And They All Fall Down...

Here's the QQQQ this a.m, it was the single of the 3 that gapped up, but as I reminded you below, except for short periods in sector rotation (usually in a bull market), the indices typically trend together and the Q's would catch up and fall with the SPY and DIA.

I don't know yet how much this retail sales report will hurt the market's rally attempt, the rally overshot our target posted nearly a week ago (even when the market was still in decline), by about 2%, which is not horrible considering the uncertainty of earnings and the fact it rallied over 7%, plus the fact that the rally and target were posted days before it even started.

Last night was a tough one, the charts didn't add up, if you read "thinking Out Loud" you know what my conclusion was and why I believed the gap up in the market for this a.m. would not hold and we'd move down instead. It was all based on the 8:30 release of retail sales and the 3C charts I was seeing.

This is, as I have been saying, proof positive that the government DOES routinely leak reports as does the Fed, as do companies-to Wall Street, how else could I have made that prediction last night. Actually lets call it analysis because it was based on objective charts, not a crystal ball. So YES, the Retail Sales number was leaked and that is why we saw institutional selling into the rally yesterday.

Now, we wait, be patient and see if this one does the trick. Please though, take something away from this, understand the market is nothing like we've been conditioned to believe it is. Corruption in every corner of the market is omnipresent, I just showed you the retail sales were leaked ahead of time to Wall Street. You can't play this game based on the everyday things you see in front of you-like all those who bought that run up in prices in after hours last night-they're largely burnt this a.m.

All Hedges are OFF

Retail Sales were bad enough to stop the SPY and the DIA-the Q's are still riding the INTC news, but 2/3 and consider that the markets move together... eventually. So I'm not recommending to do anything this am, not to short more, not to cover, just be patient, unless we start taking out support or resistance levels, just be patient.

Earnings season is always a wild card, and now the wild card is how much did this GDP report mean to the market, we are about to find out.

Thinking Out Loud

OK, I have seen this volume pattern playout before, diminishing volume on a rally with the dominant p/v relationship as the most bearish Price Up/Volume Down. In a few instances more recently it led to a reversal to the downside. In one instance back in February of this year it kicked off a monster rally, the difference is the maturity of the top, the increased volatility that started in late April and continued through May, that wasn't present back in February. Today's candle, as the last 3 candles before it, all show diminished momentum-the gain today really came in the gap on AA earnings news, the rest of the day, we didn't see strong performance. This candle taken as is would be called an evening star which is the first of two candles in a downside reversal, the next would be a close lower which serves as confirmation, why is this different then the preceding 3 that look similar? Because of the gap, that's what makes an evening star reversal candle more powerful, although the rise in price (in the gap) makes that seem counter-intuitive, several hundred years of Japanese candlestick charting show this is a higher probability reversal. However, we already know INTC came out with good earnings and it looks (as of now) like we'll see another gap up tomorrow if after hours trade is any indication, which may setup another evening star reversal. 

What will become worrisome is a strong trading day (a wide bodied candle) like the one on July 7^th. The volume picked up today and breadth was strong everywhere, but we still have to take this in context, it's largely based on retail traders bidding up the market based on AA's earnings and now INTC's. The market already knew what AA would come out with, they are privy to the whisper number so it is in fact already discounted into price.

As I suspected, AA's trading was horrible today, a high volume gap that was promptly closed and a close lower then the open. It had every chance to run off that gap, it didn't. Volume was high-which suggests churning, for all the retail buyers, there were plenty of institutional sellers. The S&P-500 gained 1.54%, AA's Beta compared to the S&P is over 2, meaning you'd expect to see a move of at least 3% in AA today-not so.

This 3C v.1 30 min chart has done an excellent job historically calling the moves in AA.

Note that the last several days (with the market) AA has been rising. At the start of July there's accumulation (pos. div) and then price confirmation. This a.m., on the gap up, 3C confirmed my analysis above, distribution right off the bat, it continued down as well. Look at the volume (click on the chart for an expanded view) on the open of this 30 min chart! So is Wall Street buying into the idea that the economy is much better and AA is leading the charge? It doesn't seem like it, they just used the earnings to make money off retail traders that still don't get two things, 1) Wall Street already knows the earnings before they are revealed most of the time. If they (institutional money) were behind AA, then there would be big accumulation and they'd use that gap up to push prices, not sell into them. 2) People don't get that earnings are in the past, they don't matter anymore, only guidance and sentiment does. Based on the intraday and end of day action today, what was the sentiment on AA?

