Today...
"That means for a head fake move to be effective and worth running, it has to achieve a goal which is usually sentiment related. A higher high is what forms the chimney above the rounding top (Igloo), so when price moves enough to be convincing to traders to abandon short positions and go long, it has done its job, that's what I'm looking for....
Again, these moves have a purpose and function, there's no point in running them if they aren't effective, so when it feels a bit scary to be thinking about entering a put/short, that's when they're doing their job."
Today we got what we were looking for yesterday, all based on the experience of seeing it so many times it has become a concept.
Technical Analysis just doesn't work like this anymore and I have copies of books like "Technical Analysis of Stock Trends" by Edwards and McGee that are nearly 50 years old, teaching the same things that TA teaches today, Wall Street caught on a long time ago.
Take this SPY BEARISH Ascending Wedge which we have been taught should come to an apex between the two converging trendlines and then break below and retrace the base, well below the April lows, yet that's not what these price patterns have done for years. Sure, the initial break lures traders in as they see what they expect to see and perhaps enter short as TA teaches only to see their stops which are placed at the top of the apex, overrun by a volatility shakeout. TA also teaches that if you have a failed trade in one direction, you should reverse course so in this instance after being stopped out on a short you "should" according to Technical Dogma, go long and as you can see, this was the August cycle which eventually made a stage 3 Igloo/Chimney head fake top and a new lower low so technical traders would have been stopped out a second time.
Wall St. knows how Technical Traders think which will bring me to another point about news in a moment.
I captured this chart yesterday as well, meant to be part of the post I never got to. I was in FAZ (3x short XLF) when we were in the middle of the range, I had a half size position and wanted to fill it out above the range at better prices and lower risk, but that move never came, instead a break below the range came at #3 and I exited FAZ long on the first day we broke below the range even though that was putting my position at a gain. Why did I do that? Because between the concepts and 3C I knew it was a head fake move that would not move lower, it was meant to suk in shorts and then use a short squeeze to move XLF above the range, something they couldn't do inside the range without buying a lot of XLF which they were trying to sell so they used momentum and technical concepts against traders to get it done.
I did add the FAZ position back, but only once it was above the range at #4 and #5. #6 was stage 4 decline, #7 was a break of a technical level that would bring in retail shorts so it was time to exit again at #7 and shortly after we posted the FAS (3x long financials) on Oct. 14th, Trade Ideas: (Swing+) UPRO / FAS Long because it was clear they'd again, use technical traders' predictability against them and run XLF up which they did at #8.
THAT'S HOW PREDICTABLE RETAIL TRADERS CAN BE AND THUS HOW PREDICTABLE WALL STREET'S REACTION CAN BE.
The event that sent futures higher overnight and in to today's open was the MARKIT European Flash PMI/Composite PMI headline beat which almost seemed to be a goal sought number to get the move we were looking for today. No one who has seen the entire PMI report can understand how the Flash PMI came in at a beat, not even Markit's own Chris Williamson who said,
“The Eurozone PMI rose in October but anyone just watching the headline number misses the darker picture painted by the survey’s other indices, which show the region teetering on the verge of another downturn.
“Growth of new orders slowed closer to stagnation and backlogs of work fell at a faster rate, causing employment to be cut for the first time in nearly a year.
“Business confidence in the service sector also slid to the lowest for over a year and prices charged fell at the fastest rate since the height of the global financial crisis, adding to an increasingly downbeat assessment of business conditions.
“While the survey suggests the euro area has so far avoided a slide back into recession this year, a renewed downturn cannot be ruled out. Growth is so anaemic that increasing numbers of companies are being forced into laying off staff and slashing prices in an attempt to cut costs and boost sales through discounting"
Yet... Markit's PMI for Europe and China beat, sending futures higher at 3:30 a.m. today (EDT).
Today I was asked if I thought the New York Ebola story contributed to the decline in the afternoon. All I can say is the market was weak as of yesterday, add more gains on to such an unstable base and nearly anything "could" topple it.
