Market Wrap

As you probably know there are a lot of reasons out there as to what did what and why, maybe there's some catalyst that makes certain assets move, but there's no denying a cycle is one of the basic market functions, this is accumulation or distribution, it's planned ahead of time, the outcome is usually to create another outcome or as I put it in my last video, a series of fuses lighting larger fuses.

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.

 The SPX "Candlestick "Tweezer top" was confirmed Friday and it has moved lower, there are some ways to get an idea of the target of a candlestick reversal, but for the most part, it's just a reversal from one direction to the other with no target or implied intensity unless of course it was a reversal pattern on a 5-day chart, then it's obviously a larger reversal.

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.

 I drew in several different bullish reversal variations for a daily candle as the downside is losing momentum and T.A. traders are going to expect a test of resistance soon. The next candle to be a bullish reversal confirmation (look for increased volume) can be a star which is the first from the top and to the right of today, the second is a Doji star, it is essentially telling you there is equilibrium between bulls and bears that's a change of character and usually a good reversal candle. The third down is a bullish hammer, it doesn't matter if its body is filled or open, as long as the lower wick is at least 2x as long as the body. The last is very bullish, it's a Bullish "Engulfing" candle and opens at a gap low and closes near its high, swallowing the previous day's candle.

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.

#1 is as mentioned, "Kiss the channel goodbye" at resistance of the lower channel, which is what Technical traders expect and that's where they'll short if it looks like there's a failure to break resistance. Sometimes there's an initial failure to such the shorts in and then we move to #2 creating a short squeeze and losses for the retail traders.

#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.

Often those of who watch the market everyday have unrealistic expectations about a downside reversal and when we get in to it, even a bear trend. Look at the SPX 2007 top above, there was no quick, clean downside reversal, this was a process and it was proportional to the preceding 5 year rally before it.

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.

First it didn't fall, it hasn't retraced the F_O_M_C knee jerk failure and has made its second consecutive day of higher highs, this being another institutional risk asset like sentiment indications all suggest this mini cycle (up) is still alive and well, it was just the Russell Short Squeeze today that threw timing off track.

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.

My newest indicator which is working well, the Russell 3000 (green) vs. the Most Shorted (100 stocks) Index (red). We have a short squeeze yesterday and a real sharp short squeeze today, when they start to fail, so does the market. I'm wondering if these are being used considering SPY Arb is off the table.

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.

No F_O_M_C LEAKS

Remember last week 7 minutes before 2 p.m. on Wednesday when the F_O_M_C statement was released, gold jumped $11 just like that?

Even today I mentioned the amount of distribution in to the knee-jerk reaction and said words to the effect of and half kiddingly, "The F_E_D would rather give them the money via the market than have to bail them out with their own money later".

Well, this is a long known phenomena, the BLS is particularly susceptible as they admitted it and are building a new media center to prevent leaks. Those of you around for a while may remember how often we found leaks in the EIA weekly petroleum report. A lot of these are because as I mentioned, Jon Hilsenrath was able to write about 600 words and publish it only 11 minutes after 2 p.m., that's take in the entire statement, write about it and publish it with really less than 11 minutes, this is because the media gets all of this information before anyone else, but embargoed (not for release) so they can write their stories, but the F_O_M_C? You bet, here's someone who says it's so...


I knew of the Fed decision and growth forecasts around 5-6 minutes before 2 pm last Wednesday, even though I was not there. I work at a news organization represented at the Fed statement “lockup” and the Bernanke press conference last week. This was in no way secure the way the Labor and Commerce Department lockups are. Those in the Fed statement lockup were able to communicate by text message and email after they received the statements and before 2 pm. Those in the room awaiting the press conference also were able to communicate electronically after the received the statement, several minutes before 2 pm. Everything was honor-based, but anyone in their respective newsrooms could have gotten the information early from them and passed it on. Given the large number of reporters involved, there are many ways the decision could have gotten into the market several minutes before the announcement. I am truly surprised it was only seen in gold trade. The fact is, though, the Fed made it possible for many people to leak it.

I can't think of too many reasons that are smarter than following underlying trade and this is just another reason why.

My update will be out a little later as I want to see how some strange activity in futures pans out.

