincing it is and the better it works for the bear trap, I'm just saying this isn't a major move or any kind of reversal of our set up.
ES 4 Hour. Ultimately, and this is further down the line, the bull trap will be created and will fail, however I think we will see a very strong and convincing move to the upside. If you read the two head fake articles, you'll understand why these are not random events, why Wall Street creates these set ups and how they benefit Wall Street, but us as well as we can track them and see what Wall Street is doing and thus far it makes perfect sense.
How we play this...
1) If we get the move lower in the market tomorrow (it could reverse at the end of the day, it could run in to Tuesday, we won't know until we see the charts tomorrow) I'd be looking to close any short biased short term/speculative trades we opened Friday for this purpose. More importantly, I'd like to set up the long (Call or leveraged long ETF) positions that were closed to take profits Friday, we should be able to get them at lower prices allowing us to make the profit a second time.
2) We set up positions that are smaller as they are speculative to take advantage of the move up in the market a springing of a bear trap should create. If we get the kind of short squeeze I expect with two failed moves at resistance last week, there should be a lot of fuel to lift the market higher.
3) We'll want to sell the smaller/speculative long positions in to the move up for a profit and start filling out or starting knew short positions, these are longer term or Core positions. I prefer to go with short equity like AMZN, GOOG, XOM, GS and many others, I'll let you know what they look ready.
From there it should be position management and trading around counter trend rallies which can be very strong and thus profitable to trade.
I'll check precious metals again tomorrow for the short term and longer term.
Have a great week ahead.
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