IWM Update

So if there's at least 1 lesson we can take-away from this week that gets repeated here OVER AND OVER AND OVER, that would be...

"BEWARE THE F_E_D / F_O_M_C KNEE KJERK REACTION, it is almost always wrong and almost always reversed"

That doesn't mean anything beyond what we saw yesterday and what we see today, so don't read any further in to it as far as trends and expectations go, it's just an effect that happens with F_E_D related events or really any Central Bank.

Now the IWM... I said yesterday when talking about the "Ideal" set up for a PCLN short that we'd need to see a pop to the upside, there was some late day 3C positives, but they wouldn't have been enough so I said they might smack the Yen down in the middle of the night to push ES up on the back of a rising EUR/JPY as a result of a Yen smack down and don't you just know it, 1 a.m. EDT when the volume is exceptionally light, that's exactly what they did.

The point with PCLN which I said was a decent proxy for the market because the market would HAVE to lift for this open to happen in PCLN, is that I also said I expected a bearish engulfing type candle which means PCLN and likely the market would have to lose ground and I said the move may be a day, but it also may be as short as a partial day. Options expiration Friday always tends to distort things though and I wish this were a Tuesday rather than a Thursday, it would be much easier to analyze.

IWM Cycle. A cycle is a series of 4 events, accumulation, mark up, distribution or top and decline, these 4 events or a cycle play out over and over in stocks and averages, it's like the business cycle in a way. Below is the cycle that started from the 10/9 lows.

 1) Accumulation  in to the lows which even showed a head fake move to shakeout longs. 2) Mark-up  and 3C generally confirms this stage, the IWM is a bit different because it had a stage 3, went in to stage 4 decline and then performed a larger stage 3 "Head Fake" move that is seen above as a Channel Buster", these almost always reverse hard in the opposite direction of the break out of the channel so even without 3C distribution and IWM being where it is in the cycle, I'd put the probabilities of an IWM sharp decline as being high just based on the Channel Buster.

However IWM is in a pre-stage 4 area with a head fake move and 3C distribution.

The 1 min intraday, it seems a bit early for distribution, but this has been a strong move. This is why I try to anchor expectations ahead of time and have said numerous times the last few days that "Wall St. doesn't do anything without a reason" and "Even though it may be a short duration move, that doesn't mean it won't be impressive, it's job is to be impressive", this is how Wall St. makes as many traders strong as possible at any one time.

I hope you haven't forgotten the quote just posted, "To be right and sit tight is a rare trader indeed".

You can also see the accumulation at Tuesday lows and Wednesday, enough for a short duration move, no where near enough to be much more than trend noise, but most traders react emotionally and even noise will do it's job, consider the "Rebel Yell".

 IWM 1 min close up, it's causing a consolidation. The rule of thumb with 3C is a 1 min negative has a 50/50 chance of a consolidation through time (lateral like this one) or through price, a pullback. If the 2 min chart also goes negative, then the probabilities increase toward a pullback. For our purposes we are looking for the end of a move and the IWM to make a significant fall, so I would like to see very strong signals and I wouldn't expect them this early or in front of options expiration, but if we get stronger, growing signals, that's what I'll follow.

As far as an IWM short or an SRTY long, I'd have no problem with either in this area. As far as an IWM put, timing becomes more critical and I'd wait for a better signal, but I'd also be willing to miss the trade if I had to, I don't want to enter a subpar signal because I'm afraid I'll miss the trade, that's emotional trading, both fear and greed.

 The 2 min chart's trend looks good, this is where the higher probabilities are, leading negative on the Channel Buster, you can see where there was accumulation right at the area I called out as forming a mini cycle on the 7th/8th, but that fueled the Channel buster, although it looks like a strong move and a bullish move, those that started it almost definitely didn't have "Bullish" intentions, they had "Sell or sell short to bag holder" intentions. That's what a Channel Buster is about psychologically.

 2 min chart up close, it's going negative, but this isn't even as strong as the VXX signal I ignored yesterday and for good reason, it was too tight, too small.

We have a little rounding, this certainly "could" put in a proportional rounding reversal today, however with op-ex tomorrow, it could put in a larger one with today/tomorrow, not sure which we'll get, but it has a lot to do with the rest of the market so lets check in to that as well.