INTC?

Something is strange with INTC today. This 4C 1 hour chart shows the selloff-negative divergence from 6/15-6/21 and the accumulation 6/30-7/2 (note: because institutional money wants to accumulate at low prices, volume tends to be low-they don't want to attract attention and be forced to pay high prices so accumulation generally ocurs on light volume). 

However, from 7/8-7/13 4C makes NO progress? That's distribution and again-look at the volume at the end of day. This is a wild guess, but could they believe that the rally won't hold long enough to liquidate their position and have started selling early and into the higher prices on INTC today? It's a possibility and one that suggests they (smart money) don't have faith in the rally? Could they know something about the next companies to report and perhaps those reports will crush the market? Or maybe something else?

Compare to the SPY 1 hour 4C chart-same thing.

And the DIA? Same thing-distribution all day.... why?

Look at 3C on the Q's past on this 1 min chart, we know it's working fine, look at the distribution into the close. Even a higher high at the close is sold off.

So what could throw a lemon in the stew tomorrow? Why does it seem that strong guidance is not being bought? 

Retail Sales are announced Wednesday at 8:30 a.m. This is a biggie! Why? It accounts for 2/3 of our GDP. Paper, rock, scissors-Retail sales trumps any guidance INTC gave. Is there a possible leak from the government? I've commented just in the last few days about how not only earnings, but Federal Reserve directives and government releases have all shown evidence of having been leaked.

Looking with a quick glance and one that left me scratching my head, I was surprised to see this kind of action in these stocks and ETFs of the averages. After hours are up because retail trader's are bidding them up based on INTC guidance, but retial traders wouldn't have access to a leaked Retail Sales report, Wall Street very well may.

OK, that's enough for tonight. I've put together a possible scenario and we'll know in several hours from now.

Here's the alternative, retail sales blow away the market, we get a monster rally. Our key level on the SPY is $113-$114-at that point we likely blow the H&S top and have to start all over. My hypothesis is just that, a hypothesis so time to talk about plan “B”. 

Considering my hypothesis I'm not throwing trades out there, I did plan to throw some longs (AMPL made good progress today, I still like it long) out, but I'm holding off on that.

If retail sales are good, not average, not pretty good, but good, then we need to look at what's in the future in earnings, but also have to take action to protect portfolios. You have to do what your risk management plan dictates, but I'm looking at selling off 30% of the inverse ETF's and adding 3x leveraged UPRO (long ETF on the SPY). If the market continues to look bullish toward the close, either at the close or Thursday that will go to 50%. It's very aggressive considering a long trap can unfold in 30 minutes and I do not like the idea one bit, it seems reactionary and emotional at that, but price is king.

If what I laid out does not come to pass, then we'll also be talking about the options on the SPY and the possibility of them being pinned as we saw last month, that might call for the market to keep up some strength until next Friday, or at least above or around the highest open interest and where the volume is flowing in the option chains.

Check in the a.m., I'll have an update after the figures come out.

While You Are Waiting

I'm still putting together the pieces and looking for the little sublte signal that will tell us something worthwhile. In the mean time, as I continue to dig through all the charts and indicators, you know that I don't listen to other analysis, especially CNBC-I don't want to color objective analysis with other's opinions.

However, there's one person I respect, Don Worden, behind the Worden Brothers products-TeleChart and StockFinder. Why Don? Don pioneered tick volume and really the use of computers and indicators back in the 1950's. He's written a huge portion of the indicators that the big boys on Wall Street used and he has more experience then almost anyone else with regard to Technical Analysis. If you read his books, you will see he doesn't look at TA like anyone else, it's culture shock to red his writings because this is a man that understands the market and the importance of thinking for yourself rather then letting the talking heads tell you. Still, I rarely read his columns as I use my own indicators and I don't want to taint my objectivity.

