Step Back

I spent a good many years running a very high-end interiors finishing department, our clients were half way across the country, in Bermuda, Tourneau stores, to give you some idea, here are a couple of pieces of my work.

 This is the living room and Media Center in an 8000 sq ft. house. All of the wood (except for the bumble bee table which I also finished) is Bird's Eye Maple, very expensive and a very pale, almost skin tone wood naturally. This is about 10% of the job and the sample piece I had to match the color for the entire house was about 2x2 inches. Now it may seem like you just slap on some stain and finish the wood, it's not, not when people are paying $1.25 million for the interior, all of this is a sprayed on die. Because each piece of wood is unique, no two panels can be finished the same and end up looking the same and you only really notice it when all of the panels are installed so it's a lot of work, adding a little red tint if the wood has too much of a green hue or some purple tint if the wood is a bit too yellow and that's after the main color is put on.

This may look like an old piece of junk, but when it was delivered to me it was brand new, shiny white paint. I was given a 3x3 inch piece of fabric that the Duvet would be made out of and had to paint this by hand, matching every color on that fabric and make it look like it was 100 years old in the process. If you look carefully you can see areas where the paint was rubbed off, after hand painting all the accents, I went back over them with a grey glaze to make the unit look old and dusty. There's probably 100 hours of finishing work there and that's a $20,000 piece of custom furniture, those were the kind of clients we had.

The point is this, when you are looking at a 2x2 inch sample, you have to be able to take what you see and scale it for the larger job, if you spend too much time trying to make too many details, the job doesn't look right and it's almost impossible to match more than 1 square foot to the next so I use to tell my workers, "Don't get lost in the lines".

It's funny that it's the same way with the market, if you are looking at intraday charts all day then some of the moves seem really important and you end up missing the big picture because you are truly lost in the lines, this is why I always start looking at a stock with a 5-day chart, why I use a Stochastics setting of 50 or a MACD setting of 52/104/9, I don't want to see what everyone else sees and more importantly, I want to see the big picture. If you can understand what the big picture looks like, then it's easier to understand what the shorter term action will most likely look like, its just sometimes we have to make assessments as we go and often long before the bigger picture materializes.

While there's probably a lot that I can share with you tonight, there are only a few things that I need to share with you, so we'll step back a bit and try not to get lost in the lines.

Yesterday I said several times that a reversal is more often a process rather than an event and it too has a scale or anticipated size to that process. Yesterday's was very tight and I thought that this could be possible because smart money hadn't really sold any of their longs on Friday or in to yesterday's higher prices so they didn't really need to accumulate, but today when we take a look again, it is evident that yesterday was part of the process, it was not an event reversal.

Here are the only charts that are really important tonight, the market averages in the 10 min-15 min timeframe, which is a decent move, not just a flash in the pan, but it's not a change in longer term character of the market either.

I'm going to try to explain as little as I can and just let you look at it and get a feel for the scale of the price moves, how 3C acted in particular over the last two days, what that tells you about these charts and then we'll look at some of the Index futures.

With 3C, I always tell people, "If you can't make heads or tails of the chart, there's either nothing there of interest or you need to back out to a bigger picture point of view".

 This is the SPY's move as of the close yesterday, you can see this is more of a "V" reversal than a "U", "W" or "Rounding Bottom", it's more of an event than a process and there's a reason for the process.

Institutional money trades in size that we can't comprehend, we don't need more than a minute to put an order together, they need a lot more time as there are so many of them putting together such large orders and trying not to tip anyone off to what they are doing so they have to do it in smaller pieces over more time. After a while, you just get use to the flow of price action and have an idea of what to expect in terms of size or duration.

Here's the 10-min. SPY with today's close, what kind of process do you see? What is 3C doing in that process?

 How about the 10 min DIA, do you see the process in price action, what does 3C tell you about the process?

The 15 min IWM, I usually use yellow trendlines or arrows to denote a stop-run or head-fake move, they are excellent timing signals for a reversal within the context of the overall scale of course.

 Or the QQQ?

Now to look at the Market Index futures, ES (SPX E-mini futures) and NQ (NASDAQ 100 e-mini futures).