Closing Thoughts

Other than the price pattern "W" or not, it doesn't really matter, I think we are still on track for the set ups described earlier both for XLF and GDX as well as other assets which should be the move needed for the trending position set ups.

A short squeeze in the Most Shorted Russell Stocks sent the IWM up, I'm glad I took out the puts as they are nice and green already, but I expect I'll be closing them soon, like tomorrow.

The divergences will need a little work, but the basics of what I laid out for say GDX, that still remains,  XLF as well and it's coming close in price to reaching that goal, we need to verify and that's a short term long position.

SPY Arbitrage hasn't worked all day, it has actually been negative, it's the Russell Short squeeze that moves the Russell and the other averages just drafted it.

CONTEXT has about doubled (negative) in points since early this morning to be in the -30 to -35 area.

I'm going to check Leading Indicators in to the close, but the way TLT moved, the lack of movement most of the day in VXX and no movement in HYG is why the SPY Arb was so negative today. VXX is seeing a bid now that the IWM is looking so ugly.

I may have to move some of the potential entry points and check out some other assets, but I think the plan that we were looking at this morning, which I would say was, "If I'm going to take the risk of being long, the market needs to give an exceptional entry and signal". The IWM's or Russell's short squeeze just delayed that a bit.

I'll get back to you on Leading Indicators, but I don't expect any surprises.

The fact TLT was starting to lose upside momentum made perfect sense as it is acting a flight to safety asset (switched overnight like gold a week or so back) and if money is coming out of flight to safety, it's going to risk.

I'm a little impatient as well as many of you are, but there's no point in getting involved in a position out of boredom.

TLT Trade...

You may recall I'm interested in TLT longer term as a long because for whatever reason it looks good and specifically looks better than the 10-year benchmark by a wide margin. I'm looking for TLT under $102 or around $100 as a new long, I'm also looking for a way to leverage up the position with liquidity so ideas are welcome, but I al;ready know about the leveraged ETFS, their liquidity is very poor.

I also saw a headline this morning, I didn't read it, but a pretty large private equity firm announced they are long treasuries as well.

For those who contacted me today about shorting TLT for a move down to the $102 area, before it wasn't looking like a good entry, now it is improving. The 10-year futures look horrible and loook ready to fall, the 30 year don't look as baad, but will likely follow the 10's.

TLT itself saw a change in character intraday from a steady uptrend to an accelerated (more vertical ) one which is a change in character and even though it looks bullish, it's often a sign that the trend is coming to an end.

 The change in character, now the upside change is going flat so it does look like an official change in character and that leads to changes in trends.

The 3 min chart intraday is showing some real distribution, it's not made it far, but..

It has started on the 5 min chart.

Short TLT isn't my favorite position right now, but if you are interested, this is looking to be a decent area.

Market Update

I'm getting a little bored too, but I'd rather be bored than entering positions that are potentially dangerous.

First I want to show you "WHY" it's dangerous to get caught up in short term trade and making short term assumptions based on price only and the ridiculous Financial Media headlines.

The SPX/SPY.

 So we have last week's F_O_M_C meeting and the financial media, "The F_E_D shocks the market, NO TAPER, SPX MAKES ALL TIME NEW HIGH!!!", which is suppose to be good news for bulls according to conventional wisdom, my first thought was as you probably know, "What are they so afraid of and is the market going to be even more afraid as it tries to guess?"

First unless you were betting against the taper which few people were, you weren't long and didn't catch the upside move. Second even if you did, if you didn't sell that day (especially with options), you watched your gains melt away, possibly in to losses. Those who did chase and buy the knee jerk reaction are at losses no matter what because there was no follow through, only a move down.

The most important part though of this 60 min chart is the 3C move in to the F_O_M_C statement, what did smart money do and do in HUGE size?

So price, rushing to judgment based on a day or several days of trade and blindly accepting conventional wisdom can get you in to some real trouble. This is why all decisions made here are made using objective data with the most objective interpretation of that data as possible which includes multiple sources of unrelated or uncorrelated confirmation.


The market today... The danger here is that the F_O_M_C day was enough distribution and they don't need more, but that takes some fast trading, the HFTs may have done well, but I'd think the rest of the crowd would need the "reversal process", but looking at the move Wednesday, a strong case can be made that it was the timing flag, a head fake move which we see just before a reversal. It's for these reasons I'm trying to be very careful, as sure as I can be about any positioning.

