Market Update- Important

As has been the case in the recent past, there are a number of very important charts that have given evidence of our forecasts , then additional evidence that our forecast is still on track and moving to the next stage, but the final stage of the forecast of a Crazy Ivan shakeout and the move above the IWM's 6 week range and the perfect storm of the Santa Claus Rally failing and likely the January effect rally failing are all the end point of the forecast, everything before that like the Crazy Ivan shakeout below and above the IWM's 6 week range are a means to an end, not the end or the major part of the forecast in themselves. So far we have had confirmation on everything from the forecast, to the evidence that the forecast is correct to the actual price moves to the next set of signals showing those price moves are indeed head fakes and all of this builds up the credibility of the end point which everything that has happened since the forecast was made on Friday, December 12th have just been a means to that end.

In any case, as usual, things are moving so quickly in the charts that I must break them up in to separate posts because of the speed of movement, they'd be out-dated by the time I captured all of them and posted them, but they are important in giving you the confidence to see that our forecast is the highest probability outcome, which means entering positions in the area or adding to them is the best entry, best timing and lowest risk, so I'll try to provide you with all of the evidence as well as put out posts like this that show why we might look at using current levels for our position entries or add-to positions (mostly shorts).
While the original forecast was made with a little evidence, it was mostly based on our concepts and mass psychology, the fact that we see 80% of all reversals in all assets and any time frame they occur, see a head fake move first. The 6 week range in the IWM was too juicy to turn down without a head fake move first, it was probably one of the strongest candidates for a head fake move above the range before a downside reversal we have seen in a long time.

While the original forecast from December 12th was fleshed out with additional details as charts provided new clues and evidence, one of the theories as to timing was the Santa Claus rally because traders are expect it as almost a God-given birthright, thus an initial move toward the Santa Claus rally bringing in more longs, just as the head fake move was designed to do, and then shutting the door and trapping bulls with a failed Santa Rally is essentially the perfect storm or perfect reversal event with the strongest downside momentum as failed moves lead to fast reversals, but in this case, you have a disproportionate number of longs looking for the Santa rally and January effect as well as chasing the IWM head fake/upside breakout above the range, breaking 6 week resistance which traders will chase and buy, creating a strong bull trap.

Friday I went over the Santa Claus rally and the Quarter/Year's End Window Dressing in more detail, here's the posts from Friday: A.M. UPDATE and The Thin Facade of Price is Giving Way to Reality

As for the market update, TICK data shows breadth is extremely weak, this has nothing to do with the light volume and traders on vacation which are starting to file back in to work today, that's volume, but advancers/decliners have nothing to do with that.

 The NYSE TICK data on my custom SPY/TICK Indicator shows a sort of short term capitulation/selling climax at #1, remember our forecast for a move higher, above the IWM's 6 week range was on Friday the 12th, although we had suspected something was building the entire week of the 12th. At #2, breadth increases and looks healthier as we first get the head fake move below the range creating a bear trap, giving fuel to a short squeeze in small caps which was the most powerful short squeeze in the Most Shorted Index in 3 years (the week before the market saw the worst weekly performance in 3 years and after the bear trap for the short squeeze, the market saw the best 5-day run in 3 years- all signs of increasing volatility or a change of character which leads to changes in trends).

At #3, as the rally has moved above our minimum IWM target at resistance around $118, note the intraday breadth falling apart with fewer than 50% of all NYSE stocks above their 200-day moving average, the market is already severely damaged and this is showing us the end of the forecasted move higher from December 12th.

 Intraday today, the same indicator shows additional weakness developing in intraday breadth to a new lower low for the chart above.

 And as of last Friday, the first day of the traditional Santa Claus Rally and the last day of Window Dressing (The Art of Looking Smart), the range was very narrow Friday at +750 to -500. By the close we had a deep sell-off to -1100, the first time in the day the -500 range was exceeded, remember this is when the pros come out and trade, at the close.

Today's range is even tighter at about +500 to -750, this is what we'd expect to see in a dead flat market ending the day with something like a Doji.

