Will Traders Ever Learn?

Again, as usual, huge volume as the trading range support is taken out. Naturally part of that volume is short sellers, but a big part is longs setting stops at intraday support. It happens every single day, multiple times a day and they just don't learn. They're stuck in textbooks instead of learning from the charts.

Morning Update

So far the market is in a holding pattern, this is not very bullish, after Friday's move there should be follow through. Right now we seemed to be stuck in a trading range between $114.40 and $114.80 on the SPY. In the past which ever way the market broke out of the range is the way it would close, but now-a-days, I'd expect to see several false breakouts.

The 5 minute 3C is negative, it could impact prices today, the 1 min has a divergence here and there, but is largely tracking price.

NEW TRADES ARE UP

FOR NEW SUBSCRIBERS LIMIT ORDER<$28.50  means enter the trade above $28.50, unless otherwise noted, this includes intraday prices

AT MARET means at the open, at market price.

Stops-are suggestions, modify them to fit your trading style. I'm always available to bounce an idea off.

Unless otherwise noted, stops are never put in the system-no orders are put in the system until execution, keep them mental or as notes. Stops should be executed as close to the close of the trading day as possible. Intraday volatility will stop you out to often.

A Lot of Charts-A Lot More Information

Above are 3 1 hour 3C charts showing the SPY, DIA and QQQQ. The red arrows point to a divergence indicating distribution and an eventual turn down. The white arrow is late August accumulation when shorts were very thick in the market. The next red arrow from there shows another negative divergence as that inventory is sold and most probably they are now short. 3C is a proprietary indicator put together using TeleChart's "Custom Indicator" function.

The charts below will show 1 or 3 different things Institutional Holdings, Insider Holdings and Short Interest. Institutional Holdings will be on every chart, they will always be on the top. Pay attention to what 3C is saying above and what StockFinder's Institutional Holdings Indicator is saying. These are important companies and several like AAPL and GOOG have been used recently to move the market due to their weighting on the averages.

AMGN

AAPL

APA

AMZN

BMY

CAT

COST

CSCO

CVX

EMC

GOOG

GRMN

GS

IBM

INTC

KO

MA

MCD

MMM

MO

MRK

MSFT

ORCL

PCLN

PG

QCOM

T

VZ

WMT

XOM

As you can see, these stocks have been under distribution for sometime. This is what causes a negative divergence, rising prices, while institutional money is selling, this can only go on for so long before there's a reversal in stock prices as you can see in the 3C charts at the top. In most cases, the institutional holdings have seen a sharp drop into prices. They'll be updated to fill in the gap you see of a week next Saturday.

Looking at this chart of a WVAP (Volume Weighted Average Price) for Friday I found it surprising that it did not rise dramatically, it barely went up at all and it only takes about 3 bars to turn from a downtrend to an uptrend.

This taken with the 3C charts I posted on Friday, "The C's"  is certainly interesting, not to mention what appeared to be defense of a short position on the 3 later afternoon breakouts, the upside rally volume was light, the downside sell volume was heavy, heavier then I'd expect. I have a feeling Mr. Tepper gamed the market on Friday. We have some important reports coming out this week, including GDP which was prefaced by a couple of strange statements from the Fed. However, you must always think of all possible outcomes and how you will react to each BEFORE they occur. If you haven't read it in awhile, please refer to my RISK MANAGEMENT article linked on the site.

If you think the market isn't routinely gamed by Hedge Fund Managers, watch this video again.

To use these indicators, checkout

Wall Street 2, Money Never Sleeps

I just saw the movie tonight, our first date night in quite awhile. It was centered on the 2008 crash of Wall Street and there were obvious hints at the failure of banks like Bear Streans and Leehman Brothers, a fairly obvious company with the initials CS behind the demise of one the banks-similar to GS which was thought to have spread rumors and selling short the banks. Also there was a suicide on the train tracks, perhaps a reference to  KIRK STEPHONSON or several other suicides related to these firm's collapse.

Overall Oliver avoided any possible law suits, but the innuendo was strong enough to give you an idea of who was who in the zoo. I'm sure others who see the film can make the connections better then I.

Overall-the first Wall Street was better.

I think Oliver Stone could have done a much better job with the film considering that historic year. I give 2 stars of five.

Stay tuned for a market post coming up with some interesting twists and turns.

Poker?

Yesterday was really out of all logical context. Apparently the futures jumped after a hedge fund manager was on CNBC before the bell (1 hour or so) named Tepper who runs a Hedge Fund, after his comments that the market will rise regardless of the economy, the futures soared, we were in line for the bounce that I had stated the night before, a regular, to be expected bounce at support-nothing strange about that. Tepper's comments changed all of what.

