Market Update

So far, nothing "seemingly" unusual, it looks like a normal op-ex pin. However there are some interesting developments in both the shape of price (reversal process) and the divergences building beyond simple intraday steering currents which are in effect, this makes me VERY happy that we didn't enter any options trades like Wednesday and Thursday, the signals weren't there to start with, the reversal process wasn't there and with an op-ex Friday, the probability of the market moving much away from yesterday's close is very low as the Max-Pain pins tend to open on Friday and linger right about the same area as Thursday's close.

 SPY 1 min intraday with the positive divegrence on the gap down this morning and what appears to be an op-ex pin steering divergence at the intraday highs, essentially keeping the averages in the range of Max pain so the most dollar amount of option contracts expire worthless as retail are typically buyers, not sellers of options.


 However on a longer chart, 5 min of the SPY, we see the initial positive divegrence at what would be the first bottom of a "W" and the run up to what would be the middle / high of the "W" and then the obligatory head fake/stop run which creates supply to be accumulated at the second bottom of the "W" pattern.

This is now looking MUCH more like one cohesive base rather than two individual events.

My custom TICK v SPY indicator on an intraday basis is showing essentially the same thing, it looks like a simple, typical max pain pin that should last until about 2 p.m.

However, there's an added advantage which I'll show you on an IWM graphic below.

 The 1 min QQQ is giving the same intraday signals, positive on the gap down this morning and a slight negative along the lines of a "Steering" divergence, not actual accumulation or distribution, but just moving price down when it gets too high or up when it's too low so it stays in the area of Max-Pain.

 The QQQ 2 min chart however reveals that there's more going on under the surface than appears as it is starting to lead positive, we didn't get this kind of action yesterday and that's why I wouldn't consider an options trade. This is also happening in the "right" area as far as a "W" base goes.

Here's the IWM graphic I mentioned, you'll probably recall the post last Friday AFTER the op-ex pin was removed and we get valuable 3C signals for the next week, if not, here's the post... The very early signals from that Friday afternoon suggested that we build some kind of base, it also said that Monday would not be an up day, there was more work to be done building a base before any upside was seen. We did build that base Monday and did see some upside which we captured with QQQ calls because the size of the base (small) suggested a short duration move meaning it needed leverage to make the profit potential worthwhile. There's no way we could have known that Friday afternoon that we might build a bigger base as we were coming in to brand new signals, unlike if there had been a 15 min positive in place, we'd know that a larger base was going to be completed for a larger duration move that required less or no leverage to be worthwhile.

It's not just the "W" formation, it's the head fake move under support that draws in shorts which creates supply and stops out longs which also creates supply.

When a base like this reverses to the upside the shorts are squeezed providing upside momentum as demand is created by their covering which runs across the tape as a "buy", we also see the retail crowd chase prices higher, they'd likely do it on a break above the $116 area on the IWM.

Interestingly our resident sentiment watcher and I figured out that it only takes 3 hours to change retail sentiment from bullish to bearish or vice versa. Also interestingly, they were SUPER BULLISH at the April 9 highs when we entered the IWM put position, they are simply chasing price, thus it doesn't take long to flip their sentiment, although strangely despite a series of lower lows and lower highs in several of the averages, they are still ultra bullish, which would be useful in setting a bull trap for a move down once this base moves and fails (assuming it moves...I have no doubt it would fail).

I posted this earlier in the week, but I'll do so again, this is my "Guesstimate" of a QQQ upside target. Now that every average is in stage 4 and below obvious support, shorts have likely stepped in and one of the first events to occur on a break to stage 4 when new shorts enter (think about the H&S concept of the 3 areas I'll short a H&S, the last one being AFTER a move below the neckline and an upside shakeout of new shorts) is the volatility shakeout, this needs to be a believable move for it to work and be worthwhile. Wall St. doesn't set up a cycle like this week's for no purpose, everything they do has a purpose and in this case they not only make money on an upside squeeze of shorts, but they set up a strong bull trap to create strong downside momentum on the resulting move down after the rally/head fake has completed-this is where we want to enter or add to shorts.

Potential Targets (this is assuming we keep building on the course we are on now)...

 Forgive my trend lines... this is the QQQ, for a move to be believable and flip sentiment to wildly bullish, which is a means to an end... price would have to break above the upper downtrend channel, above the neckline of stage 3 former support and probably above that high in early April as that would negate the lower lows/lower highs and the downtrend, putting traders in a bullish mood, absorbing a lot of supply/creating demand which makes it easy to sell in to or short in to.


This is the IWM, but the concept would be exactly the same. Believe me, after tracking these cycles for so many years, there's always a reason that they build them, there are VERY few random events in the market and when they occur they are on surprise news that the market had no way of discounting. Remember last night I was talking about the accumulation of Home Builders  around 1999-2000 and tp my recollection, property prices didn't start to get bubbly until about 2003, I believe the HB's topped around 2005, well in advance of the bubble popping in 2007.

 Back to intraday, this is ES/SPX Futures on a 1 min chart with a 1-day VWAP (Volume Weighted Average Price), this is used by institutional traders to judge a fill of a large order, at VWAP is the standard, if you can fill at the lower standard deviation and sell at the upper standard deviation, you as a market maker or specialist will likely get a lot more business from large institutions placing orders.

Note how prices are hovering at the lower standard deviation of VWAP.

 On a weekly VWAP of ES...

 Note the selling at the upper SD of VWAP and where we are now...

Now, lets overlay 3C...

Distribution at the upper standard deviation, accumulation at the lower...INTERESTING!