Market Update

I'm not going to sugar coat things for anyone, the charts don't look good, but this is something that has been a fact since either of the last two bounces, the first we got the first whiff of on March 10th when some March Expiration put trades were closed, while maybe not to the exact lows, it was within a day and well within reason to close before the market started moving sideways causing those puts to lose their gains via time decay.

The area at the first red arrow is when I posted that I had a "Gut" feeling, but little evidence at that point, that we'd be seeing a bounce. The next day would have been the ideal time to close the puts and this is a lesson to me as well as everyone else, "Be careful not to let market emotion carry you away, there's almost always going to be some reversal process and our indicators are going to give us more proof than just a gut feeling based on the way the market was trading". That said, I didn't call a bottom or reversal there, just said I thought we were coming up on one and wanted to book gains before they were lost in time decay as the options were March expirations. At the white line as the market travels sideways forming a small bounce base, that's when the options would have lost value, maybe all of their gains due to time decay.

The second bounce was posted in Friday's Week Ahead just last week at the second red arrow. As you probably recall, I expected that early Monday morning we'd see an intraday pullback to strengthen the base and allow it to support a bigger bounce, that was blown off course with the overnight rumors of the Chinese Central bank engaging in a rate cut as early as Monday which sent futures higher overnight in to Monday's open, it was a rumor with no basis in fact. Otherwise, our larger call was for the bounce to start Monday as well which it did. Note the vey small bounce, I suspect the weaker base didn't help, but probably more than that, after Q1 Window Dressing ended yesterday at the close there was no reason to pretend everything is fine.

So the same way we don't want to let emotion pull us in to a subpar trade like shorting this morning's downdraft when we know there's a good chance we'll get some kind of bounce based on the indications posted last night including Leading Indicators. I suspect had we shorted the move lower, we'd just be sitting on a loss or at least time risk in which the asset isn't moving in our direction, therefore is open risk until it does. Additionally the best entry (higher price) for short positions reduces overall trade risk.

Looking at the moving averages, it wasn't surprising that some strength would form there, even if only temporary...

 The SPX at the 100-day moving average today like the last several times, this average WILL break and when that happens watch out below, but for now, it's one of our best opportunities at a low risk/high probability and timely trade entry.

The NDX 100 found support at the same area.

However one of the earliest clues was the intraday NYSE TICK Index...

As ugly as the open was, especially if it was viewed from the overnight futures, it really wasn't that bad on the TICK Index (Number of NYSE stocks advancing less the number of NYSE stocks declining).

At some of the worst levels this morning on the open, the TICK was only registering about -750, which isn't an extreme, it's closer to mediocre. Then TICK trended up and hit upside extremes of over +100 and +1250, telling us it was most probable that support was being formed.

I captured some 3C charts for this post earlier and it looked like and I hoped as well, that price would come back down to the a.m. lows and form a stronger intraday "W" base rather than the "V" base that was in place, this is an example and captured before the TICK broke below the channel suggesting that is exactly what the market was likely to do intraday.

*Remember these were captured as the TICK was still advancing inside the uptrend for today, before TICK broke the uptrend which is early warning of a pullback...

 You may recall earlier this SPY chart in which prices reverted down to the 3C leading negative divegrence, but it also was posted earlier with the first hint of a positive divegrence intraday at the small white arrow and from there, moved higher on a slight leading divegrence. Still,  this would be a "V" base and they aren't stable enough to support much of a move so as of the time of the capture of this chart , I was hoping price would come back down and form a "W" base with a second low near this morning's. That would give us a more stable bounce to short in to.

The QQQ 2 min also saw prices revert down to the leading negative divergence, but also showed a relative positive divergence, the first hint that this morning's early selling would run through the book of sales and then likely find support. This is why a lot of pro traders will not trade the morning session as it's largely retail traders just having their trades knocked out or lured in to trades they'll be knocked out of.

Emotion is a VERY powerful and often destructive force in the market and your trading.

And the IWM also showed a small relative positive divgerence and price following the TICK.

Since...

 The IWM has a VERY early hint of an intraday negative divergence that could form that slightly stronger intraday base, although it's really more speculation as to what will happen, it is based in part on the fact Leading Indicators weren't screaming for a break below supportive moving averages as of yesterday's close, thus meaning we likely have more time and maybe better entries.

 The Q's have put in the start of a negative divegrence on the 1 min that would suggest what I'm looking for is possible if not probable.

Only the SPY is not playing along and if it keeps moving off this "V" reversal this morning, well you can see the danger as a bear flag is created which would "normally" (according to technical analysis), break lower to a new low. However as we have seen more times than not, these price patterns that are so common in TA are manipulated at least short term. This is the danger of a weak "V" base, that it fails prematurely which is why I wanted to see a stronger intraday "W" or something similar.


As for TICK right now...

So far by breaking the early uptrend it's suggesting a "W" base will be formed, this could lose control though and print extreme intraday weakness in breadth and just head straight down which is why I said from the start, "Hold our core shorts, don't introduce long risk" and no matter what happens, we are in a win/win situation. If prices head lower our core shorts already established make money, if we get the additional entries at better prices we just add to positions that should be strong performers, either way, we aren't introducing risk, but being patient and setting ourselves up for a trade that works either way for us.

While I HAVE to keep an eye on the market and Leading Indicators for hints that something has changed and the bounce/base intraday plan may not work, I'll also be trying to get out as many "GOOD" ideas as I can, but they won't be chasing price in which we increase the risk of the position.