Broad Market Update

Last Tuesday March 10th, knowing a bounce was coming, we closed out AAPL puts and QQQ March 20th puts as even lateral chop after that point would just eat away at the value through time decay of the options. We got out , AAPL Update and AAPL/QQQ P/L with an AAPL +22% gain and a QQQ +48% gain and didn't take any loss over time decay,  but even back then the plan was to re-establish those positions as well as the UVXY long closed last Friday, Taking UVXY (2x long VXX short Term VIX Futures) off the table for now for about a +10% gain for a week or so of holding after it became apparent that the VXX which had been in a flat base-like area would likely decline and even put in a possible head fake move which I'd like to use to re-eneter the position. I'm watching VXX/UVXY right now for the confirming signal of a head fake move, so far I suspect it is in the middle of creating a reversal process rather than the weak reversal events ( a "W" or large "U" shaped base is a process vs a "V" shaped reversal is an event and you can't build a strong foundation of such a flimsy base). I haven't forgotten UVXY, just waiting for the timing probabilities to jump off the chart.

The point is, from the Jan 29th-Feb. 2nd stage 1 base starting the February cycle, we had moved to stage 3 top and stage 4 decline with the SPX retracing all of the head fake gains, this move since we first identified its probabilities last Tuesday March 10th has been as I have maintained from the start, a normal counter trend bounce.

Yesterday morning in the A.M. Update I addressed the original positive / bounce divergences that were first becoming clear Tuesday March 10th, in saying...

"There still seems to be gas in the tank for QQQ and SPY, not so much for the IWM and that may be why we saw some panic selling as expected yesterday, kind of a last minute emergency fuel dump, but as I said, there's still some gas in the tank and I expect we will still see volatility both ways right through the rest of the day and probably week."

Last night in several posts including the Daily Wrap, I suspected that even though we only had about 2 hours of cash market data, the futures, particularly NASDAQ 100 futures were pointing to that gas in the tank being burnt through.

Here's where we stand with the divergences in the averages (the very short term 1 min charts may look a bit different by the time I get all of these posted, but the general idea still holds).

I'd normally work from the fastest intraday charts as they are the most sensitive to any new changes like any new signals after yesterday's F_E_D inspired knee-jerk reaction, which I always warn about in bold letters at least a day in advance. However in this case I'm starting with a longer timeframe which are stronger underlying money flow signals, however not as sensitive to details and they don't move as fast, but I want to give you your bearings so when we look at the shorter term intraday charts, you'll have an idea of where we are in the puzzle.

First a daily chart of events on the SPX to get your bearings...

Daily SPX 500 chart. 1)= The top of the Broadening Top formation (resistance trendline). 2)=The month long 2015 range with near perfect support and resistance, a VERY obvious range in the most watched average which means technical traders WILL chase a breakout of resistance allowing smart money to sell in to the move. 3)=You rarely see them unless you look, but this is a small head fake move that would have pulled in initial shorts as true and tested support broke, the move back in to the range is where most shorts would have placed their stops which starts the move with a short squeeze and powers upside momentum until the break out buyers show up which happened at 4) which is the actual move above the range that we predicted back then not only NEEDED to happen, but would happen and this is before we even had evidence to support the concept. At this point, Technical traders' predictability set them up to hold the bag as the stage 3 top of the cycle formed at #5) and turned down after some small head fake (chimney price formations) to enter stage 4 decline for the cycle and completely retrace the head fake move at #6) which became a very obvious area to look for a bounce with 100-day averages either just broken or at support of them. With new shorts entering on the failed move and breakout buying longs having stops hit, it's a perfect place to stage a counter trend bounce which we had also forecasted in advance and I showed the September highs to October lows as an example of what to expect with the first bounce in September being a bit too early and the second being a bit too deep in to stage 4 so I said it would be between the two as you may recall as this was posted at least a half dozen times. Even our date target and price targets were hit EXACTLY and I don't like giving out targets.

