HYG Charts

I'm not only going to show you the short term HYG (bounce/long) charts, but the bigger picture short as well as the bigger picture short is what the bounce is really about.

First remember that HYG (High Yield Corporate Credit) is one of 3 assets that are used as a lever to manipulate the market, the other two are VXX and TLT. The computers/algos read HYG up as institutional risk on and with VXX and TLT down at the same time (as we saw signs of in both today), that's an even stronger buy signal for an algo as they see HY credit moving up as risk on and the protection of VIX futures dropping as a rotation out of satey and in to risk and the same for TLT, a rotation out of the flight to safety trade of bonds and in to risk. Taken together this is the SPY Arbitrage and I wouldn't be surprised to see some of it active in a market bounce.

 HYG is one of the few that formed a bear flag rather than a lateral range. Technical (retail) traders see the break of a bear flag as a continuation pattern and they'll usually chase the downside break as they see the break as confirmation of the bearish price pattern, I don't believe in chasing anything; there are thousands of trades out there, why chase something and get a worse price position and much higher risk?

The head fake move articles explain how a century or more of Technical Analysis dogma has been used against technical traders ever since the Internet revolution (which is not as old as it seems) and since the advent of cheap online brokers where investors could make a trade for $7 rather than $80. I think it's pure laziness that led most traders to Technical Analysis, although I don't believe in Fundamental Analysis as everyone lies and there's no way to compare apples to apples and even if you could rely on the information and make a fair comparison, "Do you really think you have better resources and skills than Wall Street's well paid CPA/Analysts with every bit of known information on the company?"

The point I'm trying to get at is that I can predict how a technical trader will react to a price pattern like a bear flag, Wall Street has known this a lot better than I have for a lot longer and they have the advantage of the complete book so if you place an order with your broker, no matter what they say about it being private, Wall Street can see it. I don't know about you, but if I'm playing poker I'm not showing my cards to anyone.

A really simple way to force a short squeeze in an important asset like HYG as well as pick it up on the cheap and in size as Wall Street firms need to do is to use Technical Analysis against its practitioners, let them chase prices lower (shorting them) as it provides Wall St. with lots of supply at cheap prices to accumulate and when prices are pushed above the breakdown level (the flag), you have a bunch of retail shorts crawling over top of each other to cover, sending the position higher in a short squeeze, which attracts long technical traders as they see a failed breakdown and TA teaches, "If a trade doesn't do what it is expected to do, reverse your position". This is all momentum and snowballing that I talk about in part one of "Understanding the Head Fake Move".

 Here's the rounding process in HYG today as it broke below the bear flag, EXACTLY what I was looking for. Note also the positive divegrence in Wilder's RSI.

Here we have 3C divergences, positive today.

That divergence migrated, showing it grew stronger through the day.

On a 5 min chart, as predicted earlier, the second half of the rounding pattern saw a stronger signal in 3C, this one a 5 min chart leading positive.

It's still positive we get one more pullback to form a "W" base with today being the first half of the "W", but I don't think it's needed.

 The 10 min chart never confirmed the downside so price action moved lower than actual distribution, which is indicative of a head fake move as well.

All in all though, the 60 min chart of HYG shows a clear negative divergence, oif we look at even longer charts you can see something major went wrong around the May 22 2013 1-day Key reversal as Credit fell apart badly and NEVER recovered. So if I get the chance on a bounce in HYG, I'm looking for at least the gap to be filled around the $93.25 area and anything above that (>$94) is an even better entry (short) with less risk so I'll be watching HYG, HOWEVER THIS IS THE SAME CONCEPT FOR VIRTUALLY ALL RISK ASSETS.

WHEN THE LATERAL RANGE WAS CALLED FOR LAST WEEK, THE EXPECTATION WAS FOR A BOUNCE HIGHER, BUT THAT BOUNCE WOULD NEVER HAVE THE STRENGTH TO REIGNITE A POSITIVE/ PRIMARY BULL TREND, IT WOULD JUST BE USED TO SELL IN TO (IN THE CASE OF THE LONGS WE PICKED UP TO HITCH HIKE A RIDE HIGHER) AND TO SELL SHORT IN TO MUCH MORE FAVORABLE CONDITIONS AS THE ENTIRE MARKET FROM BREADTH TO CURRENCIES IS FALLING APART AROUND US, IT'S ONLY EQUITIES THAT HAVE PERFORMED HORRIBLY IN JANUARY THAT ARE NOT SHOWING THE TRUE DEPTH OOF DETERIORATION IN THE MARKET, BUT THEY WILL IN ONE FELL SWOOP.