The Thin Facade of Price is Giving Way to Reality

For those not familiar with the term, "Facade" or "Veneer"  (this is not condescending, we have many members in many countries and English is a second language and a quite difficult one in many respects as compared to some others that are 100% phonetic), a "Facade" is usually the front of a building that conceals what is behind it, thus it may look very large or lavish, but what lies just behind it may be much less grand or it may be described as "Outward appearance used to conceal a less credible or less pleasant reality".

A "veneer" is very similar in meaning. In my many years building custom, high end furniture, we used wood veneers which were a very thin slice of the wood on a paper backing, usually about 1/28th to 1/40th of an inch in thickness or about 0.907 to 0.635 millimeters, in other words, very thin and used to conceal the less desirable substrate, often plywood.

In my time owning my own woodworking shop and managing a high-end shop for 9 years, I built and finished the following...

 This is part of a large job done on Fisher Island in Miami, well over a million dollars in wood working, build out, and upholstery. The wood you see is a dyed Bird's Eye maple VENEER, a very beautiful wood, but a very thin slice of it covering plywood.

Even the small table which I called the "Bumble Bee" is a thin veneer and while elegant looking, try handing this down to your children and grand children, a couple of good knocks would tear right through the thing facade or too much moisture would cause it to wrinkle or crack the finish. 

This is the same job, it looks very elegant on the outer surface, but behind that, there's nothing interesting or even lasting.  This is a facade or veneer.

By contrast, the piece below is much less elegant, but will last many lifetimes.

 This is a "Low-Boy" TV stand I built for myself from SOLID African Bubinga (reddish colored wood) and African Wenge (Brown wood with black stripes).

 This isn't a great picture, but you get a better look at the piece. The Wenge doors in the middle, the darker wood can be seen below...

This is the door for the piece above.

This IS NOT Veneer, this is solid wood and high quality, almost $1,0000 in raw lumber alone, BUT I built this well over 15 years ago and it looks as good today as the day I built it because it is solid, there's no fine layer of thin, exotic wood. I can hand this down to my children (if I had any), grand-children, and so on. There's no reason this could not last centuries, but as elegant as the work above in the first photos are, I can guarantee that if the work is still there, it has warped, cracked, scratched through the wood surface, rippled the finish (urethane/lacquer) and will never be handed down over decades, much less centuries.

What is my point? I like quality, you do it right the first time and you won't have to do it a second or third time.

For our purposes though, the charts are showing the thin layer of price action , the veneer or facade is already crumbling interestingly on the first day of the traditional Santa Claus Rally and the last day of Window Dressing when considering the Trade + 3 days for settlement before year's end.

From the earlier futures, here's what they look like now...

 The price move up in ES/SPX futures since the cash open is like a thin veneer or facade with the "undesirable" reality being the divergence that created this move is a very small flat area of trade in pre-market (white), which is not a large or strong area of accumulation, thus the price action to the upside is not sustainable considering how small the divergence to the left actually is.

TF shows continued 3C distribution in to "higher" Russell 2000 prices, distribution occurs in to higher prices, rarely does smart money sell as prices are declining, the large quantity of shares due to their large positions would tip the supply/demand equation unfavorably toward more supply than demand and send prices lower, which would not be beneficial to smart money whether they are selling the shares we saw accumulated almost 2 weeks ago for a short term move higher or whether they are selling short,  both trades are sales.

And NQ/NDX 1 min futures with a small positive divegrence to the far left and a negative divegrence in to this morning's higher prices, but how much higher are we really moving?

Here are the daily charts of the SPY, IWM and QQQ.

 The SPY daily chart shows the strong momentum created by the Russell 2000's bear trap which we can not only verify through 3C distribution in to higher prices and 3C accumulation of prices below the range on the Monday and Tuesday in which IWM/Russell 2000 prices fell below the 6 trading week range for the first time, but we can also tell from the strongest small cap (Russell 20000) short squeeze in 3 years on the first two days of the move higher.

Since then, the SPY has done VERY little in a tight range (orange).

 The IWM shows the 6 trading week range that moved approximately -0.10% over the 6 trading week period, the first head fake move lower that lured in shorts as 6 week support broke which shorts chased and the bear trap (first half of the Crazy Ivan shakeout) was set, setting the stage for the strongest move in Most Shorted/Small Caps in 3 years. Remember the week just prior was the strongest move down for a weekly move in 3 years.

At #2 we have the forecasted/predicted move from December 12th, a breakout ABOVE the 6-week range that was also forecasted to be a head fake move or bull trap, luring in long traders as price broke above the resistance level of the 6 week trading range, just as the break below support lured in short traders and created the upside short squeeze momentum. My forecast on December 12th was for this move above the range's support to occur in to distribution, confirming a head fake move or false/failed breakout which would give the market downside momentum the very same way the initial break below the range created a bear trap and upside market momentum, strongest 5-day move up in 3 years.