This is the QQQ 30 min chart that includes the entire February cycle with concepts that we use regularly pointed out.

We first saw the most recent cycle coming late in January, in fact before we even had any signals as evidence, the fact there was such a well defined range in place meant that this would have to see a head fake move above before there could be any move below to challenge the October lows. This is the range I'm talking about.

 The January 29th - February 2nd strong accumulation formed a "W" base which was stage 1 of the cycle (base/accumulation). At stage 2 we have Mark-Up or "Participation as 3C confirmed the early part of stage 2 and at stage 3 TOP we have typical distribution, although on a 30 min chart this is quite strong which led to stage 4 decline that was under way, but not before a "Chimney" head fake breaking above recent range resistance at the top (yellow arrow). Head fake moves tend to be some of the best price pattern based timing signals we have. They are the most difficult emotionally to enter a trade, but offer the best price, the lowest risk and the highest timing probabilities if you can bring yourself to overcome the fear of shorting in to price gains or buying price declines .

As you'll see when we look closer at the Q's, there was an accumulation phase on this chart at the "CTB" Counter Trend Bounce" which is a perfectly normal occurrence, but the larger picture is the leading negative divegrence on the chart which tells us before the bounce even starts that the highest probability resolution is a failed bounce and that we should be using price strength to sell in to or short in to.

Again, I'm going to start looking at multiple timeframe analysis now that you have your bearings with the longest timeframe charts of the SPY first, then with the other averages I'll probably start with the earlier/faster timeframes so you can see what has transpired since yesterday and the process of migration in which a divergence moves from a fast timeframe to a longer one telling us that the divergence is gaining strength.

 SPY 30 min shows the base on a 30 min chart which will not have accumulation as early as a 5 min chart as it takes a stronger flow of funds that you don't see right off the bat as accumulation starts,  but recall it was March 10th when we first saw the signs that caused us to close AAPL / QQQ time sensitive puts.

You can see the positive divegrence at a "W" like base at the white positive 3C divergence and in to yesterday's move / knee jerk, you can see we  have a clean negative divergence indicating distribution in large size in to this move up and yesterday's knee jerk reaction.

This is a larger view of the same SPY 30 min chart also showing the Jan. 2015 range that was too obvious for the pros not to run it. Right before the move to the upside on Feb 2nd you can see a head fake bear trap at the yellow arrow. At #2 we have the break above the range and the Breakout chasers. At stage 3 of the cycle (TOP/Distribution), you can see a clear and strong 3C negative divergence with price that led to the stage 4 decline and a counter trend bounce only after the entire head fake move was retraced.

 On a SPY 15 min chart looking more at the base, remember the March 10th date, we can see a "W" base (white) on a strong 3C positive divegrence, although strong, not enough gas in the tank for much more than a counter trend bounce which tend to be some of the strongest bounces when they fall within a preceding downtrend as they have to be convincing to get any one to bite.

The current leading negative 3C divegrence making lower lows should be clear.

 On a shorter 10 min chart you can see the distribution at stage 3 (TOP) of the February cycle as it is leading negative, leading to the stage 4 price DECLINE and in to a "W" base and positive divegrence. That too has seen an inline "gas still in the tank" signal turn to a leading negative divergence right at yesterday's knee jerk ramp.

The 5 min chart is more detailed showing the actual "W" base and divergences forming it. Also the leading negative divegrence in to the local area as we did see some distribution earlier in the week and in to yesterday's knee jerk move.

On an intraday 2 min chart note a small positive divegrence just before the F_O_M_C came out and it's small head fake move. This is a fractal concept and is seen on 1 minute charts or 1 month charts.

There's a weaker relative negative divegrence in to the price advance that grows stronger in to a leading negative divegrence in to the highs and since.

The positive divegrence to the right was the one mentioned in the last post and is only important on an intraday basis.

And the SPY 1 min positive divegrence from my last post, as you can see, since I captured and posted it , it has grown a little stronger and moved to the 2 min chart above, although it's still an intraday short term signal that I think has more to do with monthly options expiration than anything (tomorrow) as they'll be looking for the max pain pin which is usually near the Thursday close preceding op-ex.