Today my objectivity is tainted, or was. Today was a day that struck me a bit on the emotional side, I recognize that and it means that I must work 2x as hard to be objective and check and recheck all of my analysis to make sure it is objective. Emotion creeps in, you are human, but you must recognize it and that is what I'm doing. So in a bid to set my head straight as Don shoots it as straight as they come, I read his column tonight on TeleChart's nightly Worden Report, I was encouraged that he is largely of the same opinion as I am and I'm including his comments with his indicator MoneyStream which is proprietary to Worden (it's in light blue) and my 3C indicator in orange.  Don't tell Don, but I think 3C still works better and I think the chart shows that if you look closely, but MoneyStream is powerful.

Here's the chart...

Here's my 2 cents-I like 3C better as it caught the sell off in January with a negative divergence right at the top at the end of 2009-MS didn't. While both show relative negative divergences from Oct. to the 2010 Q1 high I think 3C's is more pronounced. Both indicators are below price now which means they are in the worst divergence (negative/leading).

Now here are Don's comments tonight, be sure to check back for my analysis-(moving average is not displayed)

  " I think a 3-day chart does the best job of showing the position of the market here. For one thing we have a huge, violent plunge in MoneyStream consuming Q2 of this year, while the market price itself plunges. The market does not drop to the extent MoneyStream does, and the result is a pronounced leading divergence to the downside. TSV is also in a downside leading divergence. The price has so far fallen short of the 198-day MA, and it is now in a logical position to break to the downside and test the Q2-Q3 low. Should that low not hold, we can expect another couple of hundred points on the downside. (I used a 198-day MA, because that was as close to 200 as I could come to the 3-day MA as a multiple of the 50-day MA on the daily. Suffice it to say that 198 is close enough to 200, since 200 itself has no built-in magic.) Notice that this chart depicts the dry up in volume on the bounce. -DW"

AA

Is still looking like it may have upside. The averages for the most part are in relative negative divergences, but point to a small move up possible in the next wave. The 5-min charts are largely negative, with a few exceptions. The indicators are still a little foggy, but it certainly doesn't have a strong bullish stance. In all cases,SPY, DIA and QQQQ the afternoon retest of the highs failed as far as 3C goes as well as price. This is why we don't make major moves intraday and wait for the close.

I'll try to get one more update before the close, but right now it's looking 70% bearish. At 90% I'd call for a reversal.

CSX is foggy, but it should see upside in the next few minutes with a positive 1 min diverece

This Bounced Bear is About to Come Crashing Down

Do yourself a favor and read Trade-Guild tonight, sometimes we get too caught up in minor details that really aren't all that important and there's some ideas there to help traders, trade WITH the trend because after all, "The trend is your friend, until the end when it starts to bend".

Today was a nothing day, breadth stunk. The market lost all momentum, but we'll see what happens tomorrow with AA's earnings out, the after hours had AA marked up, but lets see if they sell the rally there-same with CSX. This could take a few days, but it should be apparent in 3C pretty quickly.

Keep an eye on those shorts from last night, the ones that are moving down can be phased into 25% or so at a time or a bit more. The one short that ran away today, ABR, I should have elaborated on. Unlike the others, that were mostly already trending lower, this one was/is just entering into a top. It may be a quick double top, but you do want to wait for some confirmation and although I do say all the time "tops are volatile", I should have said something about that one. I still think it will be a nice short, but it's bout $7.60 where resistance comes into play.

Right now, it's back into our "Patience " mode and lets see what the sentiment is like through this week of earnings. Remember, it;s not the news, it's how the market reacts to the news. Speaking of which-BAC is going to be one to keep an eye on-it's still riding the market, almost tit for tat, but I suspect when a reversal comes about, BAC will fall a lot faster then the market.

If you have specific questions on anything-stocks, positions, risk management, etc-email me at BT46N2@gmail. com

For now, use your advantage over Wall Street, "Patience". Oh, and send me some stocks with earnings this week and lets see if we can find some leaks we can try a few quick trades on as an experiment and lesson about how Wall Street is really bent.

If you are feeling nervous about the recent bounce (which I hope I put to bed for you with the post over the weekend), take a look at Trade Guild tonight and note in those time frames, there's not a lot of vacillation-a downtrend is a downtrend, no matter what bounce is in there and you'll see when a downtrend is no longer a down trend.

The Skinny

That's a perfect description of breadth, you can never take a price move and make assumptions about it without examining it's breadth. solid breadth, solid trend. Weak breadth and a weak trend or  manipulation of prices.

