Market Update

I'll have a long term GM Trade-Srt-Up coming out in a bit for you, this looks interesting for longer term trend traders.

As for the market, it's putting in the work for a short term divergence (positive) along the lines of last Friday's "Week Ahead" post and the EOD market update post, a short term bounce based on an extremely oversold market and I'm not talking about price or indicators, I'm purely looking at breadth which has been spot on.

In any case, as assumed earlier today, I don't expect much action today, mostly lateral (sideways) chop which is the base that this oversold bounce can move up from. I'm not talking about the kind of oversold bounce that created the August cycle and rally, but this is also bigger than last Tuesday's oversold readings leading to last Wednesday's 1-day oversold bounce. As I said earlier, "maybe" it could be the head fake move I generally look for, but only because HYG is there, the market itself doesn't have enough to get off its back without HYG.

I know some of you would like to put in some day trades or very short term call option positions, I don't think we are at the point in which that will make a whole lot of sense yet and I'll show you why.

 This is the 1 min SPY, not a strong chart at all, the weakest in fact, but all new divergences have to start somewhere and we can see today specifically there's some positive activity with a leading positive divegrence at the lateral range.

 If the divergence is strong enough, it will migrate to longer timeframes, like this 2 min chart, still a very weak signal, but it's building for the kind of support the market would need to pull off the kind of oversold bounce talked about Friday.

 At the 3 min chart the 3C and price downside are confirming each other, but today we see a break with a new higher high in 3C on a 3 min chart so there's migration or  of the divegrence, again nothing like early August with a 7 day base and strong divegrence, but along the lines of what would be expected from Friday's analysis.

 The Q's don't have a huge divergence, but they are working with a positive now out to the 3 min chart and notice price pulling back, they'll try to accumulate at the lowest range and that's why I wouldn't put in any long short term trades yet because there's a good chance they have to run this a bit lower to hit new stops and create more supply to accumulate.

The IWM is also at about 3 mins so there's confirmation in the major averages, there all at about the same place as they work toward a base large enough to support an oversold bounce,  but in my opinion, there's always a reason for doing what they do, it's not just oversold because who cares? An oversold or overbought market can stay that way for a long time, this is strategic and tactical planning. The bounce has to achieve something to be worthwhile, they don't run random bounces or head fake moves, they are all meant to achieve something and usually it's the opposite of what you might expect by looking at price action alone.

 In this case, whether or not the head fake area, "Igloo with a Chimney" can be hit is debatable, although the head fake move before a reversal (downside in this case) is seen almost 80% of the time, it's still a pretty tall order, but with a F_E_D knee jerk reaction, who knows, it's certainly possible.

I do see this channel which technical traders will have already drawn trendlines on, as the minimum upside target. To get bulls to move at this point a technical barrier has to be broken and it's right around $200 or SPX $2000, both psychological magnets. I suspect that's where our bounce is headed to.

However look at where price is in the channel relative to the lower channel...it hasn't quite hit that area so a move a bit lower tagging some more stops or bringing in some more shorts will create the kind of supply they need to accumulate enough to move the market.

I'd also use a break above this channel as a minimum target and timing element for a downside reversal, the upper target would be the head fake move or a new high above the rounding top of the last several weeks. Either one is likely to be a downside pivot as breadth is so destroyed, you can buy all the HYG in the world and it's not coming back. I'll have some stats on that later as pretty close to a majority of stocks are in a bear market already.

Watch the intraday NYSE TICK chart for early signs of a trend reversal intraday for the market, like a break below the channel, which is starting to build so I'd expect the SPY to come down soon from current levels.

As for the Most Shorted Index, it tried to help late Friday, no squeeze and today is underperforming.

 MSI vs SPX, tried late Friday, no squeeze and underperforming today.

HYG however has seen some repair today. After 9 days of trending lower, the last 4 days across (lateral) are not a mistake, not by chance or coincidence. Note the repair in the 3 min 3C chart. Still not a strong divergence on timeframes, but a pretty decent size as far as time so this is the main market support.

I'm not CRAZY about any short term longs/day trade longs, but if the set-up is there, I'll post it. You have to remember you are trading against probabilities in that case and they should be short term and considered VERY speculative. The safest, most effective trade set-up is using any price upside to short in to as we have a lot of trade set up targets/posts already out there. I'm going to add GM shortly.