Important (Brief) Update

This has been a pretty frustrating market this week , threatening to bounce several times, yet losing the momentum with the QQQ and IWM returning toward the lows of Tuesday while the SPX and Dow have made lower lows.

Choppy markets are often difficult markets and I haven't put out any new short ideas because the signals were not there. I have found in retrospect when the signals are not there (such as we might have expected to see for short entries at the intraday highs of the last 2 days), it's often for the best as you'd be caught in a choppy range which is a meat grinder and the real move is yet to appear, the one we really want to enter new shorts in to.

After looking around pretty throughly this morning, I feel there's a high probability of that bounce the market has been threatening all week. The charts in the major averages are just one of the pieces of evidence, but not what I consider the best.

The three charts that pushed me to this post , expecting this bounce to finally happen are TLT which I just posted, a pullback in TLT and 30 year Treasuries sends yields higher and the market tends to be drawn to yields like a magnet. The second is HYG, although it's in horrible shape and belies just how far this market has to fall in just the next leg down, I see near term accumulation there and there's only one reason HYG is accumulated these days, to act as a market lever and ramp the market because it does not have the strength to do it on its own and finally, what I talked about yesterday, the Russell 2000 (IWM) near 6 week trading range that is still at a small move of only-.38% from October 31st to yesterday's close, that's about as flat as you get , but also as obvious as you get. The more obvious a range/resistance level is and the more watched the asset, the higher the probability of a head fake move such as the September 16th-18th stage 3 head fake during a stage 3 rounding top, which almost immediately led to the next leg down and the October lows.

Nearly every asset in every timeframe has a 4 stage cycle that repeats over and over, some intraday, some over weeks or months and some over years, but they nearly all have them even if they haven't yet become evident.

 This is a chart of the SPY's August cycle which started with a warning (posted yesterday as an example) on July 31st of an impending base and bounce which started the first week of August (stage 1 base) followed by a rally through most of August (stage 2 mark-up) and then a rounding top (stage 3 distribution/top) which lasted from late August to mid September and the decline, stage 4 which went from the September highs to the October lows, erasing 1200 Dow points in weeks.

If you recall the period of time, then you know I have altered this chart to show how obvious a simple rounding top would have been for traders to follow. I'd estimate more than 80% of the time, in every asset and every timeframe, we see a head fake move just before the actual reversal begins, there's numerous reasons for this which you can read about here, * Understanding the Head-Fake Move Part 1 and here, * Understanding the Head-Fake Move Part 2

This is what the actual chart looked like with one of the most common themes for a top, which we call an "Igloo with a Chimney", the Igloo being the rounding top, the Chimney being the head fake move just before the downside reversal.

 To the left is the base of early August, then between the two yellow trendlines is stage 2 mark-up . The longer yellow trendline defines the highs/resistance of the rounding top and the small upside down "V" in red shows the head fake move which moved above the month long top with a 3-sday move, brining new longs in to the market as the last day broke out above the former highs (traders often buy breakout moves), however distribution through this area was already extremely well known so the resolution of the break out turning in to a failed move or a head fake was already a high probability and as such, a perfect area to short the SPY as it promptly reversed after the head fake and turned to stage 4 decline and the October lows.

The IWM has an even more clear 6 trading week range, which makes it a VERY high probability head fake move.

The move doesn't need to create a new high in IWM, it just needs to break above resistance of the range and trigger buy orders, part of which is to create fast reversal momentum as failed moves create fast reversals.

I'll post more charts that I believe back up this thesis and I'll post some assets I think are worth looking at as shorts in to price strength, we already have the clear underlying weakness just like we did at the September head fake highs, although this time much worse than before and in a more important place.

I am still leaving all core short positions open, this market is too weak to risk even a failed bounce attempt.