Important Market Update

The last market update I warned to watch for lateral (sideways) price movement and that would very likely indicate positive divergences building,

well both have happened since my last market update, more so in the IWM and QQQ than the SPY and DIA, but there has been a lot of market dispersion with one index moving over 1% (like the Russell 2000) and others barely moving at all, or even closing the opposite direction.

None of this is strange or indicative of any special market strength, this is normal market behavior and it is very useful for entering and exiting positions as well as short term trades.

I'm trying to figure out what I want to do with it and before I can decide that, I'll likely need a little more information like the size of the final base/accumulation area, the strength of the divergences, leading indicators, what treasuries, FX breadth indicators, etc are doing.

I'll almost certainly enter some kind of short term call (long trade), maybe in weekly options. I doubt I'll move any short positions as the major underlying trend still favors trading the short side.

Breadth wise...

 intraday breadth has clearly improved and is trending, but not at extremes, still topping in the +750 area.

My custom TICK/SPY indicator shows the change in breadth here.

As for the averages themselves...

 QQQ 1 min intraday shows a clear transition to a much cleaner positive divegrence than what we saw yesterday.

There's migration of the divergence to the 2 min chart so it's moving along at a fairly fast pace, I have to wonder if this has to do with the 2 p.m. release of the F_O_M_C minutes tomorrow.

The 3 min chart is even seeing a divegrence strong enough to migrate to this chart in a few hours today

The 5 min chart is "nearly" in line, not much of a divergence there, but I suspect this will change before the day is over.

IWM 1 min also very clear and...

perhaps giving us a hint that this bowl shaped intraday bottom may turn down to form a larger "W" type base which would give the base a greater ability to sustain a longer move. How long in duration? I can't say, I'd guess if it was a full "W" maybe a day and then a day of reversal process, but the minutes could be a fundamental game changer as they "shouldn't" be discounted, but as we all saw, the F_E_D itself leaked the minutes about a year ago to 154 of the largest institutional and private equity firms via email almost 2 days ahead of the release. 

Why would the F_E_D have a mailing list for distribution of a release that is suppose to come out for all investors to see at the same time? Why would they send it to 154 of the biggest firms? The same firms that are likely the ones behind the record window dressing via the F_E_D 1-day reverse repo in which they borrow collateral which the F_E_D buys back the next day and they do this on the last day of not only the quarter, but the second highest amount ever was the end of the month just this past April, telling us the banks are in much worse shape than they want investors or regulators (who happen to be the F_E_D who loaned them the collateral in the first place) to know despite the fact the F_E_D is the banks' regulator.

ANYONE WONDER WHY I SAY QE AND THE LAST 5 YEARS HAVE BEEN NOTHING MORE THAN A STEALTH BANK BAILOUT SO THE PUBLIC WOULDN'T BE OUTRAGED LIKE THEY WERE WITH AIG AND GM?

 The 2 min IWM show migration of a healthier divegrence (positive)

As does the 3 min chart

And,  even the 5 min chart for the IWM!

If I were to buy some weekly calls, it would likely be in the IWM or if I were to trade this using leveraged ETFS, URTY (3x long the IWM) would be a good choice.

This however, is the 5 min IWM chart within context of the recent trend, so the divergence is not something that is overwhelming, a big deal, a sea-change in character, it's garden variety bounce you'd expect to see after the last 2-days , actually 3 as the IWM didn't perform after 11 a.m. last Thursday.

 This is the 2 min SPY, that's about as far as the divergence here goes.

The 3 min chart, not horrible, but not a clear positive divegrence like the Q's/IWM

The DIA may be worse, the 1 min chart positive divegrence today, but after that, no migration.

The 2 min chart is in line.

I'm going to keep looking for hints and decide if I want to play a call position for a bounce or not and if there's anything else that I can learn from the charts.

As for the Most Shorted Index, there's no squeeze or anything as of now...

 intraday vs the Russell 3000.

And the longer term MSI, as shown earlier, has seen the worst 1-day performance in 3 months yesterday, today is not looking much better.

The USD/JPY is moving in similar fashion, but in this situation, it's a "Chicken or the Egg?", it's unclear as to whether the USD/JPY is helping the market move sideways or just following it via arbitrage.

More to come....