Market & Levers Update

My initial impression after looking around a bit more this morning is that this likely will not be a quick turn down as in today, although there may be some gap filling and additional upside before it's over, it just depends on how fast the divergences progress. There are a couple of other indications like Leading Indicators and market breadth I want to look at before making any firm near term statements, but the course the market should take is the same one that was part of the original forecast of a move above IWM $118 that sets up a bull trap for a sharper move below to make new lows.

The IWM had too obvious of a range, it was too easy to hit and too much easy money as well as short set ups to just pass by. WE RARELY SEE A REVERSAL SUCH AS THE ONE THAT HAS STARTED TO THE DOWNSIDE (OR UP) WITHOUT A HEAD FAKE MOVE AND THE IWM WAS MISSING THAT.


Other than that, there has been some rotation today in to the other averages with IWM lagging presently, but that may not last too much longer as intraday charts in IWM are gaining some ground over the others.

My initial thoughts (until I see Leading Indicators and breadth after the close), are that this isn't a time to be entering any longs, if you were going to take the long trade it needed to be done before the move above IWM $118, such as Tuesday when many of you did take long trades, call options, etc. If anything, this is a time to manage those and start putting together your short shopping list or in my case in which I'm already fully committed and in place, just be patient. I don't think this is the time yet to enter new shorts or add to them UNLESS YOU ARE PHASING IN TO THEM, if so, I'd be sure to leave some room in your risk management to add to the position at higher prices, if we are lucky enough to get them.

The levers have started their decline in the 3C charts , but they still have some time to go, although the VIX seems to be the least effected and probably will return to form the soonest.

As for the averages, like the Index futures they are showing the process has begun. Thus my initial impressions are more toward patience and management than jumping too quickly in to new positions, at least that's what I feel initially the morning after so to speak.

I'll be updating in smaller chunks as we go through the day and things start moving faster as it takes a while to capture and upload all of these charts and they can change quickly the further out we go; for now it should be fine, but things will start moving faster which means I need to do shorter updates with less charts. However for the moment, we need a baseline of where things stand to judge future developments against.

The averages...

 SPY intraday shows no confirmation, thus the gap up is a bit dangerous for any SPY longs here without proper intraday support.

The larger concern is the process of distribution which has started on the 2 min chart as can be seen, note the sharp leading negative divegrence in to today, higher prices are being used to advantage to sell/short sell in to them.

 The 5 min chart is ultimately where the 1, 2, 3 min negative divergences need to reach as they strengthen through migration of 3C timeframes.

Note the positive divegrence we watched for this week and the in line confirmation at the green arrow. I doubt any major break to the downside occurs before this chart goes negative.

Also while we talk about head fake moves occurring in every asset and every timeframe in either direction, I thought to point out the head fake move which is one of the best timing indications we have right before SPY headed higher.

In a larger context, the move below and above the IWM's range, the Crazy Ivan head fake, also is a keen, longer term signal for the downside reversal to continue. This is a fractal concept that can be used in any timeframe for any asset and any type of trading.

 The big picture chart that holds highest probabilities as seen above, the 30 min SPY which is deeply leading negative. If you follow price, no matter how impressive yesterday's move was, it's still part of a sequence of lower highs/lower lows, so while not in a bear market, we are is a stage 4 bearish decline from the October low cycle, thus a series of lower highs and lower lows should continue to develop which is commonly known as a downtrend.

This is why the IWM was a better asset to create a break move from as the SPY and others had much further to go and the market isn't that strong.

QQQ 1 min is in line so far.

The more important chart, the 12 min shows distribution already started

The 3 min chart shows there's migration of the negative divegrence meaning it is strengthening as we expected, so this is no surprise, but exactly what was expected, yet we have more to go as this is a process.

The 5 min chart is a pretty good picture of the entire move from accumulation to the start of distribution, when this is more negative we'll know to start taking swift action in new positions.

 As mentioned above, the intraday IWM seems to be gathering additional intraday strength so additional upside wouldn't be surprising or the steering divegrence is meant to keep IWM from falling before smart money can finish selling/short selling in to higher levels.

