Market Update...Clean Breaking Flag?

First, as I always do, let me remind you of the F_E_D / F_O_M_C "Knee Jerk Effect", it's the initial move after the F_O_M_C announcement, it's strong and a knee jerk, but typically is wrong and is faded within a few hours to a few days. One of the best examples was when QE3 was announced, the first move was straight up until 2:24 p.m. that afternoon when Bernanke "hinted" on the same day they opened a new QE that the F_E_D just might be looking for the exit after this one. After that the market had hit its high and spent the next several months dropping 8%, it didn't recover those  September 13th, 2012 2:24 p.m. highs until mid January of 2013.
 The point is, the initial reaction of straight up, was the wrong reaction as is often the case with F_E_D inspired knee jerk moves, so don't be so quick to judge right after a policy announcement.

Now...

In the past we have seen numerous times how a popular, easily recognizable technical price pattern has been head faked at least once or sometimes twice with a Crazy Ivan (shaking out both sides of the price pattern), this is Wall St. using Technical Analysis against traders. The general directions from TA say if a price pattern like a bear flag doesn't break in the expected direction (down) and breaks up instead, to reverse your short and go long, this is the head fake move creating a bull trap as prices eventually resume down below the flag trapping the longs who are now 2 time losers, this same concept plays out on bullish patterns as well, really any recognizable technical price pattern because Technical Traders have been doing the same thing for over a century and Wall St. knows how they will react which makes Wall St's reaction somewhat predictable, almost always assume a head fake of such a price pattern.

For example, we have market wide bear flags except the 1 asset we picked for a long on Friday, the IWM.

 This is what I suspect and suspected we'd see in mid-May before it started, a head fake move proportional to the 3 month range in the SPX preceding it, back in mid-May I had said I couldn't see the market making a significant move down with out a head fake of such obvious resistance of the range and SPX 1900 level, soon after we found the mechanism by which the move was created, a bear flag that was head faked with a Crazy Ivan, trapping shorts and forcing a short squeeze until the breakout above SPX 1900 where traders took over by buying the breakout, this is also where we've seen massive deterioration and thus the high probability that this is a head fake move.

On Friday, June 6th for the Week Ahead post, I said I expected the upside momentum to fall off and for this move to start to resolve to the downside, we got a reversal process, the start of a move lower with the IWM down 5-days and then this bear flag. Normally I'd say this will be head faked to the upside (breakout) before returning to a path lower, there are several stocks that we were looking for the same action in to look at entering shorts, AAPL, BIDU, PCLN, IYT, NFLX, etc.

However, looking at this morning's data with yesterday's I'm not so sure and if there is a head fake, it may just be a perfect place to short if the charts stay like this or worsen as the longer term probability charts (strongest probability) are already massively negative. Also ironically, this "possible last" move before a F_E_D burst of the bubble is exceptionally well timed to the F_O_M_C, even consolidating on a flag to keep price in a distribution area right in to the F_O_M_C today. Of course there are some personal assumptions about what the F_O_M_C might say/do which are just my opinion.

 The SPY near perfect bear flag... this is a bearish consolidation / continuation pattern, but as you know they have a high rate of head fakes, still the initial price pattern often resolves as it was intended after the head fake, I'm just wondering if there will or can be a head fake given some of the charts...I'll be setting alerts for either possibility.


The QQQ bear flag...This one is sitting right on support right now.

 The DIA bear flag, also sitting right on support right now.

This morning's 3C charts, SPY intraday has deteriorated more as we saw in futures last night.

As has the longer 3 min which started as "in line" at the start of the flag.

And the mid-term 10 min never went positive, it is leading negative, on an intraday basis it was in line at best, but now shows a negative divegrence as well

The resolution of highest probability is here (other than daily and multi-day charts)...

SPY 4 hour, the first divergence early 2014 sent the SPX down over 7%, that's more than the gain this year, FEAR is STRONGER than greed. bThat led to late January/early February accumulation and the Feb rally off the lows, in to a 3-month range and then what I suspect was the head fake move above the range and SPX1900/SPY 190

 The IWM 1 min was in line as it should have been since our call position from Friday, but went negative yesterday prompting the IWM fade (PUT  position) yesterday.

 IWM 3 min, I'm not going to show a lot of these as I did already yesterday, but there's clear changes in near term character with the longer term charts in negative position.

The IWM 10 min since the Friday bounce is interesting and in my opinion, worth the Put position entered yesterday, Trade Idea: I'm going to Fade the IWM


 QQQ 1 min in the tail end of the flag...

 QQQ 10 min with a perfect example of a divergence.

 TICK has been VERY mellow on the upside at +500, but -1150 on the downside this morning, more stocks ticking down than up.

And my custom TICK indicator showing the trend, oddly it is deteriorating since about 2 pm yesterday, the same time I showed VIX accumulation starting, that's another post as I'm still interested in a VIX long considering all of the VIX shorts.

I have a lot to look at, we don't find them often, but we have found what were definitely at least 4 F_O_M_C leaks before the policy announcement around this time over the last 3 or 4 years, remember media outlets already have the policy decision just embargoed so they can go to print right after and sound like they know what they are talking about, I can't believe there's not a person in one of these outlets who hasn't been approached by Wall St. firms with a big pay day for an advance tip and that's what I'm looking for.

The point of the post though is if there is no head fake above the flag, we have another very significant change in market character and they lead to changes in market trends.