Concepts are a [robabilitiy and they only work if you use them and not just consider them academic or forget about them. I always warn before a F_E_D event, "Beware the Knee-Jerk reaction, it's almost always wrong". So in an effort to sere this in to your trading consciousness so it's useful because I've seen it too many times for it to be ignored.
First, I'm not a Jonny-come-lately, these are posts from before the F_O_M_C...
Lots of stops were hit today and I think we get a bounce higher, but I don't know if its a gap fill or something more. If the market can put together scenario 3 from today (a "W" base), then it has a better chance of some stronger gains, I think that's the highest probability, especially since we have seen all of these stop runs largely based on the pre- No Tapper levels as support.
GDX is a great example (NUGT is the long we have that is 3x long GDX), this is a great example market wide.
THIS IS A CLEAR STOP LOSS RUN, EVEN THE LONG LOWER WICK ON THE CLOSING CANDLE IS ALMOST A BULLISH REVERSAL CANDLE.
long and that divergence remains intact, but the options would have been destroyed rather than the double digit profit they came out to, KNOW THE RIGHT TOOL FOR THE JOB.
I looked at HYG today and with all the stop loss runs, it looks like a perfect counter trend or bear trap set up (near term trade)
This was an important candlestick concept for Technical traders and I know the news will dumb everything down and give you all of these reasons, but just look at the logic of the charts and decide, "Concepts" or "News"?
Failure of the Bullish (Technical) Rising 3 Methods.
Also note we have a downside "Channel Buster", Technical traders expect a brief bounce to the bottom of the channel (resistance) and a failure there and then a move lower, I'm willing to say that it won't be a failure yet, it will stop out shorts and squeeze them as it re-enters the channel, giving it momentum ( again the reason these Channel Busters are so easy to trade).
Note the volume as the candle fell out of the channel-Those were stops at a VERY obvious trendline so of course Wall St. is going to hit them, take the shares for cheap and sell them higher. Then the Candlestick bullish consolidation fails, we saw this market wide today, it's the same concept as GDX, it's like a spring being compressed and the head fake is the trigger.
*Note if the Rising 3 Methods "had" held, so would have the channel!!! A Double Whammy, and you think it's news after the F_E_D's knee jerk reaction Wednesday? Then why was Thursday flat? Where was the follow through? There was no news to hold it back!?!?
Bonds changed their correlation from Taper driven to "Flight to Safety". Both the US 10 and 30 year were up today, the USD held ground in a "Taper on" kind of way and stocks fell, so Bonds have flipped correlation quickly to a flight to safety in both the 10 and 30 year futures.
Today we heard from the Dallas F_E_D's Fisher (non-voting member) who said several things including:
-He tried to persuade the F_O_M_C to taper last week
-Decision not to taper undermined F_E_D credibility (you heard that here that same day and from a number of F_E_D members since last Wednesday)
-TBTF Banks (the same one our Justice Department said, "Some banks are just too big to prosecute") are a "Dagger pointed at the heart of the economy"
-Not tapering adds to uncertainty (another thing you heard here that day and you know the markets HATE uncertainty).
-The vote last week to hold off on tapering, DID NOT reflect the discussion around the table at the F_O_M_C (Wait for the minutes from this meeting to come out, they'll be explosive!)
Some say Fisher was responsible for the market's weakness, I have no problem saying,"This is the knee-jerk effect".
Take a look, Fisher spoke and comments were released at 2 p.m. today.
This was the time of Fishers comments, 3C fell apart a little intraday, but price wasn't moved significantly so he was not the reason for the season today.
Here's a look at my Custom Demark-inspired Buy/Sell indicator, I think we can get a short bounce and still have a valid sell signal.
This is a daily chart of the SPY with the last two sell signals, the first right on. There have been nothing but sell signals lately, no buy signals at the trough or reaction lows.
Gold and Silver Futures look like they will see a snap back (counter trend move) to the upside shortly (which is reflected in the tightly correlated GDX/NUGT as well), if they move with the market as they have been lately, then it's no surprise at all, if we get a decent entry, maybe we'll hitch-hike, I'll update them tomorrow, but each still have an intermediate downtrned they need to fulfill and down there we'll see if they are still worthy of a longer trend trade.
Last week 3C shoed USO would see upside, but from the charts, I predicted it would be in to more chop and continue as chop until it finally fails and didn't want anything to do with the move up and I'm glad.