This is to say nothing of the change in character via increasing volatility which should be equated with the change in character of a Channel Buster just like BABA, which initially looked like a stronger, more volatile move to the upside, but ended with a stronger move to the downside. The volatility or change in character was the warning sign as we said on November 10th (BABA) that was the red flag telling us something was about to change in BABA's trend as it did.

And the QQQ daily chart showing a bear flag at the yellow arrows which led to the strongest weekly move down in 3 years (for the Dow, 2.5 years for the SPX) and in orange, the recent change of character again since the move up we forecasted on December 12th which was , again, to be a failed breakout/head fake move.

The thin facade of price action is giving way to the uglier reality beneath the thin surface...

Here's the IWM's action confirming what was forecasted....

 IWM 1 min with some slight accumulation in to Wednesday's close as prices fell and a gap up in to the first day of the Santa Claus rally, something I said in mid-December was taken for granted by traders, they just assume it will occur and as such,  convincing traders the Santa Claus rally has started with the price action leading up to it and today, the first day of the seasonal rally, would lead traders to believe the January Effect (also a bullish period when new money comes in to the market) would cause traders not only to go long because of their belief that a Santa Claus Rally is a certainty as it usually has been, but reinforcing that with a breakout above the Russell 2000's well formed and very obvious 6-trading week range, all but setting a near perfect PSYCHOLOGICAL (mass psychology) Bull Trap which could be turned on longs and used to send the market downward very quickly, similar to the initial move up's short squeeze.

 The 2 min IWM chart is also confirming cracks in the facade of near term trade and the head fake move as once again we see accumulation of Wednesday's opening lows and a leading negative divegrence migrating to a stronger 2 min chart. Also note again, the range just like ES in pre-market in which it saw accumulation,  these flat ranges that seem to be dull trading/price action are where we often see the heaviest underlying trade whether accumulation in ES's case pre-market today or distribution in the IWM's case in a flat range from later this morning and now.

This 5 min IWM chart shows the accumulation just after the forecast of a move higher on December 12th (Friday). As of December 15th, the next trading day we started to get evidence to support our forecast as you can see, but that accumulation leading to a move higher is fading in to stronger IWM distribution now that we have crossed above the resistance area of the 6-week trading range.

 A more detailed 3 min chart shows the distribution in to the worst weekly performance in 3 years (orange arrow) and at "F" our forecast for a move higher on December 12th above the IWM's range and distribution once the move higher crosses above the resistance level when and where technical traders will buy the market on "confirmation" of a breakout, just as shorts shorted the "confirmation" of the breakdown just days before when support of the 6 week range was broken on Monday and Tuesday (December 15th and 16th).


This is the confirmation we look for in a head fake move and more specifically a Crazy Ivan shakeout as both areas have shown 3C confirmation as expected.

And the longer, highest probability IWM 60 min chart with the range showing distribution through it, causing the weakness that made it impossible for the IWM to break out to the upside, even though that is an 80% probability before any downside reversal. It took the head fake, false break down/ bear trap to create the momentum (short squeeze) to get to the upside breakout as well as  the use of all 4 levers, (HYG), Treasuries/Yields, VIX/VIX futures and USD/JPY).

As for the Q's

 1 min QQQ with the same late day accumulation in to price weakness Wednesday at the close. Confirmation on the thin, 1 min chart, like a veneer and some weakness showing through...

At the 2 min chart it is very obvious from the accumulation of the head fake move lower to the far left to the distribution of a head fake higher with an increased pace the last 2-days including today.

QQQ 3 min from our forecast for a move higher on the 15th (green) to the accumulation for the move (white) and the distribution confirming the head fake move (red).

And since the October cycle lows in which we forecast a very strong move up which would be followed by a stronger move down, you can see the accumulation of the October lows when everyone was bearish, some sentiment indicators were at their most bearish on record, yet we were calling for a super strong, "Face ripping" rally days before the market even tried to put in a low/bottom.

Then the distribution through the stage 3 top or rounding "Igloo", our forecast for a move higher on the 15th (white) and accumulation with distribution in to the move forming our classic, "Igloo with Chimney", although the Chimney is now quite as high in the QQQ, it is in some other averages. This is usually the last thing we see before a strong move down. a head fake move as rounding tops are too obvious and too many technical traders are familiar with them, so they are shaken out before they are trapped and become fuel for a bear trap.

The SPY 1 min is in line like the QQQ 1 min, but again at 2 mins you can see right through the facade with deep negatives and the same theme throughout.