3C charts of the averages...

The SPY 15 min chows Friday December 12th when our forward looking forecast was made, then we got confirmation with a 3C positive divergence on the break below range support of the IWM on the 16th/17th (accumulation) leading to the Wednesday F_O_M_C knee jerk reaction higher, which I always warn , "More often than not, the knee jerk move is the wrong move and fails like the last 2 times, especially when 30 year yields start moving opposite the market just like the last two F_O_M_C meetings and this one, in which the knee jerk move was retraced and all gains given back. In the September meeting's case, the F_O_M_C knee jerk reaction failed within 3 days and led to the October lows when and where many sentiment indicators hit their most bearish readings on record and when we forecast a strong move higher, a face ripping move.

The point is, the early accumulation on the first head fake below the range (16/17th) has turned to strong distribution in to the move above the IWM's range where longs will buy providing demand for institutional money to sell/short sell in to the demand at better prices and allowing them to move large positions on the demand from retail who is as always, chasing price.

 The short term timing 1 min intraday SPY chart shows today's intraday 3C chart has been showing distribution in to its initial move higher, which is EXACTLY what I would have wanted to see and expected considering the Santa Claus rally (failure) forecast. This also means we are likely very close to a downside reversal in the broad market.

 The larger and stronger underlying flow of funds in the 60 min QQQ shows the October rally accumulation at the lows and base that we forecast as everyone was as bearish as you could get, we were predicting a rally so strong it would be unimaginable and challenged members to bookmark the forecast to come back to. The distribution process in to a stage 3 top for this cycle is clear, as is the rounding top and chimney, our "Igloo with chimney" concept. Remember we had forecasted this move nearly a week before the lows were hit in the SPX. The current leading negative divergence just shows what the price strength was used for, selling in to or shorting in to by institutional money.

 The near term 1 min QQQ chart (timing) shows distribution Friday in to the first day of the Santa rally and it continues today, as such, as a timing chart, this is looking more and more like the area in which we want to call out short position trade ideas.

 The IWM 15 min chart is a perfect representation of our December 12th forecast with the evidence of accumulation verifying the first part, a move above the IWM's range and the second part , that such a move would be a false breakout and see distribution and ultimately fail and lead to a new low below the October lows, so far this is right on  track.

 And the short term timing 1 min chart has been negative since the Santa Rally started Friday with an even worse leading negative divergence today, thus this is an area I'd be very seriously considering entering short positions and you know I've been very patient in not calling out any trade ideas (short) too early on this move, but I think we are that close now.

 This IWM 5 min chart shows the complete cycle of evidence that backs up the entire December 12th as well as that weekend and Monday's continuing fine-tuned forecast. The accumulation on the 15. 16th and 17th that led to the F_O_M_C knee-jerk move higher, which I believe was only to serve as cover for a move that was already in the works days before the meeting ever started.

Accumulation below the range and distribution above it, A PERFECT CRAZY IVAN HEAD FAKE CONFIRMATION.

 The DIA, because of its bluechip safe haven status unlike the other averages (see the 2007/2008 decline- because long only funds must stay long the market, they filed in to the blue chips as the best choice of a bunch of bad choices. The Dow was the last to give out to the downside and had the most shallow decline), has shown the best underlying 3C relative performance vs the other averages, but the 15 min chart also shows the same thing as the IWM above, after our forecast on Friday, December 12th the evidence of accumulation for a breakout move higher to sell/short in to was in place the next trading day after our forecast and the expected move higher shows the distribution we expected for a head fake/failed rally/breakout.

The 2 min trend of 3C shows how the DIA has the best underlying performance as it was in line with the price move higher for most of the move (green arrow) and then recently as the Santa rally approached, clear distribution in to the area, showing that even though it had the best relative performance, it too would not escape our forecast.

I'll be adding more evidence and hopefully some trade ideas as well. I'm still holding FAZ (3x short Financials) long as well as SQQQ and SRTY long (3x short QQQ leveraged inverse ETF and 3x short the Russell 2000/IWM ).

More to come...