If you watched the Cramer Video, then you'll know how many games these fund managers play and how CNBC is their podium for disseminating the game. These are usually short term and as I said yesterday, every time the market tried to rally above $114.70 area, it seemed like someone was aggressively defending a short position as the decline from the attempted breakouts were on huge volume-retail traders are not typically bearish, and they don't expend that kind of firepower to knock an index down.

So I'm not sure what the game is/was/will be, but it seems to be, in my opinion, not sitting well with the Wall Street establishment. After all, if they wanted the market higher, anyone of those breakouts -if supported, could have made for a 400-600 point Dow day.

Any way, I spent a few hours last light changing 3C code (look back periods), I use 4 versions of 3c, 3 more then the fourth, but I created about 20 to see if there was something in a timeframe that might have fallen between the cracks, all of these 20 new 3C versions said the same thing as the original 4, distribution.

So there seems to be a game afoot. Yesterday was surely a strange day with really no fundamental reason for such a move. We have a lot of very important releases next week-GDP being one of them. A trend, once in motion is hard to turn around. I'm thinking GDP doesn't show much improvement if any, although Bernanke was claiming 2% for the rest of the year, a strange thing to say right before the release don't you agree?

I don't want to speculate, but I can take that one a couple of different directions-offsetting a bad GDP number with higher expectations, -ok, I just said I won't speculate.

In any case, there's a retired MIT guy out there with a site talking a lot about the "Breakout from the H&S bottom", again I created my volume indicator and again the the bottom bears no resemblance-volume wise which is extremely important in confirming a H&S bottom-to a H&S bottom.

In any case, I'm putting more work into the trading systems on specific stocks. If you have ideas or certain area you'd like to be covered in one of the four, send me an email. I've already produced a 54% return on the first shot.

More coming this weekend...Enjoy it.

The C's

I had to throw this together in a hurry as I have an appointment with the Genius Bar as AAPL. I don't usually have time during the trading day to do this. Here are the SPY, DIA and QQQQ.

You don't have to follow all the arrows, just understand the concept of a negative divergence=distribution which can be selling or short selling. The idea is the 3C indicator is lower at it's high then it was at a lower point in time. If there was confirmation of a healthy trend, 3C would move in almost lockstep with price and make higher highs.

The idea of a divergence (negative) is smart money picks up or has a position they want to sell, or they want to go short into.  Like you or anyone else with common sense, you want to either sell or go short into the highest prices possible. For you and I that's pretty simple, for smart money there's another factor. the size of their positions are not 100-1000 shares like most of us, they are hundreds of thousands to millions of shares. Just like economics 101, the rules of supply and demand apply. If they flood the market too quickly with their supply to sell or try to accumulate a short position (still= selling) too quickly, then they throw off the supply/demand balance and send prices lower, exactly what they do not want. So smart money must feed out their shares incrementally in smaller packages, this type of selling is very difficult to detect, 3C does a great job at sniffing it out. So a smaller position takes less time, therefore the divergence will be shorter before the reversal-market volume and retail buyers willingness to absorb supply also factor in. So low volume or uninspired buyers can cause distribution of a position or accumulation of a short to take a longer time.

This is where 3C is of no use, in determining their position size and plans for their short size, although I have a few ideas I'm working on to give a better feel for how much they have accumulated. The market maker also plays into this and can front run institutional money as they are filling the orders for the smarties. This can also be a factor as Market makers or Specialists trade their own accounts in addition to making a market. It's said that up to 30% of a stock's volume per day can be the market maker simply trading their own account. They are known for taking the opposite side and basically betting against the customers who have tasked them with executing their orders-Wall Street is dirty, there's not a lot of loyalty.

So in nutshell that is the idea. While it is not perfect, it does tell you something very important-they are selling. Without 3C you'd simply see an uptrend and most probably assume they are buying and would most likely fall victim to being the last person standing when the music stops.

Last night I ran the simplest of tests using 3C with a random basket of stocks and we saw what would be a return that most managers would die for. So obviously it works and my years of experience with it show that it works well. Like I often tell you, the reasons are unknown. We find out later. At the moment is is occurring , the logic seems counter intuitive. I have reasoned against the 3C charts many times and missed great trades, so now I trust them until shown otherwise. the reasons will probably come out later and the reasons aren't that important unless your primary concern is outsmarting the market. Which opens the door to leave you with this market motto, "Do you want to be right, or make money?"

I'll be working more on trading systems, if anyone has specific requests, specific groups or trading styles they'd like to see covered, let me know. I figure I'll have a tending system, a swing system for times like this, a short term system and an investors long term system for those not interested in watching the market every day.

Volume Again

Someone with some firepower seems to be suppressing the SPY from taking off here. With 3C all negative I can only ASSUME Wall Street is protecting a short position. I can't pretend to understand this action, but I also see unambiguous negative divergences in the timeframes that count.

This does not mean that you should throw risk management to the wind-it is the most important concept in trading.