This is  a new indicator I'm still working on. I'm assigning a value to each of the 4 Price/Volume relationships; obviously price up / volume up is the strongest and price down / volume down is nearly meaningless. Then the values of each day's price/volume relationship are multiplied to give the colored bars that look like a cross between volume and MACD. You can see it's negativity during the sell-off in 2008, the cross up during the Fed's heaviest area of activity and the positive, but declining breadth in the March 2009 Rally, which 3C has confirmed again and again. Now our "BIG bounce" is clearly in negative breath.

A close up of the same SPY chart-this is still a work in progress, but pretty effective.Note how the recent bounce is not only not holding its own, it's getting worse! The red arrows show how breadth reading deteriorate during rallies and call reversals. This is why I always look at daily breadth, but here I'm taking it a step further and cumulating it with expressions of value for the relationships multiplied by the day's volume.

Now to look at the averages in different timeframes using different versions of 3 and 4C

DIA 30 min 3C variant

DIA 15 minute

SPY 10 min 4C

QQQQ 3C v.2 5 minute

SPY  3c v.1 1 minute

All the timeframes look pretty bad. See my post at Trade Guild tonight about BAC, this should not help sentiment during earnings considering the apparent deception at earnings to the tune of $10.7 Billion dollars of debt hidden.

Now for some shorts that are worth taking a serious look at:

CAR short-read the annotations, this may have a little upside but not much before it continues its plunge. This has a lot of downside left.

DAN short, this is an established down trend-Primary as well. The leading negative divergence will eventually pull prices much lower. Note the stages of the market: 1) accumulation 2) Stage 2 "Mark Up" 3)  Distribution  "Top" 4) Sell-off/decline.

Almost all stocks and markets go through this exact pattern eventually.

PIR short, same pattern as above-Note the very common triangle top, a breakdown, and leading divergences in my 3C and Worden's TSV which I have cumulated at the bottom. This rally will fail although it may reach the apex of the triangle, but not too likely.

FARO short, an established down trend with several serious levels of resistance. You can use the highest one for risk management/position sizing and add as it comes down. The volume on the bounce is pathetic. Be careful though as this has low volume, mostly because of the downtrend. Low volume is the hallmark of a bear market!

ABR short-note the same 4 stages-we are in stage 3 major distribution/top with a bad leading negative divergence!

TGT short. Again, the same 4 stages. Learn these 4 stages, it's imperative to know where you are within the 4 stages, this one is stage 4 decline- very high probability setup as you trade WITH THE TREND! Note how long distribution can occur. The pros don't buy on the way up, they sell. They bought at the accumulation bottom and slowly release their inventory as not to knock prices down during stage 2 "mark-up". This one is in stage 4 decline and early stages so there's a lot of downside left.

Finally, AMPL -THIS IS A LONG! Note it is in stage 1 accumulation, the triangle base confirms this and it looks as if it's ready to break out. I think momentum traders will gang up and force this one much higher. Recall the post about how momentum traders use the market maker to push prices higher at his own expense? That's what looks like may happen here, although I do believe it's the market maker accumulating, he just doesn't know what he's in for yet. This will be a very interesting and informative trade to watch unfold. It is speculative, but I believe worth the risk-with proper risk management which includes a wide stop initially.

Keep an eye on the BAC short I mentioned on July 6th, as I have been PREACHING, things happen in the market; CNBC will tell you why it happened today, but as I point out relentlessly recently on both sites, it's a bunch of BULL and their would be 4 letters after that that start with an "S" and end with a "T". It took 7 days to find out what really happened. They've been in the know and distributing BAC since they received the SEC letter in March and after their response in April. The breakdown was most likely due to the fact the knew the SEC release was imminent. Trust the chart-it's the only thing that shows action, everything else is just words and as we have seen, the words were worthless. NOTHING in the market is as it seems.

So watch for the market to turn, I think very soon. When this occurs or as any of these shorts turn down, I would consider any of them to add to your short position.

REMEMBER, shorts, real shorts (not buying inverse ETFs) have the advantage of being able to immediately use the profits to pyramid the trade or finance other trades. YOU CAN NOT do this with a long position. the profits in a long are paper until you sell the position and realize the gain, That is why the argument "You can't make more then 100% in a short, because it can only go to zero" is totally wrong and not well informed.

