On the Issue of Head Fakes...

I can't believe how many emails I'm getting asking about a head fake move in the SPX especially in light of yesterday's signals that caused me to open a SPY put which had NOTHING to do with anything other than good signals and the price action as well as our concept of head fake moves and them happenining about 80% (probably more) of the time JUST before a reversal.

If you haven't read the two articles I wrote and linked to the member's site on head fake moves explaining what they are, what they do, why they are so frequent, you really should when you have a chance, they are always linked at the top right of the site because I think they are some of the most important articles to understanding head fake moves, but more broadly the market in general and why and what the differences are between the way we trrade and the way pros trade because of size and their advantages, which if you understand, you can use to your advantage,.

I'll make it easy, here are the two links to part 1 and 2. I intend to add a part 3 which will be examples and we have some pretty decent ones in ALL timeframes, in all types of trends and all assets.

So those of you writing in about a possible head fake move, yes you are correct, the "Igloo with a chimney " look to price at the top of stage 3/top.

As for the market itself, here's what we are talking about, although it seems you have already grasped it as I'm answering about 25 emails with this post or rather just confirming what you suspect.

 The intraday SPY chart just falling apart which is why I felt safe with April SPY puts.

The February cycle's stage 3 top, if you imagine the rounding stage 3 (this is a bit flatter) and yesterday/today's early action... it is the basis of the "Chimney" aspect of the "Igloo with a chimney" reversal pattern and it falls in the right spot as head fake moves tend to occur just before a reversal (up or down depending on the trend) , but head fake moves also tend to be very strong as their job is to change sentiment, to cause emotional extremes, that's where they are logistically useful.

 This is the stage 3 area of the February cycle (to present) so the 3C chart confirms your suspicions, but this is exactly what we've seen for a while and this is what we expected when I wrote what to expect on February 4th before the February short squeeze/rally/cycle.

This is the Feb. cycle (larger as we have a smaller starting last Thursday), the stage 1 accumulation, a head fake down to finish the stage 1 accumulation which we predicted days in advance , stage 2 mark up, stage 3 distribution and you know stage 4 is decline, there's typically a head fake move as the transition between stage 3 and 4 (and other stages like 1 and 2). In technical terms, most would call it a "Bull trap".

We could get in to the smaller week long cycle, but I covered that pretty extensively this week and just yesterday.

As far as blow-off tops (lots of emails on those too) and the like which everyone seems to be talking about, yes there are blow-off tops, but the notion that they are a prerequisite, not to mention putting things in perspective long before you have a complete picture such as the scaling of a historical chart and what looks like a blow-off top a year from now vs the action right now are very different things, I'd just have to say, this is a technical concept that is seen, but is not a prerequisite for a reversal. I'm not saying there will be or won't be one, I don't see a lot of evidence for one, but if the market shows us something that makes that a high probability, I'll post it.. I'm just saying people like to throw around these constants and concepts while leaving little room to listen to the message of the market, they have expectations and that's exactly how and why Wall Street is able to use technical analysis against traders, they are stuck in 100 year old concepts and WONT ADAPT.


You may remember the (two Tom's)  DeMark/McClellan Analog chart from early February comparing the market now to 1929? I'm bearish on the market, there's no two ways about it, but I'm realistic about the market and when this chart was EVERYWHERE in February I could have latched on to the two respected Toms' Analog of the overlay vs 1929, but I didn't, in fact I thought it was very dangerous to make those kinds of assumptions. The market is VERY different now than it was in 1929, there are parallels like QE that were used by the F_E_D back in the early 1920's to pull the economy out of a slump, but that ushered in the "Roaring 20's". Our QE never did anything for the economy unless you believe in Bernanke's wealth effect, but I dare say millions of unemployed Americans don't see it trickling down (well I suppose scholars will debate that for a century), at least it didn't usher in a "strong" recovery like the 1920's. The bubbly/frothy markets are the same, but to get down to analogs... that's dangerous and that's why I immediately wrote this article...1929 Analog Insanity.

The point I'm trying to make is that there are a lot of asset tops and you can point to a lot of blow-off tops in fact there's so much data in the market you can make any case you want if you cherry pick your data, but there are a lot of market tops that are pretty darn far from blow-off tops. As Mark Twain said, "History does not repeat itself, but it does rhyme."

I think the popularity of that Analog of 1929 was based in peoples need to feel certainty in a VERY dynamic and uncertain market, especially on shorter timeframes where many of us pay way too much attention to small details like seashells on the beach while missing the huge tidal wave coming our way.

This is the same reason people tune in to Cramer every night to hear why the market did this or that in 30 second soundbites, you all know the market does things for reasons that would take a day to explain, however the 30 second sound bites make the market seem rational, understandable and more predictable, it simply isn't that easy and that's all born of fear of the uncertain, SORRY, that's the business we are in. This is why we deal in probabilities and demand the highest probabilities before committing to deploying assets.

Leave some room for the market to tell you what it's up to, if you pay attention the signs are there, they aren't in analogs or 30 second soundbites though, just like anything else you want to be successful in, YOU HAVE TO WORK HARD FOR IT, YOU HAVE TO WORK SMART FOR IT.

Free meals on Wall St. are over, just ask the owners of HFTs.