Since so many of our entries are near lows and highs (not because we are trying to catch a falling knife, but because that's typically where we find the best signals for tactical reasons that make sense if you put yourself in the position of a fund manager with large positions that are difficult to fill without moving price against yourself or attracting unwanted attention) I have to be very careful in what I put out as to not give anyone the wrong impression that progress is our destination.
This morning we've had progress in the turn to the downside which is what we've been looking for since the gap up yesterday a.m., the next thing we are looking for is the start of the reversal process of that pullback/decline, this is where 3C positive divergences "should" start to appear as smart money fills large positions in smaller blocks. The turn in price from down to lateral is one of the first signs we are starting the reversal process which is generally where we tend to enter positions.
We have some more progress on this update, although I want to stress that it is progress, it is not the final destination and
if it was, it is not one I would trade at this point, there just isn't enough evidence and confirmation of the strong divergences needed to enter a high probability/low risk trade, but it does appear to be progress.
The 1 min NYSE TICK Index (today starts at the vertical yellow line).
As I said earlier, the TICK breaking the channel would be an early "Head's up" warning that a change in character is underway.
The IWM 1 min chart did today what the averages couldn't do yesterday, that is to lock in a positive divegrence by pivoting to a higher high (from the white trendline off the initial positive divegrence.
Thus we already have some stronger underlying positive action which makes sense as they typically won't chase prices, but rather let them come to them which often results in more supply as well which they need.
This is just 1 divegrence and on a 1 min chart so this is a very early signal, not the destination I'm looking for.
A closer look at the same divergence in the IWM with no annotations.
The IWM 2 min is also putting in a relative (weaker form) positive divegrence and you can start to see price is turning more sideways now,
this doesn't mean the lows of the day are in as a reversal process is typically "U" shaped.
Even the IWM 3 min chart is putting in a relative positive divegrence vs yesterday's readings at 2 p.m. on both charts above.
The SPY 1 min is also putting in the start of a positive divegrence on the 1 min chart which is where we would expect to see any new divergence start and as it gains strength it should migrate out to longer timeframes.
The 2 min chart is still leading negative and for now that is the dominant signal , but there's a change in character to a more positive nature.
The Q's are still pretty much in line and haven't impressed me much yet, there seems to be an intraday bear flag forming and a move lower would still be probable for all of the averages.
QQQ 3 min has no change in character.
As mentioned yesterday as part of the probability of a continued pullback today, 5 year yields which we use as a leading indicator tend to pull prices toward them and as you can see they are below the SPY on a relative basis as compared to last week as they were more in line with price. Typically there's some short term reversion to the mean.
10 year yields also suggested lower prices today for the market/SPY, however they are starting to turn up a bit toward short term reversion to the mean which is another change in character.
As mentioned the last several days, HY Credit saw some small inflows last week which I believe are essentially the same kind of small, speculative piggy back trades we are looking at. HY credit leads price as you can see to the left as it negatively diverged with the SPX and resulted in the SPX falling out of the Ascending Wedge. Right now HY Credit is positively diverging not only on a daily basis, but essentially through the entire base area which is supportive for a market bounce to our second area of interest, the reversal process that takes place after a bounce from the base that has been built over the last week+.
I'd stay patient, but be aware that there are some significant changes starting already.
No comments:
Post a Comment