 SPY 1 min is not as bad as the IWM, but it wasn't as bloated either, but it is bad.

The case for the upside move I've been talking about this week, really since late Friday is really mostly right here on this 2 min chart. It's like the market is teetering on the ledge and there's this case, but a weak case for some upside that would be great for entries/add to positions, etc.

 This 30 min chart would be the "Head Fake" case for the SPY, it really DOESN'T need anything else, but for most of the market, they usually have a reversal process, but distribution in this market didn't start with the F_O_M_C last Wednesday, I have interviews with some of the biggest private equity managers who have been (Quote", "Selling everything that isn't nailed down for the last 16 months"

That may sound like hyperbole to you and I when we can open and close a position in 2 minutes, but for their size, it can take nearly 2 years to put a position together, at that size they aren't able to just turn on a dime. This is partly why we've been seeing distribution so long, it's not a matter of anything other than they are moving out in massive size, as in this bull move since 2009 is done, the distribution is bound to be much larger than any other time since 2008.

 IWM 1 min, you already saw this.

IWM futures intraday

QQQ intraday not looking great

The QQQ distribution 30 min in to the F_O_M_C. I don't know, maybe the F_E_D threw the retail crowd off with the no taper and did the banks a favor and let them sell in to the move, 

The F_E_D would rather give the banks the market's money than theirs in a bailout.

NASDAQ Futures intraday

I'm still looking at the major market analysis as well as individual position analysis and  a lot of those individual positions are still just a hair away from a great entry, so they still need that move.

IWM Follow Up

We've been talking about this move up the last couple of days and looking for certain things, but for the market, all they need is the move up, all they need is the higher prices and demand. I may be wrong on entering the IWM early rather than waiting for what looked like the best set up, but I can always exit the position and likely still have a gain.

The IWM in particular is bothersome to me because the intraday divergences are so close to the longer ones that were to cap any upside move, in other words, it's just looking very dangerous right now (for longs).

 IWM 1 min is seeing a nasty negative divergence, that makes sense though if the average is simply being lifted by a short squeeze.

 The 3 min chart has migration, it's failing. Whether the IWM comes back to do what I hoped we'd see for a good set up or whether it's in bigger trouble, I just don't see how it can sustain much more upside as internals fall apart.

Those charts are really close to the heavily damaged 5 min chart so intraday is very close to linking up with something a lot more serious.

And the 15 min chart is that something a lot more serious, this is why I've been trying to explain that any upside move is almost the equivalent of noise, sure we can make some positions work in the right scenario, but it's really best served for shorting strength (price strength or better yet, simply higher prices because "strength gives the wrong impression).

The TF / Russell 2000 intraday futures look as bad as the IWM, so this isn't a coincidence or a 1-off bad 3C chart.

The most shorted r3K stocks in red are actually losing their momentum, I can see it just from years of looking, but put a Rate of Change on the Index and you'll see it making lower highs and the R3K is starting to roll.

I think if you are wanting to participate, but use an ETF, there's SRTY (3x short the R2K) or TWM, 2x short the Russell 2000.

Trade Idea: Also Opening IWM Oct. $108 Put

Charts to follow, it just doesn't look good.

Entering Partial GDX November $25 Calls

I'm not where I want to be so this will be a partial position, "if" we see GDX back to the area described earlier as the probable area of a new position, then Ill add to the GDX call position.

Here's what has changed my mind to make an early entry.

 15 min GDX bear flag looks like it wants to break out, there's a little resistance seen at the longer upper candlestick wicks (orange), but volume is up.

This 10 min chart's fast move up grabbed my attention so I checked NUGT.

And NUGT (3x long GDX) has the same, I checked DUST which ius 3x short GDX and...

It confirms, so this isn't the ideal set up for an option position, I think NUGT long which I also have is better suited, but I'll go for a partial position now.

GDX Update

GDX is through the first alert area which is below the bear flag, but it didn't cause much in the way of volume as there would be few stops after the earlier clearing of them, so the second area may be where we pick up some volume and that is where I'm interested in the trade, I have a November $25 call picked out and I'm just waiting to see if we get there.

There's no pickup in volume as there normally would be when a bear flag is broken as the stops (and limits) were cleared earlier today (at the large volume), so the other alert I had set was just below the intraday low, however I'll continue to watch the signals because they matter most, they are just more likely to form stronger at these kinds of areas.