 The 2 min chart shows the process is underway already.

The 3 min chart shows the divergence is gaining strength as it migrates to longer timeframes.

And again, like QQQ above, the 5 min chart should give you a pretty good feel for how much more distribution needs to take place.

This "can" happen very quickly and I'll be watching for that, but at the pace the levers are deteriorating, I suspect we have more time, no rash decisions need to be made at present, patience is probably the wisest course right now.

As for the intraday breadth, there's no doubt it is lower today, we don't have the strongest small cap short squeeze seen in 3 years today  like yesterday,  so it makes sense intraday breadth is not as impressive.

 NYSE TICK shows the demarcation between yesterday and today at the red vertical trendline with yesterday easily hitting the +1500 levels and today, just above the +100 and just below the -1000, thus the look of price on a daily chart, VERY SMALL RANGES BEWEEN THE OPEN AND PRESENT PRICES, creating small body candles.

This is a bit concerning as far as taking action in short entries, but again, there needs to be more than just 1 indication and we still have room to go in the market averages, Index futures and levers like HYG, TLT, USD/JPY which is seeing some intraday weakness, likely off the earlier 1 min negative divegrence in the opening update and of course, VIX which were in the last update of futures.

 My custom TICK indicator vs the SPY, we'll also be watching for deterioration here as some has started, but again that is judging today by the sharpest small cap short squeeze in 3 years yesterday.

Levers...

 HYG's longer term trend is obviously very bearish and the market has a lot of downside to go just to catch up. You can clearly see the negative divergences at each pivot high where HYG was used as a short term ramping lever, but it's the overall HYG trend and 3C confirmation of that trend that tells us the most about the market, it's weakness and big picture probabilities.

Again, just like the SPY above, you can see a series of lower highs and lower lows in HYG, but that means to create them, a rally or ramp needs to occur, still it is most commonly known as a downtrend and where credit goes, stocks tend to follow.

HYG is strong and confirmed out to the 15 min chart so this one will need to turn negative.

The process has already started with this 3 min chart and distribution. Once again, note the head fake move just before HYG made it's move higher.

This is a momentum ignition, this is what I was trying to pass along in today's first post, but on a broader scale. However the concept is fractal and it works just as well in short term intraday charts of credit as it does in daily charts of the major stock averages (IWM Crazy Ivan downside head fake move just before yesterday's upside reversal).

Pay attention for these moves, they are often your best entries and exits at the best price, the lowest risk and the best timing as they tend to occur just BEFORE the actual reversal.

 Again as we saw in the averages above, today's gap up in HYG is seeing a sharp leading negative divegrence on a 5 min chart, thus the gap up is being used to sell/short HYG in to price strength and pretty aggressively. They took a risk by accumulating HYG to ramp the market, so they'll get the best exit they can, YOU GET PAID FOR TAKING RISKS.


TLT (20+ YEAR BOND FUND) or a decent proxy for the 30 year treasury bond.

 The 60 min chart in TLT is very strong, the uptrend still confirmed, but once again, in an uptrend it is formed by a series of higher highs and higher lows which means pullbacks such as yesterday are part of an uptrend, often making excellent entries.

This should be the continued longer term TLT trend, up, but for the short term, we could see it being used as a lever as yields which trade opposite bond prices, tend to act like a magnet for equity prices. Translation, a lower 30 year bond or TLT, a higher 30 year yield which pulls the market toward it (whether it is up or down).

 TLT shows pullback damage out to the 15 min chart, the divegrence I have been warning about for more than this week any way and we have the pullback. I will keep the 2x long TLT position open (via TBT short) as I believe TLT will return to its uptrend.

The 1 min chart shows some accumulation, but you can see there's still a ways to go.

The 2 min chart also shows accumulation as I showed yesterday, that started soon after or around the F_O_M_C announcement.

I'm going to take a quick look at leading indicators...

Again, I'd just be patient here, not make any big or rash decisions and let the market continue to tell us when it's time to make a move.