Market Update

Today I'll be spending a lot of time looking for "tells" or leaks in the F_O_M_C before the policy statement at 2 p.m. so I may be a bit quieter than usual, it just means I'm busier than usual (which is pretty difficult thing to accomplish for me).

I still think a bounce based on the IWM head-fake/Crazy Ivan theory that started fleshing out Friday and Saturday is a high probability, it's also a tactical gift for any long position you may want to clean up and any short positions you may want to enter, we don't chase trades!

As for the scenario... HYG has been one of the biggest give-aways that this scenario was on track. The accumulation I've seen the last several days in HYG (as well as other places like the averages/Index Futures)...

 Has been screaming "Set-Up". There's only 1 good reason to accumulate HYG even in small size while HY credit and even investment grade credit is breaking down and that's to use it as a leading lever to manipulate the market higher when it doesn't have the strength to do it on its own.

Above is the HYG accumulation on a 3 min chart and as a result...

 Today HYG has taken off and is leading. It's not owning HYG that levers the market up, it's fooling the algos to think institutional money is in a risk on phase as they trade HY credit as a risk asset so today's move up in HYG is a leading lever for the market.

As for the IWM, my whole theory revolves around a Crazy Ivan shakeout which has already occurred on the bottom of a 6 trading week range in which the IWM has literally moved just shy of 0% over those 6 weeks and of course the head fake move and second part of the Crazy Ivan ABOVE the range as from a mass psychology point of view, the IWM is far easier than the SPX and it has a 6 week range that has drawn far more attention, not to mention the IWM should lead any risk on move.

Note the range and a day after our theory a 6 trading week range broke to the downside, creating the momentum for an upside move, and only a day or so later, HYG is leading the broad market to the upside after we suspected it would because of 3C accumulation. Every aspect of our theory is just being given more and more confirmation.

Note how much easier it is to break above IWM's range than say to create a breakout in SPX that will catch long traders attention as a technical breakout.

The SPX is in a different shape, it would have to make a larger move and the markets are weak and they won't hold HYG too long for risk of not having a seat when the music stops. In any case, the broader, Broadening top of the SPX has seen a larger Crazy Ivan shakeout below the trendlines and above, thus it has completed the process and started breaking toward the lower trendline which is where I think the next leg is headed after the IWM move which is about little more than creating the momentum for the SPX's downside move (and the broader market) much in the same way the IWM's break below the range is about creating upside momentum to break through the top of the range (remember the XLF example from yesterday), you can really break it down quite simply to bear and bull traps and how they create momentum when traders get stuck in them.

While I believe this is the highest probability as of right now, I also don't want to piggy back trade it long here and the reason is simple, there's not a supportive enough base that would allow me to sleep at night even on a short term move up. I'd not feel good about being long here with no supportive basing process to better guarantee that this move we are looking for will hold and not fold without any notice. The chance of waking up to a gap down that takes out 5 weeks of trade like last week's action did, is just too great and for me it would mean closing the much higher probability short positions or one of them to create the dry powder to take on such a long, I'm not willing to go against those probabilities for a short term gain, although I'd like to grab it, there's an old saying. "Bulls make money, bears make money , PIGS GET SLAUGHTERED".

So I'll be patient and look for opportunities as they arise.

More shortly or as it arises.