The green arrows are what I'm hoping to see next, a break below the intraday low and volume up, 3C should start looking great intraday if that happens.

Market Update

There's a short squeeze in the IWM Most Shorted Index and as you can see by the performance on the day (DIA +.14%, SPY +.25%, QQQ +.37% and IWM +.65%) it's causing the IWM to lead.

All of the averages are coming up to some kind of intraday (at least) resistance and I'm really hoping the IWM backs off, but it is a short squeeze...

I pointed out earlier this morning how the R3K's Most Shorted Index (I created) was outperforming and leading the market.

I'm thinking between intraday resistance and the fact they can't get SPY Arbitrage even close to neutral, we can get the pullback in the IWM that we need to set up so many short term long positions.

SPY Arbitrage is actually negative around $.70 so it is pulling downward on the SPY.

There are intraday negatives too that should help, otherwise we're likely to get a premature breakout and to me, the risk in chasing it or taking trades that didn't do what we wanted them to do, would just not be worth it so I am hoping the IWM is about done showing off here and lets the market fall back a bit to set up those positions.

GDX did break below the bear flag so I'm watching that one now as it's entering the zone of interest.

All of the Index futures look like they will pullback from negative 3C divergences, the IWM looks the worst (3C negative) so that's good.

GDX / NUGT Update

Yesterday GDX / NUGT put in a nice closing candle, a test of lower prices and that test ended with GDX closing higher, almost forming a bullish "hammer reversal".

I'm still holding NUGT and some GDX $25 calls from last Friday, I'm considering adding some November calls, I'll show you why and what triggers I'm looking for intraday.

 In one sense I'm conflicted on the larger or longer trade theory because I simply don't see the support for it on a longer 60 min chart, a 15 min chart is about as far as the support goes, even though there's a slight positive on a 30 min in the area, so I'm thinking of adding to calls rather than NUGT just in case there isn't the support.

If GDX is correlated with Gold and gold is correlated with risk on, then I don't think GDX has a chance on the longer term trade, but if gold flips back to a flight to safety asset like treasuries did this week, then it's possible, we are still missing the 3C longer term support though.

At the yellow arrow, I'm pointing out a head fake move, look at it, it's the same as what I've been showing you all morning, the concept is the same no matter if it's a bottom or a top or a 2 min chart or 60 min chart, it's just different scaling.

The 15 min chart has support, you can see where we sold the last GDX calls on the F_O_M_C release and sold in to upside momentum for a double digit gain.

The 15 min chart looks stronger now on what I would consider a head fake move, so I'd like to add to GDX in this area, in fact likely soon if a couple of things happen.

Right now Technical traders looking at Gold Miners would see a bearish flag and expect a move down, they would short GDX on confirmation of a break below the flag so my two alerts are for a move below the flag and a move below the recent intraday low (formed this morning). If you want to have confirmation and are more interested in an equity position like NUGT, I'd look for a break below the flag and then go long NUGT on a break above the resistance trendline of the flag, that's where the short squeeze would start.

As far as targets, if we look at the big picture showing a large Inverse H&S bottom, or actually a complex H&S bottom because we have 2 left and right shoulders (these are almost always symmetrical on both sides of the head), then we have a price implied measured move of $40.25, based on... the base. 

This is why I'd go with longer November calls, just in case, but it seems unlikely to get such a move unless correlations with gold or the gold trend changes. I think the most probable outcome with the charts we have now would be a move to $31.25 and above, somewhere above $31.25 would be where I'd expect distribution.

I think the latter possibility is the more likely. My alerts are for a move below $24.90, $24.57 & $24.50

XLF / Financials Update

Yesterday I drew these exact trendlines, I haven't changed them and they represented "Where" I'd consider an XLF long (most likely a call or 3x leveraged long like FAS)...

 The support at $20.11 held all day yesterday which was one of two levels I was looking for a move below before going long XLF via calls or the 3x leveraged FAS. This morning that level was broken, but the most obvious level is the whole number of $20, the human mind gravitates to whole numbers and even numbers so a move below $20 should take out a boatload of stops and I haven't seen that with volume yet. This morning's low was $20 exactly, typically the stops are "A break of $20", so this is what I'm looking for and have price alerts set for. I'll likely enter a long position in the Industry group if that final move below $20 is made.