After all of the F_E_D's strange behavior as we hear from voting members that essentially it generally wouldn't have been a big deal to taper $10 of the $85 billion a month and non-voting members saying, the discussion wasn't what you think, I'm still pretty sure there's something the F_E_D is very afraid of and I THINK THE F_E_D REALIZED THAT IN NOT TAPERING, THEY SCARED THE MARKET WHICH IS WONDERING THE SAME QUESTION I ASKED THAT DAY, "WHAT ARE THEY AFRAID OF?" I THINK THE PRICE ACTION OF GIVING BACK ALMOST ALL OR MORE THAN ALL OF THE F_O_M_C GAINS IS A REFLECTION OF THAT.
To make F_E_D actions even more BIZARE, they engaged in an $11.8 Billion (more than the monthly taper) "Fixed Rate Reverse Repo " which drained $11.8 BILLION dollars of cash liquidity out of the system in one day in exchange for Treasury collateral. WTH? (sorry I don't curse).
Leading Indicators were little changed in to the close, there were some slight changes in to the close, which included the $AUD losing strength as the JPY gained some in to EOD, TLT also gained strength on the "Flight to Safety" Or perhaps the F_E_D's liquidity draining operation today (Which I don't get because it was bigger than an entire month of taper in one day) might be a hint of things to come, already soaking up a large chunk of Treasury collateral, perhaps the operation today was a test, which means if we have less supply as the F_E_D is still taking in $40 bn a month (or $45?) and the Treasury department will issue less T's, this operation today may have been a test ballon and bond traders may know something we don't that has been reflected in TLT for a while now, perhaps the F_E_D decides they'll add in these reverse repos to drain liquidity as they see fit with on going QE, or...? I don't know, but it was strange and TLT liked it.
Sentiment improved in to the close, so this fits with the bounce move I envision on this bear trap and finally as I showed earlier, HY Credit was stronger (relatively) than the SPX, but it did give some up in to the close. Really there weren't any big shocks to the earlier Leading Indicators Update.
OK, so here we are, there are a lot of concepts that have been reinforced, not just the knee jerk, but the head fake, channel busters, Candlestick head fake moves, there have been reversals AGAIN, almost instantly from Risk on to Flight to Safety in Treasuries whereas it happened overnight a couple of weeks ago in opposite fashion for Gold!
I believe we are still right on track, I think the head fake moves today provided Wall St. with enough ammunition to move the market higher and the real goal is to finish selling short in to that move, that's what I'll be looking to do as I thought this was the reason for the move BEFORE the move started as we started seeing rangebound accumulation in the later half of August.
Looking forward, you saw today that the SPY ARBITRAGE FAILED. However, even though I think the next nice trend in the $AUD will be short, in the short term as expected from last week's analysis, the $AUD has room for a bounce to the upside before a larger move down. The Euro is in a similar situation, but far worse condition, it "could" bounce, but it doesn't have the same quality of short term 3C signal as $AUD, and it, like the $AUD, has nasty longer term negatives as well, so I doubt it will lead the market, but it may contribute for a very short period.
I have little sense of the $USD until we get to long term charts like 4 hour, it is in a probable head fake area below support (around $80.617 for the $USDX as it currently sits at $80.59). To me it looks like the $USDX will build on a head fake move there and come back in to the game a bit later on the upside.
Noting has changed for the Yen for our purposes and recent analysis, I think it will weaken on a pullback to allow the AUD/JPY to help the market, but this is a simple, natural pullback, the longer term JPY doesn't look good for the market and those charts aren't far off at all (same analysis as last week).
The Index Futures have lost some ground thus far tonight in price, but what they lost there, they gained in positive divergences in the 5 - 15 min range so yes, they look like a solid head fake move as the knee-jerk move was faded and right through the stops, setting up a small bear trap, which springs and sets up a larger Bull trap which springs and we get a new leg down, perhaps that nasty one.
Finally, the Nikkei has positive divergences so I'm looking for some overnight gains to move it higher from here.
That will do it for tonight, I'm turning in (obviously when I say "today", for me it's still Monday!"
Lets have a great week, judging by retails's sudden change of heart after being wildly bullish after the F_O_M_C, they are now something like 80% bearish so it looks like we are set for a short squeeze, but again I've been very cautious about it because it's more dangerous than the past ones so if it is played, it's only on strong , objective data.
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