Basic Market Update

The price pattern since Friday has been that of something like a small H&S top which is a change in character, here's another. Just a week or so ago there were divergences in the IWM (really not that strong or impressive) that on a relative basis (relative to the other averages) looked like the IWM was going to see some outperformance or better performance relative to the other averages, last week the Russell 2000 had its best week of 2014. However this brings us to the Rate of Change concept and how it often increases on the upside just before a top, lateral trading zone or reversal.

This is what has happened to the IWM's ROC or performance since Friday using a simple ROC of price.

On this 10 min chart the green is the IWM with its strong move and orange is ROC of the IWM's price, note as it moves to the area of this mini H&S looking pattern the ROC has fallen off dramatically, this too is a change in character, from a breakout move in most averages (which has seen strong negative 3C signals) to a lateral move which is commonly the "Reversal Process", recall we exited MCP the day after filling out the equity long and buying calls as the reversal area was a "V" shaped event rather than a process, thus I figured it wouldn't hold and it didn't, not to say it won't , but that's another update. The point is the reversal process is seen 90% of the time I'd guess, there are very few straight up and straight down "V" reversals unless it's a clear parabolic move, but even they typically have a small reversal process.

Right now I'd say the SPY probably looks the best as far as underlying trade, I mentioned a 1 min positive at the lows yesterday just before 2:30 and there was another on 1 and 2 min charts around the 10:30 reaction lows today. I don't think this is anything more than the continued chop of a reversal process as the trend is largely lateral or a range.

 SPY 1 min yesterday and this morning, essentially it seems to be holding the neckline area (if this were a true H&S formation).

Here it is on a 2 min chart so the possibility for some volatility in price is there on an intraday basis.

However, the damage that is being done in this area on a shorter term (as the strategic damage is already there, this was also confirmed by BofAML in the recent charts they provided showing institutional money as net sellers Year to date and especially recently- above SPX range/1900).

 3 min SPY from in line to leading negative.


migration to the 5 min from in line to leading negative.

 SPY 10 min relative to the multi-moth range's resistance trendline, the amount of damage done here and the amount of time it occurred in is what is impressive.

 15 min SPY, not only relative negative, but leading negative and the leading damage was very fast, near to a vertical drop.

 The strategic trend as confirmed by BofAML, the leading negative ROC as price moved above the range is notable and makes this a VERY high probability head fake, the type would be a bull trap as pros hand off shares to weak retail hands.

And the trend that I saw on another chart that looked so familiar even though it was a totally different "Smart Money" indicator. This is the strategic trend, the flow of what smart money has been doing, the move above the range sees a very bad leading negative divegrence, this too gives me VERY high confidence this will end up as a failed breakout, but before retail catches on, as they buy the dips, they'll be solidly locked in to a bull trap which provides the downside momentum on a fear based decline.