First this chart of ES may look familiar, I've been showing you a 15 min version, this is a 30 min version, you know what it means when divergences are on longer timeframes, they are more important.

Do you see anything about the process or 3C in the process that looks similar to the averages above?

How about a 30 min NQ chart?

Now that's one perspective for one move, but if we move to a longer timeframe, there's a different perspective, this is the bigger picture, again the ES and NQ charts, but this time the 4 hour versions.

ES 4 hour. What does this tell you? How would the 30 min chart above fit in to this picture?

This is NQ 4 hour, same question because the 30 min chart does fit in to the picture, it's just a different signal, one is the bigger picture, one is the more immediate picture. How do they compare to the market averages above? Can you confirm similarities?

Now finally because confirmation is essential to any signal, these are the 10-year Treasury futures-not yields, the Treasuries themselves. Treasuries move opposite the market and this is a 4 hour chart of them the same as ES and NQ above

Does this chart make sense with what you see in ES and NQ 4 hour charts above? Is the story starting to emerge?

I'll give you a hint, while scale may have changed a little bit since yesterday, nothing in the story has changed at all since last Friday.

Sentiment Update

Earlier and yesterday I said I thought retail traders were getting whipsawed and chopped to pieces.

From my sentiment update...

This is one of the better traders on twitter:

"Pretty shitty day for me overall#waited in aapl puts early morning .. Then got out for a small profit now they explode lol !!"

"Took a $3.5k loss on the 165 calls and rolled into 164s. whipsaw city today. Playing small and tight now"

So it's even chopping the better traders and killing the retail shorts.

Yesterday I showed a chart of how tight these swings are under increased volatility, not just in amplitude, but in all ways. I mentioned it's nearly impossible for traders to hold any position, I can't imagine not having the tools we have and that's hard enough.

 I'm just trying to give some idea of how large a reversal area is, you can see recently they are tiny, but very volatile so positions are stopped out easily.

imagine going short after the break is confirmed on5/22 under $167 and the next day have to decide whether to cover or not as the market gaps down but runs to close near the highs, if you went long that day, the next day the market gaps down and you're out, then a big gap up on 5/28 that traders will chase, but there's nothing left for them once they get in, they bought at the top, if any one went short (and they always want confirmation so they don't go short at the reversal, the next day they're likely stopped out and if they went long on 5/29-5/30, they're crushed on 5/31. By the time the shorts are in on confirmation on 5/31, they're crushed yesterday. You heard the guy above, one of the better traders and he barely got out with his skin.

That's meat grinder volatility.

Market Update- HYG

HYG (High Yield Corp. Credit) is not only one of the biggest institutional risk on assets, it's also a SPY Arbitrage asset because of the fact so many institutions trade large credit positions and HY when they want to express a risk on sentiment and IG (Investment Grade) when they want to move to safety or risk off.

What is interesting is that HYG is an example of what I just showed you, the bigger base as well as the earlier note that every time you look there's something different or new.

An hour ago HYG was pretty much positive (very much so) on the 1 min intraday timeframe which  is nice for a quick move, but it doesn't have the bigger base to support a longer or more extended move, I figured it didn't matter as institutional money had accumulated and didn't seem to sell any so although I haven't seen it, it made some sense that the market could turn without having these larger bases in place.

Just look at how HYG has changed and remember as an arbitrage asset, when it moves up, it is goosing the market higher, either as manipulation or just correlation.

 The 1 min is a sharp upside leading positive, but as is often the case with a 1 min intraday negative which it went slightly negative in red within the larger leading positive, it caused a lateral consolidation, this is where institutional accumulation and distribution are most often seen, in tight ranges.

 During that range the 3 min chart which was not positive went leading positive, that's the longest intraday timeframe.

Even more surprising, the first institutional timeframe of 5 min went leading positive, you can be sure this isn't retail buying HYG, most haven't even heard of it although it holds more sway over the market than anything on their charts.

More Stocks Look Like They Are Building Bigger Bases

As I mentioned I think the last post, you can have sharp 1 and 2 min positive divergences that are really leading positive, but they aren't a strong base, the offsetting factor was I am up in the air as to whether they need a base or not.

