SPY Full Update

I was going to just give the intraday-local- update, but I think it's essential to plan ahead and to do that you have to have an idea of what's ahead and I know most of you have seen these charts forward and back, but it's worth remembering what we are up against to motivate and get us taking things seriously as market activity like this week's consolidation (probably base) can lull us in to complacency.

The daily SPY chart shows a bearish Ascending Wedge, I do not consider this the best measure or price pattern of the market considering underlying trade, breadth, credit, etc, I consider the Russell 2000 much more appropriate and more in line with when breadth , credit, 3C charts, etc. all really declined and the R2K is in the late stages of a H&S top, already past the right shoulder's top and heading toward the neckline which will put us in a bear market regardless of the financial media's definition.

Typically a price pattern like this breaks to the downside before reaching the apex of the wedge, however in recent years we've observed these being head fakes like every other major price pattern, typically a break below the wedge attracting new shorts and shaking out weak longs and then a run up and over the wedge (yellow) on a head fake move that forces shorts to cover and sends longs in to a "New High" buying frenzy. This sets up a large bull trap before price moves to a new lower low as a failed breakout results in a fast and powerful reversal.

RSI is divergent here for those who like more traditional indicators and volume is up on the break of the wedge.

I can't say the market has the ability to make a move above the wedge as every one of the last few bounces we have seen since July 1st have shown exceedingly weak tone; this is more the type of move we would have seen 3 months ago, I just don't know if the market can hold together such a move, but if there's any chance of it, I suspect it will come off this week's consolidation/base.

 The 10 min intermediate SPY chart shows a clear distribution process at recent highs and a smaller, but still respectable positive divergence over the last week, the bigger the base, the more of an upside move it can support.

The SPY is the only average that has a positive divegrence all the way out to the 60 min chart, as weak as it is, it's still there.

Once intermediate charts are in place we look to shorter timeframes for timing. The 1 min has shown recent positives , yesterday especially for the SPY.

 The 2 min shows the same as well as positive divergences at each of the pivot lows in the range.

There's very little distribution/negative divergences on this chart during the consolidation area which puts probabilities in the corner of this being a short term base for the market to bounce from as we expected last Friday moving in to this week.

The 3 min chart has less detail than the other two, but a cleaner trend, it is clearly in a relative positive divergence.

The 5 min chart is starting to bridge the gap between the intermediate 10 min positive and the intraday timeframes, this chart showing a strong positive divegrence would usually be taken as a timing signal for a move to begin.

However, don't forget the big picture as represented on this 4 hour chart, this kind of damage can't be undone in a week or even a month of positive divergences, this is some of the worst on record for the SPy/SPX.

Speaking of which...

 Here's the SPX/3C going back to 2000. It's amazing how large these former divergences were before our current one that dwarfs them. You can see the 200 top, the 2002/2003 bottom, in line on the 2003-2007 rally, the 2007 top and the first negative after QE ended and no new program was announced until Jackson Hole in 2011 and the divegrence since then. Also note the near straight line march in price, this is VERY unusual for any market, this looks like a short covering event, but this is a 5-day chart. If you look at the F_E_D balance sheet expansion over the period it has strong correlation with the market's movement, The current leading negative divegrence is the largest by far, just like the current Dow's negative divegrence is worse than 1929.

 My Trend Channel set to 6-days has held the 2013/2014 rally without a single stop out, currently the Trend Channel stop is $191, about a point from where we are now.

Also note the long term RSI divergence at the bottom.

The Trend Channel set to 3-days to capture more recent tone of the market has held almost all of 2014 with the exception of early 2014 weakness. This Channel has already called a stop out which if I were a long term investor, I'd have taken and moved to cash or some other safe haven instrument, I would not be long the market any more in any way. Also note the RSI divergence and how sharp it is for July/August.

In my view, short term bounces (if they have signals that are able to stand on their own legs) can be piggy-backed, but it should be understood what they are and what they will not become,  the bigger picture is to use those moves to exit longs or enter shorts. For most position we have already put in place as core short positions, I'm taking a hands off approach. Like Jesse Livermore said, "Don't give me timing, give me time" which is along the lines of his recollection that many traders were right, it wasn't being right that made him the big money, it was "sitting", going on to say a trader that can be right and sit tight is a rare thing.