Market Update

I was going to put a macro market update to show the concepts on a large scale and how they work on a smaller scale as well, but I think it will take too long and I think the macro update is a post worth bookmarking and coming back to as these concepts are fractal, meaning you can use them as a long term investor, as a swing trader or as a day trader, so I'll try to get that post up separately.

As for the market update here and now, I can't make 3 or 4 days worth of information which led to today (and yesterday's) actions, but just remember it's not just the 3C charts of the averages, it's not just the concept of multiple timeframe analysis or multiple asset confirmation, it's the nature of the instability of the base leading to the last several days gains, the overall size of accumulation in to that base, Leading indicators, High Yield Credit distribution, VIX futures accumulation, our newer custom SPX/RUT Ratio and VIX term structure, the overbought condition (not in price, but market breadth/internals as overbought/oversold price means nothing) so just keep in mind it's not any one Holy Grail, it's doing the work, digging up the objective analysis, the clues and putting a composite picture/forecast together.

I obviously can't show every asset in every timeframe as well as the confirming assets for instance, for QQQ I'll look at the Q's, the 2x long and short ETFs QLD and QID and the 3x long and short ETFs TQQQ and SQQQ as well as AAPL as it has so much influence on the NASDAQ 100 and XLK/Technology as it has so much representation on the NASDAQ 100 and the leveraged Tech ETFs like TECL and TECS, all of that goes in to my decision to enter a position as well as comparing the other averages and their timeframes and confirming assets. Then, it's a matter of choosing the right asset for current conditions and expected conditions whether that be potions, a straight asset trade or a leveraged asset ETF.

So here we go...

 This trendline drawn on the SPY 5 min chart of the last several days gains could be a tricky spot, perhaps even while I'm writing this as it's an obvious technical level and we know that obvious areas that draw attention of technical traders often get gamed.

This is why I mentioned the possibility of a move above the rounding top today which would set up a nice Options/Put play in to the price strength.

The thinking goes like this, we know what retail sentiment has been, the "Buy the Dip/The F_E_D has our back" sentiment is gone as we saw with the Fear/Greed Index pinned at zero (0-100 with "0" being the most bearish and 100 the most bullish). You know how big the positive divegrence in the averages is, nearly the entire month so it's my working theory that Wall St. needs t change that sentiment and get retail bullish again as you can't have everyone on the same side of the trade and make money in a zero sum game.

We know from our sources following retail sentiment that they've been looking for the SPX to break the 200 day moving average on the upside to enter shorts so they are still massively bearish and still on the wrong side of the trade for Wall St.'s liking, which is why I suspect we'll see a face-ripping rally even bigger than what we've already seen that will change sentiment among retail to bullish which is what I warned about last week before this move even started.

However, first we have a very unstable "V" shaped reversal event to deal with rather than a broader reversal process, meaning that "V" shaped base can't hold a solid rally, it's too unstable so the pullback I'm looking at now, I expect will be building out a wider "W" shaped base or a reversal process rather than the "V" shaped reversal event.

On an intraday basis (remember I captured these charts about 30 mins ago), we can see the diaganol uptrend line from the recent move up being broken and the near term support at the green arrow being broken, volume swells at the break of support (yellow arrows).

Retail chases price, they call it "confirmation", it's a dangerous game as any new retail shorts entering where volume lifted (yellow arrows) will place their Buy to Cover short stops just above the horizontal trednline. Many will lace those stops with their brokers so they are visible to the sharks on Wall St., although you can predict where the stops will be just based on technical trader's predictability and belief that support and resistance are exact levels rather than areas.

This opens up an opportunity to do the following...

Today's rounding top is not the typical reversal rounding top that looks like an "Igloo with a chimney on the right side", that chimney is the head fake move above the rounding top, a failed breakout that technical traders will chase, it's also one of our best entry points as long as we confirm distribution in to the move as it gives us a better price / entry with less risk and the head fake move which is seen about 80% of the time, tends to directly precede the reversal (in this case to the downside).

Initial new retail shorts using the break of the trendline as a trigger to enter short will place stops just above the same trendline so all that's needed is a small move above that same trendline and even a break to a new intraday high above the rounding top to get shorts to not only cover, but to get some to go long and as price comes back down, they'll be stopped out as well. 

"From a failed move comes a fast reversal".

Again, this is an ideal area to enter a put position as the premium is at a discount on the move higher and we have the proof that it is being sold in to which gives us the objective evidence to enter the put position and back down we go as the 3C charts suggest. I can't say this will happen as it's not a hugely noticeable technical feature, but the more apparent to technical traders, the more likely it is to occur.


The 3C charts...

 This is SPY 1 min with a very sharp leading negative divergence, this is more of a timing timeframe than anything at this point and it is telling us that this is decent timing to enter the short positions whether puts, short SPY or using leveraged ETFs.

