Daily Wrap part 1

I have quite a bit for you and I hope it's not wasted on some fundamental surprise coming from the government that just reshapes everything in a painful moment of trying to discount unforeseen information in a matter of minutes (either way- up or down), there's very little that the market hasn't discounted, but this scenario has the potential for giving the market something it hasn't previously discounted.

The feeling I get is similar to what I already enunciated. When I say the probability of the long term or primary trend's bearishness is the highest and the short term trade as in a week or so is not as high, but still has good probabilities, I'm not giving two options in which only one will happen, we are talking about multiple timeframe analysis and some trends are simply much higher in probabilities to the point of near certainty.  The confusion comes in when people look at the market with a singular view, an example is the questions, "Are you bullish or bearish?"

As the question stands, it's impossible to answer because as I see the market right now with 3 likely trends, each is in a much different length timeframe and each is very different as to the direction.

How can one answer that question when out of 3 trends 1 is short term price negative, but market positive. The next longest (still short term) is price positive, but this is to set up a very market negative event. Finally the most probable (almost certain trend would be the primary trend or what people commonly identify as a bull or bear market, this is horrible bearish, however during a bear market we get counter trend rallies that are some of the strongest rallies you'll ever see. The Dow saw 5 counter trend rallies during the bear market that started after the Crash of 1929. However if you were to live the market in real time, you might not know how bad it was as a mere 2 months after the initial crash, the Dow Industrials rallied for just about 5 months with a gain of +52%. To put that in some context, the initial loss was -49% or almost 191 points. The counter trend rally gained back nearly 102 points. It's obvious the initial drop was worse, but if you didn't know the outcome, a rally of over 50% that lasted 5 months (3 months longer than the initial drop_, you might be forgiven for thinking the worst of it had past. As it turns out, that initial rally that took the INDU up to $297.30, eventually ended in 1932 at a value of $40.60!

In any case, there's some decent hints that the market pulls back a little, this is not as high probability as further upside gains over the coming days, but both can happen, it's not one or the other. The way I see it, there's a decent probability of a pullback from here for a short term, remember tomorrow is options expiration as is every Friday now and that often sees a price pin somewhere in the area of Thursday's close and often doesn't break free of the pin (that usually sees 90% of options contracts expire worthless) until 2:30 p.m. or so when most contracts have been wrapped up.

I still think there's a high probability of a move that could make a new high, as I said, Price would look bullish, but the cause for this move, much like the Dow Industrials 1929-1930 rally, would be very simply to set up bulls to hold the bag for the next neck-breaking leg down. The probabilities of a sharp down-turn that some might recognize early as the start of the market's first real secular bear market in equities is extremely high.  

I'd like to see something that looks like this...

Everything to the right of the vertical trendline is drawn in and represents a constructive intraday pullback that lifts the market to a new leg higher above the move from today.

As you already know, the ideal situation for establishing high probability shorts or adding to them is a new high...

We don't need much of a new high, it just needs to sway emotion which isn't hard with retail, they are price based and look for confirmation in price action, for example, they may see a great set up, but typically won''t get too involved until price confirms with a breakout like this one, this is what I call chasing price, luckily we have some tools that often allow us good foresight.


 We have the probabilities for each move, they increase as we move further out (which is often at odds with the nature of analytical statistics- for example, the further out a weatherman tries to forecast, the less accurate the forecast will be). 

I'm going to just keep an eye on futures before I upload dozens of futures charts that may have to be revised, but I think the simplest way to illustrate the short, longer term, but still short duration up-trend and the primary down-trend can be done with 4 charts of the Nikkei 225 futures.

Intraday, very short term corrective pullback

 The overnight 1 min Nikkei 225 futures went relative negative and then a stronger leading negative, while the leading negative is a stronger signal, because this is only a 1 min chart it doesn't represent any serious distribution, but could easily effect a pullback.

The 5 min chart has a strong leading positive divegrence, this divegrence alone suggests the Nikkei has more upside to go as there was a larger amount accumulated here than distributed to the far right at the small leading negative divegrence. If the current divergence gets worse then the situation will change, but what we know now suggests the most likely scenario is for a short term corrective pullback followed by a new leg making a higher high.

At this point, that takes care of the corrective pullback and starts us on the second trend, a move to the upside starting with a higher high.

 The 30 min Nikkei 225 chart shows a strong leading positive divergence with no sign of any negative at all, this is because the negatives above are so small they don't have enough underlying distribution to even show up on this chart, thus while the pullback move could be very probable, it is also very probable that it is a constructive (or you might say a bullish ) correction. The down trend to the left is confirmed, but there's no negative divegrence so the leading positive at the far right is the most dominant underlying trade on the chart. You can see what simple confirmation accomplished on the downside, imagine what a leading positive divergence can accomplish on the upside.

This should get us to the beginning of our final trend (for purposes of putting together and managing positions)... The primary bearish trend moving to significant new lows.

As I showed above, the ideal and most probable outcome should we get the up-trend I have expected would be to make a new high which sounds like very bullish price action, however if it is to set up distribution and a bull trap, it's certainly not bullish. This is why I often say, "Above all, price is deceptive".

This 4 hour Nikkei chart is the strongest of all the above charts, note there is no sign of the leading positive divegrence on the 30 min chart, just as the 5 min chart wasn't strong enough to show up on the 30 min, the 330 min is not strong enough to show up on the 4 hour.

We have 3 negative divergences on this chart, each stronger than the preceding divegrence. A move to a new high would set up significant distribution and make the current leading negative even worse, this would lead us in to the final bear trend or primary down trend.

This is multiple timeframe analysis, as you can see, the question, "Are you bullish or bearish" is totally arbitrary when dealing with multiple timeframe analysis as we can have 3 different trends all active at the same time depending on the timeframe you are trading. Are you trading the short term which should be both bearish and bullish or are you trading the longer timeframe that should lead to upside gains, but you have to know when to walk away or are you simply waiting for the market to move to the ideal area to put together high probability core shorts. All of these can exist at the same time.

After I check out futures a bit more, I'll post the charts I have gathered, I just want to make sure I'm not uploading charts that are already out of date.