MARKET UPDATE

As I said earlier, I'll be looking to fill out some short positions, first in leveraged Inverse (Short) ETFs like FAZ, SQQQ, SRTY, etc. I like to have broad coverage for initial reversals until I can see what individual assets are doing, what their relative performance is like. There's nothing worse than being right on market direction and failing to capitalize because of bad sector or stock selection, however I will also be looking for strong signals in specific assets, some of which we've already posted the trade set ups (what we are looking for as the trade comes to us).

The main theme this morning was distribution right off the open and since then, in line for the most part intraday.

However as I had been showing around 5/15 and 5/16 when a gear flag formed with positive divergences and before we had any kind of solid head fake move above a large, very obvious multi-month range (as head fake moves are seen just prior to reversals in about 80% of reversals-think NUGT specifically today) , our expectation was that the bear flag would be used for upside momentum to create a head fake move as the regular ramping market levers were breaking down, it's kind of a "Technical Failed Expectations Sling-Shot" that creates the momentum. We didn't have specific data for a Crazy Ivan shakeout to create or increase that momentum, but as a concept it was a natural assumption that turned out to be right.

As you see the SPY charts, I try to show the entire process. The other charts are largely where we are intraday and where this week has taken us as distribution is huge on the move above the range , exactly where we expected a head fake move and thus far the distribution in the area confirms it is a head fake move, this is also largely used to create reversal momentum, but there are a number of reasons why they run them that are linked in my "Understanding the head fake move" articles that are always linked at the top right of the member's site.

Charts...

 These 1 min intraday charts are a bit older because there were so many captures, the Index futures are going negative really quick and the current 1 min charts are starting to reflect that to the far right, but since these are about 10 mins. older, you don't see that reflected on these charts. If I think it's necessary or helpful, I'll post them in a shorter post that will have more timely charts, but this is why I want to get some of those short positions filled out and soon.

As mentioned above, the SPY 1 min like all of the averages was leading negative right off the open sending them lower in to a small intraday positive that sent them to an "inline" status.

For timing purposes, I've been watching these as far as filling out positions and possibly some option positions.

 There were quite a few posts around the time of the bear flag formation in mid-May, I don't have time to go back to every post that mentioned it, but this one is from around the time and gives some forward guidance on what we should expect...

Market Update and Some Probabilities May 16th... (This is the mechanism that allowed the momentum to be created to get us above the range, our head fake move of true significance...

"Now that we are getting more data in since we saw the first positive divegrence yesterday after the move lower, we are starting to get a few possible scenarios , which I like to try to put out there as it may help you with closing or opening certain positions, whether they be short term option trades or core positions entries/exits."

"So, the point here would be, the appearance of a bear flag alone suggests a high probability of a head fake move which would be to breakout to the upside first, however while they can manipulate short term trading action, they can't hold the manipulation long, there's a reason there's a bear flag forming and that's because of the strong sell off of the preceding couple of days, that trend almost always re-emrgers despite a head fake move, thus they are excellent to use as entries, in this case we'd short in to the head fake breakout above the bear flag."

""If" this were a real bear flag, I would not expect to see positive divergences in to its formation, I'd expect to see distribution in to the correction to the upside, thus the case for a head fake move above the bear flag just got stronger."

Volume above the range has fallen off substantially and the size of the head fake move is reasonable enough to do what they are meant to do, to swing sentiment from neutral or bearish to bullish, that's really the only way large institutional money that typically carry $500 mn to $1 bn dollar single positions get the demand they need to move those positions.

 This is the actual trend of the 1 min chart from the move above the bear flag set-up/trap and specifically this week the distribution has been very strong, I suspect with the 3-day holiday as well as op-ex pins last Friday, we weren't going to see much that was actionable until this week.

Speaking of op-ex pins, we'll have another tomorrow.

 This 3 min trend shows the SPy/SPX bear flag on 5/15-5/16, the Crazy Ivan with the move below bear flag resistance which became support after the first move above it, being broken and setting the bear trap/short squeeze that basically gave us sling-shot momentum around the bear flag and up, this was seen very early in the process as there was small accumulation in to the bear flag, which you would not see if it were a legitimate price pattern.

Just as the other levers have broken down (Treasuries, Credit, VIX and now the loitering period of USD/JPY, the divergence this week is very clear, very strong and in the right place, right at the head fake above range resistance.

 The longer charts have less detail, but clearer trends, note there wasn't significant distribution UNTIL the head fake  area above the range was reached, that was the goal, that's the place that allows them to move shares in to demand at higher prices, that's what they waited for before distributing.

The leading negative is now at a new leading low for the chart

 And this whole scenario was based on the February cycle (red), note the trend of the 15 min 3C chart

DIA 1 min today, again distribution right off the opening gap.

 DIA 15 min, the last minor break above the range saw intense distribution causing a failed breakout, we have as bad or worse now. The "BF" is the bear flag area and the "CI" is the Crazy Ivan area.

AGAIN, THE TREND SINCE THE START OF THE FEBRUARY CYCLE/RALLY AND THE TREND OF THE 15 MIN 3C CHART.

 IWM negative on the open, in line after.

As I said, if there's need for an intraday update, I'll post that alone to be more timely, but these are the signals I'm waiting on to fill out shorts, the rest of what I need to see is already there, I think the failure of USD/JPY which was bound to happen as it was only loitering (which is to say that the asset breaks support and then rallies back up to it or slightly above it to clear out shorts, loiters there for a short time before resuming the original trend lower and making a lower low) is a significant event for the market this week.

 IWM 3 min trend, specifically the distribution this week in a flat range.

IWM 10 min since the bear flag area of mid-May

QQQ 1 min with the same distribution on the open. This is really the last holdout on a 5 min chart of Index futures, all other timeframes are negative from 5-60 in NQ, ES and TF.

QQQ 10 min trend, especially this week, leading negative at a new low.

QQQ 15 min leading negative at a new low and doing it in the last 2.5 days.