Here's 3C on the move below $20.11 with a positive divergence so I think the <$20 move is reasonable and will likely have the right divergence for a long trade, even though I don't see it as very strong and that's where the risk is and that's why I want that concession first.

Honestly, if or when XLF breaks $20 on a head fake move, it will likely correspond with a market-wide change in character and nearly all averages and Industry groups should be ready to make an upside move so watching XLF alone should give you a good feel for the market in general.

I'll have the asset Ticker (option/call) ready for any such alert below $20 and after 3C confirms a shakeout.

Conceptual Update

If you had a chance to watch the video in the last post and understood not only expectations, but how they are all common concepts from F_E_D-related Knee Jerk reactions to head fake moves, to the reversal "process".

The concepts I try to give you are universal in trading whether you are trading a 5 min chart as an intraday trader, a 15 min chart as a swing trader, maybe a 60 min chart or a daily as a trend trader, or long term investor, all of the concepts are fractal like the market and scaleable and they work for bullish areas as well as bearish, you just reverse the concept.

Here's a VIX Futures and SPY Update that should be helpful in understanding both short term positions and longer term ones and if you think this amount of time for a market top seems unreasonable, I'd just remind you of the size of the reversal we are talking about and remind you of the concept of a reversal process vs an event. Take a look at this 9-DAY chart of the SPY and former tops.

From left to right, the Tech Top (2000), the Housing Top 2007, the anticipated end of QE top (yellow) and where we are currently. There's a lot of noise in tops as you can see, this is why a lot of people don't like to trade them, but there are ways to trade them obviously with the right tools. The point is, none of these former tops in which (on this chart) each bar represents 9-days  reversed in an immediate or "V" shape, what I'd call an "Event", they were all a process and if you look at them as daily charts rather than 9-day, you see the process, it's just like the same process we are undergoing now on a 2-day basis, like I said, it's all fractal and scaleable.

 The 30 min VIX Futures shows a positive divergence, this fits with a larger trend than the anticipated move to the upside off the small "W" base I showed you this morning, this is more in line with "What comes next".

 The 5 min chart of the same VIX futures however is in line, giving the market enough breathing room to bounce if it wants to, but in no way does this mean the VIX futures look weak, which ultimately is not good for the market.

VXX on a large 60 min chart, see the dates below. I wanted to see the second half of the "W" gain 3C momentum on a 15 min chart, it did, this is a 60 min chart so the larger market trend probabilities are definitely still skewed to the very bearish side.

However like the futures, the 3 min VXX chart is simply in line, giving the market room short term.

The same chart backed out (zoom) shows the trend is actually leading positive so it gives you even more information about charts that seem to be neutral, they are still bearish for the market.

 SPY 2 min F_O_M_C distribution and the "W" base I did the video on.

This is interesting because it's a long term 30 min SPY chart (look at the timeframe/scale axis), note the very same concept as the small "W" base we are looking at this morning, this is a large "W" (upside down) or double top with all of the exact same concepts including the head fake. If you were to take the 2 min "W" of the last 2 days, stretch it out, remove the time scale axis and flip it like a mirror, you'd have the exact same concepts in play, just in reverse.

Flipping the intraday chart (as long as you removed the timeframe and scaled it to this chart)
would fold over almost perfectly to match this chart because the concepts are the same. 

This should be useful in understanding and planning your trades.

This is a 60 min SPY chart, again the same processes are in play, the current 60 min divergence is leading negative at a new low for the chart. You can see the cycle that started with the accumulation range (stage 1) and is in to the distribution/top (stage 3) stage.

Again if we removed the time axis and just looked at the drawing of the last two days' bottom, it's no different than this much larger top pattern, the head fake move and all.



The SPY just completed the F_O_M_C head fake below support. Take a look, imagine scaling the current 2-day chart out to this size and folding it up, it would be almost exactly the same because the concepts are exactly the same.

VIDEO: Market Update

I think I've been pretty clear on expectations, what the F_O_M_C knee-jerk was about and how it has not only played out, but how that is setting up the next cycle. Also I think I've been pretty clear on head fake/"W" base expectations as well as the strength of the respective moves.

