Important Market Update Part 1: The Forecast

Going back to our April 2nd Market forecast,IMPORTANT: AAPL Set-up & Market Movement, in which AAPL was partially used as an example to serve as a proxy for the broad market, I have included some of the most important excerpts from the post. Remember, this was all well before any moves to the upside and we had made some very specific forecasts as to what we'd be looking for.

This is what the SPX looked like on April 2nd, 2015, the day of the forecast linked above.

Looking at the Daily SPX chart from April 2nd, not much is apparent other than a broadly lateral range through most of 2015. I think most would be hard pressed to make some of the forecasts we made bellow on April 2nd based on the chart above.

Some of the expectations and forecasts from the April 2nd post (below) include:

-Market not done in the area which is why there weren't any recent short trade ideas.
-Triangles to form in the major averages as well as a number of individual equities.
-Market & equities to breakout above the apex (point) of triangles.
-Triangles will create head fake moves as a prerequisite for a larger turn to the downside (bull trap).
-Smart Money Would be distributing in to higher prices.
-Past chart reliability gave me little reason to doubt this forecast.
-Probabilities showed that a breakout would be revealed as a failed or false breakout and fail as a head fake move.
-A Head Fake would lead to strong reversal and was a prerequisite to a strong downside reversal.
-Non-Farm Payrolls on Friday April 3rd (the next day as the market was closed for Good Friday) would likely be the catalyst with a print in the mid 150k. Consensus for Non-Farm Payrolls was for a print of +247k, the actual print was way lower at +126k, well below consensus and even the whisper number  of +150k, leading to the start of the forecasted move.

Some of this may seem random at first, obviously on April 2nd when the forecast was made, it was based on probabilities without the benefit of 20/20 hindsight. Still, I'll do my best to put a bow on it at the end of this series. Yesterday's Daily Wrap showed much of what we forecast and expected, however I think I missed an opportunity which I will correct to use the signals in to the April 2nd forecast as an example, rather than the current signals now since we now have the benefit of hindsight to see the signals work as they did previous to this forecast playing out. If you look at the charts included in last night's Daily Wrap post, look at the Leading Indications and 3C signals going in to early April and our April 2nd forecast and you'll see what I mean.

I believe this is the closest thing to actual "Beauty" in the market, it's a moment when everything lines up as it should ("seemingly" totally unrelated assets and indicators) and gives us not only a strong market forecast, but multiple trade opportunities...

I'll be adding additional posts this weekend to pull all of this together in to a tight, neat package.

Now...

Going back to the April 2nd market forecast that got us to where we are now, IMPORTANT: AAPL Set-up & Market Movement...

"I have heard from a lot of members who are short term traders, quick option trades in and out and they have been pulling back and sitting on the sidelines as this bit of a range has been developing.

I first saw what I thought might be a triangle-like range in the broader market, but didn't mention it because I didn't have any decent objective evidence to support that conclusion at the time, but in looking at AAPL, it brought me right back to what I saw in the market over a week ago.

Here's an example...

 Perhaps one of the reasons I didn't mention it is because it's not a well formed triangle as you can see above, but just watching the gist of price action, you can see there's a triangle like structure and I suspect as the range has narrowed in to the apex at the right, this is one of the reasons short term traders have been having more difficulty with positions, the chop is just picking up in frequency.

What is a triangle when it comes to volatility? It's like a Bollinger Band squeeze/pinch in which the ATR (Average True Range) might be getting more volatile on an individual day, but the range in the market is squeezing like a Bollinger band pinch, which is THE PROMISE OF A HIGHLY DIRECTIONAL (MOVE) INCREASE IN VOLATILITY. 

THIS MAY BE EXACTLY THE REASON MY ANALYSIS AS OF YESTERDAY AND LAST NIGHT'S DAILY WRAP FORESAW A WEAK MOVE IN THE MARKET NEAR TERM UNTIL LEADING INDICATORS PICKED UP WITH STRONGER SIGNALS AS THE RANGE TIGHTENS MORE.

This is the SPY's triangle, slightly different in that it's a Right Angle triangle rather than a symmetrical, but neither triangle looks like a true consolidation/continuation pattern, just look at volume which should show a clear trend of decreasing as the triangle matures.

