QQQ Trade Idea and Charts

As I said in the last post, I'm going for the QQQ puts, I decided on March $88 Puts (monthly), that's nearly 6 weeks, it's enough.

A few things I've noticed, the initial 15-30 min positive doivegrences I "thought" would hold up until a move down to the 200-day moving average to stage an even dstronger head fake move, are falling apart, they do not look like they will hold. This massive 6-day move which is the strongest move since April 2012, go back to the archives for Jan 31st this year when on that Friday we predicted a head fake move that would lead a very strong upside move, for the NASDAQ 100 it has been the strongest 6-day move since April of 2012, that's not because we have a strong market, once again to better understand, if you have not already, please read the two articles I wrote and linked on the members' page called, "Understanding the Head Fake Move", Part 1 and Part 2.

These two articles will ALWAYS be linked at the top of the member's page because these are some of the greatest insights I've gleaned from nearly a decade of using 3C and they will teach you more about the market in an hour than years of watching the market.

How can we possibly have a truly strong market when breadth looks like this? Breadth doesn't lie, there's no interpretation or art to it like most technical analysis, these are pure science, pure numbers.

The SPX in red vs the Percent of All NYSE Stocks Trading ABOVE their 200-day Moving Average. That percentage has fallen from 81%to 57% and during the last 7 months hasn't been able to best itself, certainly not since January of 2013. 
 

If we look at the same indicator, except use All NYSE stocks Trading 2 Standard Deviations ABOVE their 200-day Moving Average (stronger stocks), that percentage has fallen from 42$ by an incredible 65% to 14.6% currently, meaning 42% of these stocks were 2 SDs above their 200 day at Jan 2013, now only 14.6% are, that's a huge segment of the market falling.

Now for the NASDAQ... Remember a head fake move is set up in advance, IT ALWAYS SERVES A PURPOSE, in this case my opinion was to turn a VERY bearish retail crowd that had changed their mantra from "Buy the Dip" to "Sell or Short the Rip", the locals on Wall St. needed to change that sentiment to bullish, that's the only way they win as you can't have everyone on the same side of the boat in a ZERO SUM GAME, someone has to lose for someone to win. Furthermore (although I can't reprint both articles here), it allows Wall Street to set up large short positions (as all of their positions are large) and they need 2 things to do that, higher prices and demand, without either they can't accomplish their goal. Wall St. will not sell short in to lower prices and they can't establish the size positions they trade without solid demand and that means swinging sentiment to bullish among retail investors so they have someone to sell to as selling short always begins with a sale, someone has to buy, SOMEONE HAS TO BE LEFT HOLDING THE BAG!

 THE 1 MIN QQQ from left to right: We can see the right side of the head fake move or stage 1 base for this cycle, there's some distribution at resistance of that "W" pattern (you may recall) and then a breakout to stage 2 or mark up. We have a large relative negative divegrence at the longer red arrow in the middle that worsens and the last few days an incredibly sharp leading negative divegrence that is well below the lows of any part of the head fake move; with price where it's at, there's almost no monetary support, in fact I'd say it's more than negative.

 1 min intraday saw distribution yesterday into the close which gapped the Q's down this morning, there was a VERY SMALL positive divegrence around 10 a.m., but that is being sold in to as well. Since I captured this chart about 40 mins ago, 3C has made a new low.

The 2 min chart with a strong relative negative divegrence and an even more impressive leading negative the last 2 days, this is a much deeper divergence than we can see on this chart only.

 The stronger 3 min shows the distribution used (it's not much) to move out of the accumulation range and in to the head fake move where we get more accumulation confirming the head fake move, you can revisit the archives from these days and read along as this head fake move progressed. The short squeeze on the upside which is a direct result of a head fake move ("From a failed move comes a fast reversal") has no accumulation, no confirmation, only distribution which means it was used for the purpose we predicted it would be used for on January 31st before it even started, distribution which includes short selling and on a massive scale AS THIS IS THE LOWEST 3C LEVEL FOR THIS CHART OF ALL OF 2014.

 5 MIN CHART with the initial break down that caused retail to go bearish, the accumulation in the range area and the accumulation in the head fake area, this is all to give the upside reversal a kick start until a short squeeze takes over, the pullback move expected before a larger head fake squeeze never materialized as distribution just got worse and worse.

The 15 min chart tells the story without any commentary.

 The 30 min chart which I suspected would hold up through a move down and under the 200-day moving average is now broken and leading negative, this scenario is no longer viable and we are back at the original scenario of a strong move that will move as far as it needs to in order to swing sentiment among retail traders from bearish (which seemed almost impossible at the time) to bullish which they are now wildly bullish. The fact this chart has broken down creates a very bearish environment in underlying trade.

While I don't subscribe to the charts that look like 1929 (although I'm not saying it can't happen, I'm saying be careful in expecting the same exact market to play out), I do subscribe to increasing volatility as we change from stage 2 to stage 3 and from stage 3 to stage 4 (decline). THE FIRST 4-DAYS DOWN IN 1929 LOST -25% ALONE.


AS FOR THE PRIMARY TREND...

Like the Dow now vs. 1929, this is a very intense leading negative divegrence, I've never seen the equivalent in the NASDAQ including 1999/2000... SEE BELOW

Which looks worse to you? The Dot.Com bubble in the NASDAQ 1999/2000 or the current period above this chart?

I'll be entering the March QQQ $88 Puts now. If I didn't think we'd see some temporary hang up at the 200-day for the market (meaning the SPX), I'd likely enter a longer expiration.