Interesting Market Update

Market action and 3C signals as well as numerous other indications I've posted over the last 24 hours seem to show that our original forecast from Friday in the "Week Ahead" post saw a temporary F_E_D Knee Jerk reaction/interruption which I always warn about and you can see why now as well as parabolic moves, but otherwise, it looks like it is on track for the base widening near last week's lows as originally forecast for about this time, mid-week, specifically Wednesday although the minutes were a wild card.


Soon I may take the short positions I've been holding (I'm more referring to my own personal portfolio right now as it is easier to describe tactical movements in a real portfolio rather than a tracking list of over a hundred stocks) since re-entering them on Oct. 3rd and move to cash and wait out a new entry for swing trade purposes.

For longer term trend trade purposes, I'd probably wait to see what the base looks like, if it develops and decide what action to take whether cutting some exposure or hedging.

As far as long term core shorts like SCTY, NFLX, HLF and the like, as long as there's nothing drastically wrong with them, I'd leave them in place and use the leveraged ETFs to trade around signals.

Here are some interesting charts, they must be taken in context of all of our indicators and evidence.

First Index Futures...

Risk remains to the downside, but the move today in the averages has nearly wiped out all of yesterday's gains.

Yesterday's parabolic move up came with the warning that they tend to end just as spectacularly as the begin and we can see that's the case today.

As for Index futures which are still calling on negative downside, although at a reduced pace...

 ES 7 min still leading negative, this will have to be positive before any long positions for swing trades are considered.

NASDAQ 100 futures 7 min look similar, still suggesting additional downside risks.

And TF/Russell 2000 futures still leading negative,  but close to reverting to 3C confirmation.

A look at the 5 min charts which move faster and get signals first shows the trend on the downside is losing some steam, although I'm not convinced it's over.

ES 5 min is closer to reverting to 3C's leading negative divegrence.

NQ/NASDAQ 100 futures are similar, but look a bit worse, perhaps more downside.

And Russell 2000 (TF) futures are about reverted to the mean, but still negative on the 7 min chart.

The reason I'd move to cash at the right time is to protect gains in these shorts, SQQQ/ SRTY which have been significant performers for me since re-entering them Friday.

I would not call that a long trade endorsement, more locking in gains and waiting for confirmation, but I'm not quite at that point.

As for the 3C signals in the market averages...

 SPY 1 min intraday is still in line, this is important because any new positive divegrence will likely show up on the 1-2 minute charts first, giving us our first clues that the downside momentum is falling off.

 IWM 1 min has a minor positive divegrence which may be the first sign of accumulation of a larger base, although this is typically done in to flat or lower prices, so it's not of immediate concern for my 3x short IWM ETF, SRTY.

 The signal in the IWM is minor because it is not yet strong enough to migrate to the next timeframe at 2 mins, thus it's interesting, but not actionable.

And the QQQ 2 min looks like it too has more downside as the Index futures suggest.

The TICK chart's intraday breadth, like yesterday when they hiccuped and warned of trouble for the parabolic rally, also hiccuped this afternoon, probably close to the IWM 1 min positive divergence.

 The intraday NYSE TICK Index is one of the most powerful, yet simple tools to use, as long as you can draw trendlines and get use to what are extreme levels and what are not,  you can get early warning more often than not in changes in character, which ultimately lead to changes in trend, this is like advanced long range radar giving you an early heads up and there's no reason you shouldn't be using it no matter what your trading style.

The Custom TICK trend also shows that little bump intraday today.

However, things get much more interesting and I haven't even made it over to my full Leading Indicator layout yet.

Recall the Index futures' 30 min chart and that being part of the basis of my belief that we create a wider, stronger base? Well take a look at our newest custom indicator, the SPX/RUT Ratio...

 The Indicator on a 5 min basis is still calling for lower prices and the SPX is not confirmed here, this move lower, if it materializes would put the SPX right in the forecasted head fake zone, the area I'd expect most base building to be done so this taken with 3C divergences in the averages and Index futures still have me holding shorts until I have a clear reason not to.

 The closer view from yesterday's parabolic move that was unconfirmed by the indicator shows some intraday softness allowing price to slow its decent, this is the area I'd expect to start seeing accumulation, although  as already mentioned, accumulation is most often seen in to lower or flat ranging prices.

 HERE'S WHERE IT GETS INTERESTING... 

Add my Custom VIX Inversion indicator and you can see a red bar meaning VIX has inverted, which is the first buy signal we have seen in the indicator since introducing it, although they tend to be a bit early.

Here's a longer term 60 min chart with the VIX Inversion indicator and it shows a minor buy signal to the far left, but larger than today's and you can see the bounce off pivot lows, however the large buy signal was at the August lows when we had positive divergences for a week at the August cycle's stage 1 base, that led to quite a move. I anticipate something in between the two.

So once again, I try to anchor expectations in advance because as they say in boxing, "Everyone has a fight plan until the first punch is thrown". Often people get fearful when they hear bounce (if they are short), but it is not a change of the highest probability outcome which is solidly locked in, it's just part of a natural process that gets more volatile the closer we are to a top and in the IWM's situation, it has officially broken below it's 2014 top.

So we want to be able to trade the upside swing if it is safe enough, but we definitely want to short in to price strength and this is where people lose their nerve, while it may make sense now as the market looks very bearish, on a bounce that is designed to be convincingly bullish, they tend to lose their nerve and use the gift they've been given in the form of higher prices to enter better positions at lower risk, this is why I try to set expectations BEFORE we reach that point.

Emotion is a fickle thing, going in to yesterday the Fear/Greed Index was at a bearish extreme of 4 on a scale of 0-100 with 0 being the most bearish and suddenly we have a huge move up, I'm sure sentiment was 94 today until prices fell, emotions are lagging indicators and often great contrarian indicators.