In other words, it looks like a set up for some kind of head fake or Crazy Ivan move....we can guess based on how Technical traders will react and how Wall St. uses that against them to get an idea of what might happen short term and what would be the resolution from there.

Remember as of yesterday we had charts in the 7-15 min range in Index Futures that were more on the positive side than the negative. This was part of our analysis for the near term trend of the market and why we haven't made any strong moves to short in to price strength as the charts just haven't been supportive of that yet, as if the market isn't done in this area.

Perhaps those intermediate timeframe charts are the answer to the Triangle question and what we'd normally assume to be a head fake move to the upside,  which would also be the set up needed to enter shorts that are setting up like GPRO and Biotechs both of which were featured last night in the Daily Wrap.

 The intermediate 7 min ES/SPX futures chart shows the negative divergence from last week that sent prices lower this week as per our "Week Ahead" forecast from last Friday.

Note the slightly positive divegrence in white to the right. 

While the 10 min charts are biased to the positive as well, this 15 min chart of NASDAQ 100 futures (a stronger timeframe and signal than the 7 min charts) shows exactly what happened from last week's negative divegrence coming in to this Monday and sending prices lower this week. 

To the far right we have the same positive divergence seen on the 7 min and 10 min charts of Index futures.

The 3C charts have been very clear as to what's going to happen with significant moves like this week's... I have no reason to doubt the positive on this 15 min chart.

This would suggest some kind of head fake move to the upside of the apex (point) of the triangle which is what we'd normally suspect anyway just on a conceptual basis and our observations of the market.

But how do we know an upside move would be a head fake (A failed or false breakout)?
We simply look at the charts with the strongest signals and highest probabilities... The 30 and 60 min charts are close to inline which means they don't have this positive divegrence that the 7-15 min charts have, this also means that if the divegrence (positive) from the 7-15 min charts is not on the 30 and 60 min charts, it's not that strong, thus the upside move can either be expected to not be that strong or more probable to fail just based on the 30-60 min charts, but these are not the charts with the strongest signals or highest probabilities, these are:

 ES 4 hour with a very strong and obvious 3C leading negative divegrence right in the area of the triangle price pattern.

And the strongest underlying 3C trend, the ES/SPX futures daily chart with an incredibly strong leading negative divergences telling us smart money has not only been selling, but selling at a pace we haven't seen on a long time if ever, despite the negative divergences we have seen up until this point.

To recap:  We have a triangle like price patterns and with it the promise of increasing volatility. Low day to day volatility has made short term traders' lives very difficult to the point many are just stepping aside for the moment. With that triangle we have the 1 thing we were looking for to start increasing as a prerequisite to a strong move down, that is higher volatility and we have seen that on daily charts as I pointed out yesterday, just on an intraday basis rather than a day to day trend basis. The things we have been looking for and the things the market needs to make a strong break of the 100-day moving averages that have been acting as support are set up right now with these triangle like prices and the intermediate (slightly strong) charts suggesting a head fake breakout (something else we'd need to have a strong reversal to the downside as it creates a bull trap).

We also already have the highest probability resolution of any move to the upside, above the apex of the triangles in the averages and that's the 4hour/daily charts.

We also have the same on the charts of the averages...

The QQQ 4 hour which is a very strong chart, in fact so strong we usually never had to use these, 60 min charts were strong enough to forecast moves, but as you see there's confirmation of the price trend as 3C moves with price until we get to the October lows which were a break of an important trendline.

...this is the highest probability resolution to any short term move, meaning any upside move that perhaps breaks above the triangle's apex is already showing extremely high probabilities of failing making it a head fake move.

If tomorrow's Non-Farm Payrolls come in significantly below consensus and in the mid 100 thousand (150k) level (*Which it did at a mere 126k*), I think the chance of the F_E_D putting a rumor like QE4 or something else extremely dovish and extremely ridiculous, could be pretty high, it also gives us the move that we need to sell short in to strength and the volatility we need for the move down to break the 100-day moving averages and challenge the October lows.

Now, lets see if we have the signals in AAPL to make this theory a probability...

Looking at the trend for the short term 3 min chart, the timeframe that steers short term price movement, note the negative and positive divergences, at first you may not notice anything, but if I take away 3C and just show you the exact same chart with price only you'll realize something...

And that realization is...That triangle in AAPL is no coincidence or random price pattern, it was created, just look at the divergences above sending it lower and higher to create this triangle.