However, I've seen so many events I'd think should move assets that didn't like the Arab Spring which I thought should move oil, but it didn't or the Syrian conflict which put us at odds with Russia, but it didn't move the market or the recent Ukraine situation, but it didn't appreciably move the market, then... I saw this chart specifically on Ebola and the market correlation yesterday.
While it was correctly pointed out that correlation is not necessarily causation, the chart above is a bit strange, but if we take this with a grain of slat, then the market should have rallied on the Ebola story out of NY as the above chart shows, the more stories, the higher the market.
I THINK THRE ARE MUCH REATER, UNSEEN FORCES AT WORK THAT USE NEWS WHEN ITS CONVENIENT TO COVER UP WHAT THEY ARE DOING.
Like many of you I started with fundamental Analysis and quickly realized that if your information is garbage, your analysis will be garbage and all we have to do is look at the Financial sectors use of the F_E_D's 1-day Reverse Repo facility as it sets new record usage on the last day of the quarter only, essentially allowing banks to hide huge collateral shortfalls nearish a half a trillion dollars and they facilitator hellping them hide it with a 1-day loan of collateral on the last day of the quarter is the very same entity that acts as the banlks' regulator, the F_E_D so Fundamental Analysis is a no go.
We know Technical Analysis is used against traders, although there's some use, but the concepts that have worked above are all Mass Psychology, a 3rd form of market analysis that few know anything about, but what is the market if it's not a huge living, emotional organism that is led around by the nose via its own emotions and sentiment?
This is why I said what I said today about the usefulness of a head fake move,
"so when it feels a bit scary to be thinking about entering a put/short, that's when they're doing their job."
While there's obviously no correlation with Ebola stories and lower stock prices, if anything higher, the one correlation we have seen a lot of lately is quote traffic/cancelled orders as NANEX has been pointing out for weeks so these tweets from NANEX seem to be more likely to me than the Ebola story and don't forget, we already had significant distribution yesterday when we entered the first positions short...
This is a correlation we have seen nearly a dozen times, high quote traffic and cancelled orders leading to lower prices, now look at the E-Mini contract during this period this afternoon...
Again from NANEX, the E-mini SPX contract losing ground as the high quote traffic comes through just as we saw last week and the week prior.
In addition to 3C distribution, we know HYG is used to lead the market, which is why this post from earlier in the week showing HYG under heavy distribution was important to events later in the week, HYG Support Giving Out
For instance....
HYG intraday selling off even harder...
Ebola? Was this story out 3 days ago, because HYG distribution sure was.
Yields also continue to lead the market lower as do commodities, something we have been tracking most of the week and then there's simply this....
SPY distribution well in advance of the Ebola story...
As for the Dominant Price/Volume Relationship, it was dominant in all of the major averages with 21 of the Dow 30, 71 of the NASDAQ 100, 911 of the Russell 2000 and 298 of the S&P-500 of 4 possible relationships, all 4 were Close Up/Volume Down, the most bearish of the 4 possibilities and a relationship that usually sees a close lower the next day.
Of the 9 S&P sectors, 7 of 9 closed green with Industrials leading at +2.15% and Consumer Staples lagging at -.15%
Of the 238 Morningstar groups we track a whopping 209 closed green, we have a 1-day overbought scenario which usually leads to a close lower the next day although tomorrow is an op-ex max pain pin day, usually we don't see that pin released until 2 p.m. or so, but everything we see tells us this has been brewing, it's not a last minute Ebola story.
Don't forget that all of the major averages broke their uptrend line for this leg as well as the 2013 uptrend line and all of them stopped out on our trend channel set at 60 min (wide).
Finally, it has been my opinion that we have already topped, the Russell 2000 being the bellwether for the overall market. Looking at market breadth, I don't think you can make a bullish case or any case that doesn't end with significantly lower lows.
For example, the "Percentage of NYSE Stocks Trading Above Their 40-Day Moving Average"
or...
The NASDAQ Composite's Advance/Decline Line...
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