 SPY 3 min shows the migration of the divergence to longer timeframes meaning it has grown in strength, more distribution.

And the SPY 5 min chart showing a relative negative divegrence first and then the stronger leading negative divegrence as it continues to see distribution near term, now leading at a new low.

Still, this base area is no joke and while I don't like the "V" shaped reversal to the upside above, a pullback (which is what I'm playing for now) would create a more stable "W" base, capable of supporting a larger move and the positive divergence for that move is already there, it started Oct. 2nd o it's sizable.

I can't say that this divergence won't dissipate as we see lower prices, I'm just not considering that as a high probability,  luckily we can check as the move unfolds.

Financials...

While XLF/Financials is the main S&P sector and it's useful, the leveraged and inverse leveraged ETFs are also very useful. While the ETFs are meant to track (typically 1-day) performance of the underlying (XLF), the volume can be very different and this is what 3C tracks, it's not just the price otherwise looking at multiple ETFs all tracking the same underlying would be useless, but volume indicates demand and lack of it so each of these ETFS is capable of giving different signals and sometimes we see that as we did with GDX/NUGT/DUSt over the summer, causing us to wait out most of that flat range that we didn't want to be involved in any way.

 FAZ-3x SHORT Financials is one of my favorite ETFs to trade. Note at the market bottom around the 15th, the inverse FAZ is showing a top as it should as it is the mirror opposite of XLF. However, this 5 min chart (which is the first or earliest timeframe in which we see intraday institutional activity) is leading positive, a lot of it today, you can probably see why I didn't chose this yesterday as it wasn't quite there and went with SQQQ (3x short QQQ) instead.

 This is a 1 min intraday chart of FAS, not to be confused with FAZ. FAS is the 3x long Financials ETF, the opposite of FAZ and using the 1 min timeframe for intraday steering divergences as well as timing divergences, we see a HUGE leading negative divegrence. While FAZ's 5 min chart is telling us that there's distribution in Financials or giving us more of a strategic view, FAS's 1 min chart is giving us a great timing indication of when the distribution turns to outright decline so both ETF's , although directly opposite  each other and on very different timeframes, actually work together to give us a larger picture view of the direction we want to trade in and the shorter term view as to when we should be looking at an actual entry.

QQQ-NASDAQ 100 ETF...

 As you know, yesterday I entered a 3x NDX/QQQ short with SQQQ, Trade Idea (Speculative Short Term 3x ETF) SQQQ Long

The 5 min QQQ chart is leading negative, remember the 5 min chart's intraday signals are the first or fastest timeframe we can observe institutional activity. We can do the same with 1-3 min charts, but more on a trend basis that intraday.

 Interestingly and this didn't exist yesterday, the 10 min QQQ chart has a leading negative divegrence in it so what I thought would hold at a 5 min negative has shown more distribution and moved to a 10 min chart which is a big deal. Also note the accumulation at the "V" bottom sending the Q's higher.

At minimum I expect the market to pullback to the base area and widen it out, there's a high probability of a head fake move to clear out stops and draw in new shorts below that base area,  who will later be squeezed to create upside momentum. As always, we confirm our forecasts as we go.

SQQQ, 3x Short QQQ is the actual long entered yesterday. Remember this ETF is the mirror opposite of the Q's so the negative divegrence at its highs is where the Q's saw a positive divegrence at their lows. Now we have a strong leading positive SQQQ divergence coupled with a strong QQQ leading negative divegrence, CONFIRMATION.

IWM...

 Here we see the IWM which is the only average that didn't take off on a "V" shaped base, but rather something a bit larger. It's also the main average that has been propelled by short squeeze activity.

Note the positive divergence at the base and the 3 min leading negative in to yesterday and even more today, this is a good timing signal for me to enter the position before it loses too much ground as we did.

UWM is a 2x long IWM ETF, it's 3 min chart is confirming IWM's with a deep leading negative divegrence.

Interestingly the TWM  (2x short IWM ETF) has a strong 10 min leading positive divegrence as mentioned earlier. I didn't see any of these yesterday so the charts are seeing negative/distribution migration to stronger timeframes which is good for our short positions in these assets.
10 min .

While I believe there's more than enough accumulation to take the market higher, it's the "V" shaped base I believed would fail soon and need to be widened out, that appears to be what's happening.

And URTY, 3x long IWM with a positive divegrence at the base and a negative divegrence now,  note this is a 15 min chart making this one of the strongest negative divergences right now.

We'll have to keep an eye on price as it moves lower, perhaps there will be no base extension and we simply move to a lower low although I'm not ready to assign that as a probability, but we are seeing timeframe I didn't expect to go negative, even on a deep pullback, going negative.

And this is why I'm in SQQQ, SRTY and FAZ long, net short the market