Market / SPY Update

I think we were right Friday to remain patient, sit on out hands and let the market continue to move along and tell us what it's up to. My feeling Friday was there was more basing or what I'd call a wider foot-print that needed to be done at least early this week based on what I could see late Friday, in that case, I'm glad we didn't take on any options trades as we did have 2 nice ones last week, but they had very clear signals.

I'm starting from the longer charts and working my way down, some of this is theoretical, as far as what I suspect is happening and for the sake of any long trades we might look to (quick trades, not ANYTHING resembling a bullish market), I'd hope this is what is happening otherwise I'm content to just sit on the short positions built and manage those until some new entry areas present themselves.

So Friday afternoon's expectations for the new week, EOD--- , were very simple... in fact this is the entire post...

"Really simple bottom line, I think we have a base developing, not much has changed today perhaps due to options expiration, but there's still not enough for me to jump in yet and thus I'll wait it out and see what Monday brings."

The charts look pretty simple too, in fact so much so that I haven't trusted them and I've spent so much time looking around for something I may have missed, but I think they are just this simple...

 This is another 60 min chart that's just destroyed and there are worse than this even in the SPY timeframes.

Note the rounding top and proportionality compared to the preceding trend (the February rally/short-squeeze). Also note the top description we usually look for that comes with its own head fake move just before a reversal, "The Igloo with a Chimney" which you see above before the downside reversal that has already retraced the entire rally in NASDAQ 100, most of it in the Russell 2000 and has pushed the SPX and Dow in to stage 4 of the cycle.

I suspect the "W" formation I have been talking about (it doesn't look exactly like a "W" because the second base or low almost always has a head fake move which is a stop-run/shakeout in this scenario) will fill out the yellow reversal process I drew in, this is what I meant last week when I said a "larger "foot-print", a bounce or rally can only go so far and there's a direct correlation to the size of the base.

The SPY 15 min chart shows the accumulation for the February cycle which was fairly large, Jan 27-Feb 6th and it came with a strong -2% down head fake move as well. Then the clear distribution of stage 3/top and the decline in to stage 4 with a lower low/lower high. Even though the 15 min chart's defining feature is a leading negative divegrence, we can still see a smaller relative positive all the way to the right, this is what we have been watching as our "W" base.

On a 10 min chart you might look at some past positive divergences within a leading negative trend and get a feel for how far they moved. I'd say the current one ...if it holds, is larger than the others and therefore more likely to make the targets posted last week (Tuesday and Friday).

Again in yellow I've drawn in an approximately proportional reversal process.

 SPY 5 min leading negative as well, this is one way to tell you are in stage 3, the range is another and the head fake move on a failed breakout is the last thing that typically happens before a reversal or transition to the next stage, however as I pointed out many times last week and showed you in the IWM and QQQ as they broke to stage 4 first, there's the H&S top neckline-break volatility shakeout of new shorts and since the SPY and DIA just joined the Q's and IWM in stage 4, this would be the appropriate time to see such a volatility shakeout which for me is good as it is, like the H&S top, the last place I'll enter new or add-to short positions.

 A closer view of the SPY 5 min chart with the "W" process from very late on Friday April 4th through present. I drew in the smaller reversal processes , I did not draw in the larger one that you see on some charts above that would make the accumulation on the 7th/8th and the positive at the 11th one cohesive base rather than 2 distinct events. I just don't think the downside negative divegrence on the 9th is enough negativity in 3C to suggest anything more than a steering divegrence rather than true distribution... the same could be said for today.

And today on the 1 min intraday starting with non-confirmation of the gap up and a clear intraday negative that is leading.

We'd need to see this go positive as the SPY came down and started to turn sideways finishing this particular reversal process from today's highs and the broader process drawn in on the longer term charts above.