I hope you found tonight's post not only useful for positions, but that you learned a few things that will help you become a better, more informed trader. And the BAC post at Trade Guild is a really excellent study in the market and the power of 3C to pick up on how these guys operate. Just watch the divergences and you'll know exactly what they are doing. Months later you'll find out why, which is mostly irrelevant to taking on the position.

Have a great week and WELCOME to all of our new members. We are running out of space!!!!

New members, be sure to check the June 3rd "core short list" of ETFs but try to mix in some real shorts and read back a few months to understand what we are up to or just email me any time

RISK MANAGEMENT! RISK MANAGEMENT! RISK MANAGEMENT! RISK MANAGEMENT! RISK MANAGEMENT! RISK MANAGEMENT! RISK MANAGEMENT! RISK MANAGEMENT!

If you read Trade Guild last night....

Then you'd know that as I explained in the long-winded post, the most likely outcome today would be an intraday penetration above the gap or a close above it, which is set up, as all false moves have been, to take people's money and shares and provide the fuel for the next reversal.

I could be wrong, but I don't think the series of accurate calls that we've had which include the one last week about this bounce with the target while the market was still in decline. The bounce was right on, the target was right on and last night's "most likely outcome" was right on. If you look tonight at today's move, you will see that this does not look like traders excited in anticipation of earnings, but rather the oversold bounce as I called it last week. The stats back that up.

I know that this is a nerve racking experience and your instincts are telling you to run the other way, that's what Wall Street counts on to make it all work for them. At the same time it would be highly egotistical and irresponsible of me to say that "I know what the market is doing, follow me". We need to have contingency plans even if we think the chance of needing them is 1 %. So next week we'll take a look at AA and the others announcing and we'll see if there's a chance of this pendulum swinging higher and what we need to do to counter balance that scenario. I'm also going to try to show you how crooked Wall Street is and give you some predictions on the outlook and response to companies' earnings. Just email me your favorite stock reporting a day or so before and I'll look for the tell tale signs of a leak and show you so you understand how rigged this game is and how we can use it to our advantage. We might even make a few quick bucks on the leaks.

Otherwise I think the analysis from last night is solid, the bounce (despite the headline gains) is  more pathetic then anything seen on the same chart I posted at Trade Guild tonight, click on the chart and read the captions and you'll understand.

I'm probably going to release a few trades that look manipulated, we're going to have the opportunity to put another money making tool in the box and see how well it works. I'll also release the highest probability shorts going into next week.

Remember this about earnings:

1) more often then not there's a bullish upside bias right before earnings
2) sentiment counts more than anything else, even the best earnings and guidance are no match for market sentiment
3) Earnings aren't about what you did, they are about the guidance of "what will you do next qtr. ? "

So if a company does fantastic this last quarter, it can actually be a bad thing as traders will say, "I don't think you'll top that" and if that's the case, there's no reason to hold the company or buy it-they get sold off.

And last, remember this, everything you see and here from Wall Street is deceit; it's not just the little penny stocks that are liars, think Global Crossing, MCI, Enron, all the banks that said "We don't have anymore exposure to the housing crisis" until the next quarter's write-off's became public.

And....Don't fall in love with stocks, fall in love with your mate, chocolate, whatever, stocks are a tool to get from A to B and that's it.

Again I stress putting time into risk management planning. There are a lot of resources at Trade-Guild. I was published and won an award for my risk management planning.

So here's what we're going to do for anyone who wants to participate. If it's a rainy weekend and you want to win a month of membership to WOWS, send me your ideas and plans about risk management so that I can share them with everyone else here, I won't disclose any personal information (unless you ok it)  and may edit them for clarity and length. Which ever submission brings something really exciting and useful to the table will be the winner (chosen by me).

I also want to bring to your attention to the fact that there are a lot of talented traders here, I see it by your emails. There is also a comment section below each post and a thread can run as long as you want it to. Why don't we all help each other out and share our ideas and opportunities we see in the market day to day. Don't be shy, no one is going to look down their nose at someone who is contributing to other's success.

Have a great weekend and think about getting involved!

Nothing new

The mqrket has a slight negative bias but is mostly doing what I talked about last night.

Update

I won't be updating every ten minutes, I just wanted you to know that the Q's and the DIA look WORSE than even the SPY does right now.