First of all, nothing you will see in this post will contradict the earlier Futures / Multiple Timeframe Analysis post from today.
To recap that post, essentially nothing has changed since early February when I said we'd see a head fake move to the downside, but don't be misled by price, this is a bear trap that will set up such a strong rally that my inbox will be full questioning whether or not the next trend I anticipated is still possible.
Just like the head fake to the downside that caused unprecedented bearishness in the market, so much so I wondered how much they'd have to do to reverse this bearishness and thus the reason I wrote the warning that this will be a very strong move in an effort to give you expectations so you would not be surprised.
However, once again, don't let that mislead you, the entire reason I believed we saw a bearish head fake move that led to an exceptionally strong move to the upside is the same now as it was in early February before the rally started, except now I have objective evidence confirming my theory.
What was my theory? That to set up a large move to the downside, even larger than the recent upside move because volatility keeps expanding on every major pivot, there would need to be enough demand and high enough prices for smart money to be able to sell in to without sending price down before they are ready because of the size they trade in, THIS WAS THE ENTIRE REASON FOR THE DOWNSIDE HEAD FAKE THAT GAVE THE UPSIDE MOVE MOMENTUM AND FOR THE UPSIDE MOVE. A MOVE TO THE DOWNSIDE THAT IS EVEN BIGGER.
Ok I hope I explained that well enough, but if you still have doubts or questions, I'll be happy to find the posts from early February BEFORE the upside move started that laid out the short term downside head fake, the sub-intermediate upside strong rally and what comes next, likely a primary bear trend or bear market. The posts are all there in early February and even late January explaining all of this, the only difference now is that we have confirmation that the upside rally saw the distribution expected to be the move we expected and FOR THE REASONS WE EXPECTED.
That being said, this afternoon's Futures post showed short term upside on 1 min charts in Index futures and then multiple larger/longer charts that have significant negative divergences.
When comparing the short term positives to the long term negatives, it's like a game of "Rock Paper, Scissors", this is the example that I always use in my head when looking at these charts as I have learned over many years of using 3C.
Short term charts are PAPER, longer term charts are Scissors and Scissors ALWAYS beat paper. 3C is not meant to be a signal generating indicator like a moving average crossover, which I think is one of the most useless systems in the world unless you are using it on a 5 day chart, but even then you'll have about 1 or 2 trades a year and your ability to sit through draw down and moves against your positions is worth about zero making the system worth about zero, but it is the best long term trading system I've ever tested, human emotions just mess it up.
3C, while it has been VERY useful in the past while the F_E_D was not in the market in calling timing turnarounds, is really there to show us what is happening below price, what's happening that we can't see which is very useful information. Before the F_E_D's intervention starting late 2008, a 15 min divergence was a timing cue. In fact during the range that came right after the July 2011 meltdown in which the market lost nearly -20%, this range was chewing up and spitting out traders, but we traded EVERY SINGLE SWING up and down using 15 min. charts and 2x leveraged ETFs long and short and over the 2 months the range persisted, made +85% on a model portfolio while everyone else was being chewed up. Because of the F_E_D's Put in place with QE, we had to find new timing markers like the head fake move that we see 80+% of the time before a reversal on any timeframe you want to look at. We started looking at Credit, Yields, Currencies, correlations, etc to gain that edge.
OK I digress, the post today about futures said, "Short term positive, likely in to the clos and not much more and everything else was very negative and when timeframes all align like that, it has worked out to be an excellent timing marker. So that's what the futures charts said whether Index futures, Currencies and Carry trades or VIX futures.
Now let me show you what I saw in to the close, why I think that Monday is likely the day to buy VXX and UVXY and to short financials and any number of momentum stocks.
First the averages...
When I said above that in early February I thought this rally was not an ends, but a means to an end and that was to set up a larger move to the downside, I didn't have proof of something that had not happened yet, I was going from long term charts, trends and most of all, Market/Mass psychology, why and how the market sets these traps, like I always say, "WALL STREET DOESN'T SET UP ANY MOVE WITHOUT A REASON".
This 2 min chart tells me we likely see early strength Monday morning, UNLESS the divegrence gets run over by fundamental events over the weekend like we saw in HYG yesterday.
If you look at the distribution on this 60min chart, notice where it really kicks in, if you take the highs at point "A" and measure to the close today, over the last 2 trading weeks, THE QQQ HAS ACTUALLY LOST -.32% For those who feel like the market is moving up against them everyday, that's the truth, over 2 trading weeks, the Q's have lost .32% which means there has barely been any price movement, BUT THERE has been a lot of 3C distribution during that time.
The point now is we barely have anything in the SPY or IWM and a small positive in the Q's, that's not the recipe for a huge move, that's the recipe for a small move and maybe only in the Q's assuming the divegrence isn't run over.
Long term or high probability IWM...
What else Do I have, well HYG assuming it doesn't get run over. I pointed out earlier how HYG's price shape today alone told me there was accumulation in this post, it looks a lot like the MCP price action.
Remember HYG has been used to support the market which it wouldn't need if it had real demand rather than selling and shorting in to rallies, but since that's what's happening, they need something to move the market up, selling stocks doesn't move a market up, HYG fills that role.
As far as other evidence I have and what is most important to the actual trades and timing, I didn't enter VXX or UVXY (new positions) this week because I know what the charts should look like there and even though VIX futures are screaming, until I have evidence I feel comfortable presenting, I can't put it out as a trade idea just because I'm worried I might miss the trade.
When VXX is ready it doesn't have a leading divergence, it has a flying divegrence, even stronger, the strongest I've seen and I think it's because of emotion, fear is the strongest emotion in the market and emotion is what moves the market so when VXX is really being bought, people are scared and thus the divegrence is very unique in its strength, that had been missing this week, it was positive and in any other asset maybe enough to be a long idea, but as I said, I know what a VXX divegrence should look like.
Now, first consider the short term SPY, QQQ and IWM charts above as well as HYG, if there were confirmation in VXX and UVXY, their short term charts would have a negative divegrence because they trade the opposite of the market, lets look...
So it seems we have our most probable scenario for Monday, it didn't require that we do anything late today other than wait for Monday and then the signals, I think though once that starts to happen, the trades are going to come fast and furious so I'd say get some sleep and rest this weekend, the start of next week is likely to be the next leg in market volatility at the next pivot...DOWN
Have a great weekend, I'm sure I'll have more for you as I go through the charts, but this is what really matters.
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