In any case, if they do build a bigger base, they can certainly support a stronger move.

The 15 min Index Futures charts have been suggesting what I'm calling a strong upside, "Emotional" move, a lot of individual stocks are looking more like this. I'll use XOM as an example.

 2 min XOM is a strong leading positive divergence, but still 2 min only. You can see it has the accumulation in the right place, but as it develops, it's looking more like this...

The 5 min is leading positive, it looks like a bigger base, it has the head fake move in place.

That would make some sense with the ES and other Index Futures with these very strong 15 min leading positive charts. I'd guess these are more than capable of breaking over the triangle and hitting a new SPX high, that's emotional, but still capped.

Market Update-Random Charts

I will tell you, even today where we pretty much predicted the entire move up until this point, the market sure looks different, again, things are changing fast, I want to try to stay nimble and not get too weighed down.

Here are some random charts of different assets, what is strange is almost every time you look at them (even just a few minutes between glimpses)  and they look different, I'm not saying they always look better, sometimes a few have scared me and I came back and they looked better, it's just very strange and this is what I meant yesterday about there being a lot to learn about how fear works in the market as this is a once in a 5 year opportunity, to this extent, maybe a once in a lifetime opportunity to learn.

 HYG already leading at a new intraday high, but there aren't a lot of charts much further out and I don't think there can be without more of a basing process.

TLT getting a sharp leading negative which is market positive when it moves down.

 VXX doesn't show much in intraday timeframes, but you get to 5, 10 min, etc and you can really see the negative divergence that makes the Index Futures 15 min positive seem to really confirm.

IWM 2 min leading positive which is pretty big for so little basing time.

TF-R2K futures

NFLX intraday has been very positive.

USD/JPY moving up is market positive, a leading positive as it has been in line almost all day

The change in trends on the TICK chart.

ALL INDEX Futures are positive

AAPL Shaping Up Too-Again SPECULATIVE

I don't see how trades like AAPL (with no 2 or 3x leverage like some of the ETFs)  are worth it without some leverage

I'd Love to Add to HYG- I can't Maybe you Can use it?

HYG is going to be needed to set the spark.

I'd add, but I've already taken on too much.

About 10 mins ago when I said HYG is in position that it looks like it "could" put in a strong divergence, it was about where the white box is, now it's leading stronger almost every 10 seconds.

XOM Is Another Short term Speculative Long

I'd only use call options on this for the leverage, if I had XLE (Energy) as a spec long, then I'd skip XOM, too much correlation.

TICK Transitioning

This isn't the tight "V" reversal in the NYSE Tick (intraday), but it's clearly transitioning to the upper part of the channel and above it.

COST by the way is an asset that I'd like to short, but in the very near term, again for a speculative long, maybe a call option, it looks like it too is getting ready to make a run to the upside.

XLF / FAS Long

These are speculative too, they aren't my favorite, but the SPX has about 22% weight in Financials so the sector will have to perform and it doesn't look bad for the type of hit and run spec trades.

If you don't like options, the 3X leveraged Financial long ETF, FAS looks decent here.

XLE Speculative Long

Energy broadly speaking looks like it can put n a pop tpo the upside, this is a short term trade and speculative.

SCO worked out, but there was no decent set up that was low risk so I just stuck with the open position rather than add, however XLE is the Energy sector, not just oil, it's made a head fake move, it's going positive, it looks decent for either a long leveraged ETF or a call.

MORE so than EVER, speculative positions.

Market Update

I expected that because smart money didn't sell off positions Friday or in to yesterday's strength, that they wouldn't need to and wouldn't want to do much more accumulating for the same reason I didn't, I don't want to be too top heavy on the long side when the music stops and it's time to tact the boat.

That makes it REALLY difficult to judge the reversal point as they aren't going to sink much in ($ I mean), but rather let retail do the work. Still they need some arbitrage assets to spark the move.

The USD/JPY on the upside is one, it hasn't been giving any signals other than in line, but the $USDX is giving a stronger positive, the JPY looks like it "could" be setting up for a negative.