Now that you probably have your bearings on the charts, where the bases where (you'll note I marked March 10th on same charts as that Tuesday we started closing puts like AAPL and QQQ as we expected a bounce), you'll also see some yellow arrows/areas which I use to denote head fake moves as well as the normal white positive divegrence and red negative divergence with a box usually representing either a price area of the divegrence or a stronger leading divegrence.

Since I have so many charts using multiple asset confirmation and so many timeframes using multiple timeframe analysis, I'll leave the commentary to a minimum. See below for the same update in Index futures, I have picked a divergence from each relevant timeframe in one of the major Index futures to save space so there's 1 chart for every timeframe rather than 3.

 QQQ 1 min intraday showing the same positive as the SPY as this is an earlier chart as well (as I warned at the start, it takes too long to load and post all of these to keep 1 min charts as current as they can be).


 Since yesterday's move the 2 min chart is in leading negative position, this is the time we needed beyond the 2 hours since the F_O_M_C yesterday.

 QQQ 10 min at the February cycle and the counter trend  bounce.

A closer view of the same 10 min QQQ chart above showing the "W" base, head fake move just before the launch/bounce and leading negative divergence.

 The stronger QQQ 15 min in to the counter trend bounce area, note the size and strength of the current leading negative divegrence.

QQQ 30 min since the start of the February cycle (jan. 29-Feb 2nd). This is to put the overall leading negative divegrence in to perspective as it's much worse than it appears above this chart.

 QQQ 30 min at stage 3 top of the Feb. cycle. Note the positive divegrence at the bounce base isn't as big, this is because the size of the accumulation wasn't enough to move the chart significantly, however the distribution is larger suggesting there were more short selling than just selling in which we'd expect the positive and negative to be about the same size.

 IWM 2 min. Although this is a HUGE leading negative trend in 3C, I wanted to point it out by asking you to look at 3C's location at point "A" and price's location at point "A", then look at 3C and price's location at point "B". If there were even simple confirmation of the move saying it had basic support, this chart would have moved with price as it does to the left on confirmation. This should tell you something about why this bounce was where it was when it was and what it was used for. Remember, Technical traders are very predictable and that makes Wall Street's actions to manipulate them predictable which you can use to your advantage, although as notes, it's not always the easiest emotional area to take tactical action on a position.

 IWM 5 min since the knee jerk higher yesterday. The yellow arrows in this instance are just pointing out a triangle. Considering Technical traders see this as a consolidation/continuation price pattern, what do you think the most probable course of price is?

I say a head fake (failed ) breakout to the upside first, pulling in new longs before a drop below the apex of the triangle locking longs in a bull trap.

Now you see why I'm waiting on entering some additional positions.

IWM 10 min chart which had a very different looking bounce/accumulation area, it also had very different relative performance both weaker and stronger and yesterday a VERY different Dominant Price/Volume Relationship.

There's something very interesting going on in the IWWM and I don't see it as a positive event despite current price.

I'll be looking for the IWM put entry and maybe SRTY long.

IWM 15 min since the 10th of March.

As for the Index Futures, we've already seen a lot of updates, but here are some important ones.

(ES=SPX futures / NQ=NASDAQ 100 futures / TF= Russell 2000 Futures)

 TF 1 min intraday. Remember what I just said about the intraday triangle and the most probable outcome, the TF chart is already set up for such an outcome.

NQ 5 min

ES 7 min

TF 10 min, remember most of its strength was last week, the SPY and QQQ gained extra strength this week as they rotated in Monday vs Friday's relative performance among the averages.

NQ 15 and this is about as far as we went as far as gas in the tank.

ES 30 min

ES 60 min

NQ 4 hour all the way back to the October low where we forecast a FACE RIPPING RALLY, while investor sentiment indicators were at all time bearish lows.

ES 1-day

I'll try to get a LEading Indicators update out as well.