It's important to understand all of this so you can use the information and judge what kind of risk you feel comfortable with. The stronger the base, the more likely I'd trade the long side, but I'm under no illusions as far as how the strength of any potential hitch-hiking longs and under no illusions regarding the risk of such longs on such a small base.

I did cover the head fake concept on a larger scale and within the base, those may be issues that make a possible trade more or less attractive to you. If I set an alert for a move below yesterday's intraday lows and find accumulation is stronger and we now have a solid "W" base, I'm more inclined to trade that area as risk has dropped, the head fake move makes the timing probabilities of an upside reversal much higher and overall probabilities (based on the 3C charts of course) much higher.

I hope you don't get too much out of the video because if you do, then I haven't done the best job of conveying expectations and what looks like or doesn't look like a more probable trade.

You should see an emmbeded video player below, if not then click on this link which will take you to the video which is unlisted on YouTube, so only this link will get you there.

Opening Futures

Once again, despite dropping 6 points in ES futures overnight from the 4 p.m. print, here we are just before the open and back within 0.75 of a point to 4 p.m.'s print, as I said yesterday, this looks like a new concept as long as it is in the accumulation or distribution phase of a cycle.

I'm not so much interested in the news, the overnight German Zew poll or what Credit Suisse is doing with it's "poor" clients, I am more interested in the overnight gains in Treasury futures with negative 3C divergences since they took on the role of "Flight to Safety" asset yesterday, this suggests as we expect, a pop higher.

Both Gold and Silver futures look to be cranking out a base in the area which also fits and fits with gold miners indications.

Crude is also looking ready or close to ready for that move I said I would be interested in being long.

That's what I'm most interested in, or this Russell 2000 Futures 15 min chart.

15 min R2K futures negative at the F_O_M_C with a flag-like, long consolidation, perfectly primed for a pop to the upside as 3C has been positive during most of the pullback, it fits with all of the analysis, just look at last night's recap.

Daily Wrap

I wamt to look back on the concept of anything F_E_D or F_O_M_C related, more often than not, sees a knee jjerk reaction (it can be up or down) and that reaction is typically faded and erased within a few hours to a few days.

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...

Check the dates and times.

Here was what I saw in the market, in which I described as "Shocking" and I'm not one for hyperbole, the market truly didn't know what the F_O_M_C was going to do and was caught off-guard, at the same time I've shown you the ES 60 min charts that show there was immediate distribution in to the move higher. As you know, there was no follow through and now both the Dow and SPX have given back ALL of the post F_O_M_C No Taper policy statement from last Wednesday, approximately 2-days or about normal, another reason you can't be glued to everything the market does from day to day and let that effect your decision making.

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.

 There's pre-F_O_M_C support, broken as well as ALL F_O_M_C gains, this is why I took profits immediately in the GDX calls, but kept NUGT for a longer term trending or semi-posiiton trade.

THIS IS A CLEAR STOP LOSS RUN, EVEN THE LONG LOWER WICK ON THE CLOSING CANDLE IS ALMOST A BULLISH REVERSAL CANDLE.

Whether NUGT or GDX, the 15 min chart has been key to maintaining the 3x leveraged GDX
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)

Distribution in to the F_O_M_C and accumulation in to the flat range, this is about all there is though so it's along the lines of the Yen and many other indications (very short term market support only followed by much ugliness.)

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.

 This is a 60 min chart so 3 isn't correct here, but it really doesn't matter how many candles consolidate in flag-like formation, just as long ass they stay within the large uptick candle's body, Techical traders expect 3 candles to fall inside the body of the large up candle and then prices to take off to the upside, I think we will still see prices take off to the upside, but first, they used Technical Analysis against traders and caused them to stop out as this familiar candlestick pattern was violated.

SPX on a daily chart, we have the large day up, then as long as the close is within the "Real Body" (not including the wicks), the price pattern remains a bullish consolidation very similar to a bull-flag, except used in Japan nearly 400 years ago by rice-traders before Technical traders used it here.

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.

The range is slanted, but still a choppy range. The move up last week happened as 3C predicted and the chop that I suspected because of the charts, continued on a move down, but this was a channel buster so if there is stronger accumulation down here at the yellow point, I may look at a long in USO looking for a quick move to and above the top of the channel before there's a final downside failure as the 60 min 3C chart is leading negative.

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.