HYG as I showed earlier looked like it was used real quick along with TLT to turn the SPY back down as it was starting to run up a bit too high and no wonder, look at the orders they hit on that run.

HYG is starting what looks like it "could" be a strong divergence, but it looks like it needs at least a couple of swings sideways, TLT is relative negative up to 5 min and both TLT and VXX didn't respond to the upside anything like they should have with the SPX move like that.

I think watching the NYSE 1-5 min TICK chart's trend will be important (draw trenlines around the channel for today) and look for a stronger TICK move above that channel-

It actually looks like USD/JPY may FINALLY be giving a positive signal instead of inline as it has been all day.

Breaking my Rules...Adding to NFLX

Way too big and if I get crushed on the trade, it's my fault, but adding to the calls.

Believe it or not, GS Spec Long Looks Decent

Yesterday it was being sold in to strength, today it looks like it's seeing accumulation in to weakness, this could be market makers trying to fill a GS sell/short order and they need prices higher, but it may make for a VERY speculative, short lasting long trade.

URTY / NFLX Long

As a Spec / quick trade is starting to look interesting. NFLX is looking more interesting,, but where one goes the other should follow.

VXX and TLT Are Really Telegraphing

Look how weak the reaction from TLT and VXX is on this move, it wasn't 10 mins ago I said "Watch for an extreme move that will pull in the shorts and boost volume".

With that kind of move, TLT and VXX should be flying, they aren't.

This looks like the head fake, I'm not entering anything though unless I see a great set up, great confirmation, just sticking with what I have.

And There it is

The SPY making the new low, the increase in volume I was thinking would be there as shorts jump in, this is going pretty darn good so far.

I'm going to look and see if anything looks really attractive, but this is probably pretty close to a reversal area.

This is Great

First off, the SPY is showing some positive divergences, but I think they (the Cyborgs) want that lower low I mentioned because shortly after the SPY went slightly positive, HYG went slightly negative and TLT went slightly positive, it seems both were all of the sudden being used to try to pull the SPY back down and make that final lower low I mentioned.

ES is also positive, I didn't check the other two.

 SPY starting to go positive and bouncing a bit...

HYG is still relative positive, but there was some extra pressure put on it to reign in the SPY I believe as the timing is right.

 The opposite was done with TLT as it accomplishes the same goal, reign in the SPY.

This part is the best, you know the scenario I described yesterday? Here's today's recap.

This chart was sent to me by a member who snatched it off Stocktwits, this is exactly how I described retail's reaction YESTERDAY, this chart if from today.

Yep- Getting Close- May be There

Not only are HYG, TLT and VXX (to a lesser degree, but still there) all moving in the right direction to reverse the market, the Bellwethers I looked at like GOOG, APPL, NFLX, etc are also building positive, amazing isn't it how smart money just work like the "Borg" or the "Collective" for you Star Trek fans, or like ants coordinating something, like a bridge? You ever see those leaf cutter ants in the AMazon actually make a bridge for their co-workers to traverse a span? Yep, there's that communication, the market code and it's showing up in other assets so I doubt we have much longer.

Remember the concepts are the concepts, they work in all timeframes because humans and their emotions are trading in all timeframes so that being said, some sort of last minute big head fake before a reversal is likely-I'd be on the look out for anything that would really entice the bears.

Here's what I have

 The SPY only put in 1-2 min negative divergences at resistance, smart money was going to make sure that happened as I said yesterday to give retail what they were expecting, other than that, I don't see any signs here and I'm not sure I'd expect to. I didn't see smart money dropping any of their positions Friday or yesterday, just like me, I wouldn't think they'd want any more than they already have unless it was really tempting as there's likely to be a pretty quick turn around time once above the triangle.

I don't think we'll see a reversal process and therefore no real 3C signals on the SPY, but where you would see them and a more effective way of squeezing the shorts is for a "V" reversal, not to give them time to think about it, would be in the Arbitrage levers.

In HYG it's already starting to go positive and didn't lose much ground-that is positive for the SPY.

