There's almost nothing that happens in the market that isn't already discounted or already planned out, there are the occasional fundamental surprises (political, natural disasters, etc. that the market has no way of knowing about and no way of discounting, one recent one was the Syrian diplomatic initiative that popped up literally overnight from a previous "War footing".
I suppose my point is, this initial start of a cycle (to the upside) that was seen and mentioned, even taken action on last Friday, is still looking like it's very much in effect and is a bit stronger now than it was yesterday at this time simply because the "W" base ios now a range, the base is larger and can support a stronger move, but it's still not that impressive and the market's overall character is like a market teetering on an edge with very little needed to knock it one way or the other, but because of the depth and amount of data confirming the bearish, any teeter is much, much more likely to be a sudden surprise on the downside, so long as that doesn't happen, then this little cycle should be able to play out.
The reversal candlestick formation that was confirmed, looks like this now.
ALWAYS look for increased volume on important candle days, it makes them about twice as likely to be real.
In addition as covered last night, we also had a Channel Buster, Technical traders expect a bounce to the bottom channel in a failed test of resistance called, "Kissing the Channel Goodbye", this "use" to be the most effective, lowest risk entry for H&S tops or this kind of channel break, but now Wall St. knows what T.A. traders expect and the highest probability is almost always a run inside the channel making traders think the expected failed test didn't do what is was suppose to and they chase price.
This is why there are 3 areas I'll short a H&S top, at the top of the head, at the top of the right shoulder, I WILL NOT SHORT THE BREAK BELOW THE NECKLINE, instead I'll wait for a similar shakeout above the neckline sending shorts panicking to cover.
Note in every example I drew a small yellow trendline representing today's lows, probabilities are high that intraday trade breaks those lows as I have depicted in every variation, that's our head fake shakeout.
#2 is far more likely, whether the initial few days look like a failure to break resistance or not, it's a move back inside the channel, that tells TA traders that the expected reaction failed and they'll often switch positions, chasing price. This is when the magic happens and there's a true failure. In less extreme circumstances, I look for the move up to break above the top channel, that's another head fake move and channel buster, but that set up makes for a strong and very fast drop below the lower channel as longs buying the breakout sell at a loss and increase downside momentum.
I'm just saying, you have to keep your expectations realistic otherwise you'll be perpetually disappointed and perhaps miss the big move because of being disappointed so many times. This is a very typical top, we are in one of the most EXTREME markets in the last century so don't expect that it should have just gone quietly already in a clean "V" reversal., that's not realistic, not even for the 1929 crash.
In a bear trend they expect every day will be down, DID YOU KNOW THAT IN A PRIMARY BEAR MARKET THERE ARE NEARLY AS MANY UP DAYS AS DOWN DAYS? Yes, it's true, the down days are just much stronger. We also get extremely strong counter trend rallies, after the 1929 crash, the first of 5 counter trend bear market rallies went up for 6 months and gained +50%! I bet most people didn't know that.
As for today thus far, like we saw gold switch about a week ago overnight from a flight to safety asset to a QE On/ Taper Off asset or a risk asset, Treasuries have also made a similar, sudden reversal in correlation, they were trading with the market in a QE-on and Taper off manner, now they have reverted back to their traditional "Flight to Safety " status which makes analysis a lot easier.
Leading Indicators...
HYG
There were several interesting developments, HYG credit traded largely with the SPX intraday except it made a lower high at the SPX intraday 1:50 p.m. higher high, hinting the market would reverse as it did. The overall near term position of HYG is still bullish as it has not retraced all initial F_O_M_C knee jerk gains like the Dow and SPX, but rather it hasn't lost much ground since 9/20, leaving it positively dislocated from the SPX. There have been some positive divergences in HYG, although really borderline and not great migration, those looked weaker today so we'll see what they do, but it's important unless they just gave up on the SPY Arbitrage with TLT moving so far ahead.
VXX
Intraday VXX (short term VIX futures) performed as expected vs the SPX, they were a little weak in to the close, which could have simply been a management tracking error. While I don't want to get too much in to futures yet, VIX Futures are closed so no big deal there, they looked relatively in line on all reasonable timeframes, which may set them up for a near term downdraft if the market gains, but it is exceptionally clear that their longer term trend (not too far off-like 15-30 min. is CLEARLY positive, this is negative for the market.
TLT
I already covered TLT today, not much changed after the update, they showed some 1 min knee jerk upside (3C) in to the market's weaker close, but the 3 and 5 min charts I showed earlier continued to fall apart. I expect a pullback in TLT so I do not expect 15 and 30 min charts to go negative, the 5 min should be enough and if we get in the area of $100-$102 with 3C accumulation, I'll be looking for the best way to leverage TLT long without sacrificing liquidity.
Sentiment
What a great Leading Indicator, both of our sentiment indicators were strong and pointing to near term market upside along the lines of what was expected to develop as of last Friday. One was VERY strong all day, and the other was strong all day and even though both were strong in to the close, the second was EXCEPTIONALLY STRONG, so someone on the institutional side thinks the same as we do, near term market bounce and probably should take shape tomorrow which means any short term long trades will likely open up tomorrow even though I entered GDX calls today and an IWM put, that was intended to be closed either later today or early tomorrow, hopefully we get a gap down I can close that winner in to (currently +16% for a couple of hours of market risk).
Yields
Intraday they led the market lower as they should, although very near term there's no significant downside (SPX) indications. However if you recall the 3C accumulation range in the SPX during the later half of August and how Yields were leading the SPX higher long before the SPX moved off the August range lows, right now Yields on the same timeframe are about as negative as they were positive in August, so a short term bounce is about all I can see this market affording with Yields really negatively dislocated.
HY Credit
Finally, one of the best indications still of the bounce cycle still being alive is HY Credit, just look for yourself.
The "W" SPX base is now more like a range so it's still hanging in there as well, never forget about the 80% probability of a head fake move before an upside reversal as I represented the concept on the SPX candlestick variations above.
Beyond that, there's a lot to see in futures, but I want to give them time to establish some trends and I'll look tonight a bit later, if indeed there's something special, I'll post it, otherwise this is what threw timing off track today, but it didn't seem to throw the cycle off.
In any case, this lifted the IWM to it's intraday outperformance of every other average by double earlier.
I'll be back in a bit.
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