TLT saw a pretty nasty divergence really quick, not huge, but I doubt it needs to be, I think fast is the key to an effective short squeeze.

VXX is moving along with the market, but any downside movement is positive for the market,

The longer term TICK for today is probably a good indication to watch for that channel to be broken to the upside.

I'd think we'd get at least one more lower low, hopefully really pick up some volume, it's right there to be had.

The USD/JPY isn't giving away anything, but the $USD itself looks positive

And the JPY is in line, that's close enough to a positive leaning in the pair, so that's a market positive as well.

I suspect we are probably getting close.

Market Update

Things are moving as expected, the initial resistance at the bottom of the triangle, lower lows/ lower higher intraday, nice, clean price patterns traders can easily identify like bear flags, etc. The DIA may be showing the start of something changing, but we still have plenty of time.

To me it looks like the Q's have a ;little bearish price pattern of their own that will need to break too to make it an effective move in the market, what is the point of the Q's don't break under what looks like a  small topping pattern, in fact I just looked and they are breaking below now.

 There's the rejection at resistance and action since on a SPY 30 min chart...

Here's a closer look on a 5 min chart, note the bear flag, note volume picking up right where it should, these are all patterns retail falls for, they aren't patterns smart money falls for, they use them as a means to an end.

While I don't see much in the averages, TLT has a negative and HYG has a positive, both are market positive so we may be getting close to starting something. Whether or not I take on additional call positions will really depend on how strong the set ups are, I'm not fond of taking on much more.

I'll keep you updated on the arbitrage levers (VXX, HYG, TLT)

Crude / USO / SCO

Crude / USO shot up very strangely on apparently no news whatsoever, no currency catalyst, it just looks like an old school stop run so I intend to wait for the signals to appear of a high probability negative divergence which I would expect being this doesn't seem to have any roots beyond a stop run, then I'll look at either adding to SCO or maybe entering a USO put position.

 This is the move this morning, it's actually more parabolic than it looks here which will do the job and scare oil shorts and make them take a decision quickly which is almost always going to be based on emotion as the market is moving too fast to gather data and see if there's something real like the US and Russian Navy have some sort of escalation over Syria.

 Here's a better look at the emotional side of a stop run.

I just don't see much of anything behind this so for now unless I get different data, I'm assuming its a stop run and will wait for it to turn.

That's a Bear Flag

As predicted, some sort of flag or triangle, that's a bear flag, it keeps shorts in the game, a break below the flag should see volume pick up a bit, a new lower low on the day should as well. Each trader has their own limits of risk, some will short early as soon as they see resistance at the triangle, but not many, most want some price confirmation, we saw the first break of support for today drew some shorts out. A break below the flag will draw some more out and the most nervous of them will wait for a new intraday low on this move down from resistance.

This is exactly what retail Tech. traders expect to see, what Technical Analysis has taught them to look for, it's just those who are trading against them and us, have better tools, more information and know even better than I do how predictable these traders are. Don't forget where and why the majority of traders went from managed brokerage accounts to managing their own and why Technical Analysis went from something people use to openly mock like, "Oh, so you can tell what price is going to do by watching those squiggly lines? LOL-OK! Good luck with that!"

The reason there was such a major shift in sentiment about TA and so many people picked it up is because it's a lot easier and less time consuming to call something a buy or a sell based on what a couple of moving averages do (which is one of the most popular forms of analysis to this day-moving average). What I'm saying is the majority of retail technical traders are just plain lazy, that's why they keep doing the same thing over and over no matter how many times they get burnt.


And as I'm typing, the bear flag is just breaking now. Keep an eye on the volume.

SPY 1 min

MCP Interesting Here

The range in MCP suggested the probability of a head fake move, again this is playing on the predictability of technical traders, they see support in the range and place stops right under that support, that's why it makes it so easy to hit them and accumulate the shares and for some reason, no one ever asks, "Who took the other side of that trade?" (buying the stopped out shares), typically that would be Wall St. on a head fake move which this looks to be.

For now I'll refrain from adding unless I see something I just can't pass up, but I will continue to hold MCP calls already open.