So as of Friday, actually as of Thursday, I started to suspect that this would be a larger accumulation period then what we have seen so far. An accumulation period is like a stage 1 base and thus far its strength has been about as strong as we have seen in 6+ weeks, but the other half of the equation is time. A strong 1 day divergence can move the market strongly for about a day, but a strong 3,4 or 5 day positive divergence is a more substantial base, it means Wall Street has accumulated more and the upside reversal will be that much stronger, rallying for more days and reaching higher highs then 1 day of accumulation.
Accumulation is the act of smart money buying shares for an anticipated move up. Lately it's lasted about 2 days over the last 6 weeks on average and we have seen about 2 days of rally before a reversal.
Two things I have expected 1) a new low to be put in on the SPY and 2) after that new low, a strong move up. This seems to be counter-intuitive from price action and certainly from news flow, but that's often how accumulation is accomplished, they never accumulate into strength, but weakness. It only stands to reason that the bigge ther accumulated long, the higher they will push the market and th longer it will take them to distribute their long position, they always sell in to demand or rising prices, much different then what many market participants believe.
I originally thought we'd see a quick move higher, followed by a new low and then the real move higher, but we may in fact be cutting one of those steps-the quick move higher and we may be moving right to the new low and strong rally up. Again, the length of accumulation and the confirmation we see among the averages, timeframes and correlated equities will reveal the true nature of the situation.
Here are the charts
DIA
DIA 1 min showed a little weakness late Friday, this is an intraday to 1 day type timeframe and has little impact on the bigger picture, but may be suggesting that the market will head back toward the bottom of the trading range the market has been in the last few days, trading ranges are also where we commonly see accumulation as well as in to lower prices, but I will address the trading range a little later.
The 5 min chart has been under accumulation (white arrows), but Friday we also saw some weakness, again suggesting we may be heading toward the bottom of the range, this is why I try to enter partial positions so I can add at better prices when accumulation is present.
The 15 min chart, which represents the longer term view of several days to a week or sometimes more, is in a sharp positive leading divergence in the white box, this indicates strong accumulation. It also called the last move up and the market move down with distribution at the red arrow.
Now even the 30 min hart is going leading positive, which is rare for a short term move, the longer the timeframe, the more important the trend as it shows stronger accumulation by smart money.
Even the 60 min chart has now gone positive leading, we haven't seen this in the past 6 weeks or so in any of the moves up.
The DIA 5 min 3C depth chart in the lower window shows the trough to be the shallowest since August, meaning it is the strongest round of accumulation we have seen in over 6 weeks.
The more important 15 min hart shows the same, I drew a red trendline to show how shallow the trough is compared to past accumulation zones at the white boxes. However as you can see, this is not the longest duration of accumulation... yet.
QQQ
The 1 min QQQ is showing a little weakness on Friday as well.
The 5 min chart is very positive, but Friday we saw some weakness, I will explain this in a moment.
QQQ 10 min is in a leading positive divergence-strong accumulation, with some slight weakness Friday.
QQQ 15 min leading positive divergence
And now a 30 min leading positive divergence, this tends to indicate a strong up trend should follow soon.
SPY
SPY 1 min shows some weakness on Friday
Here are the 1 min intraday moves, ending with some weakness Friday.
SPY 5 min 3C is leading positive, good accumulation, but there was some weakness Friday
, this will often happen when prices start to go higher then Smart Money wants to accumulate at, so they let out a little supply to drive prices lower back to their target zone.
SPY 15 min is leading positive, so far we have good timeframe and average confirmation.
And we also see a 30 min positive divergence forming here.
Looking at the 3C depth chart, you can see how shallow this current trough is, indicating a stronger round of accumulation
The 2 min chart shows the same, this is new record accumulation strength going back over many months.
The 5 min chart is in a strong, new leading positive divergence, stronger then anything on this chart, and the depth chart reflects that in this current trading range as well.
The 15 min 3C depth chart in the bottom window confirms the strength of this current accumulation cycle, look how shallow the trough is compared to previous accumulation zones in white, all of which preceded an uptrend.
Here is the bear flag, note we are very close to new low territory, making a new low is something I have anticipated before the market moves significantly higher. The idea is volume will surge with short sellers and it allows smart money to accumulate in bulk as they simply take the other side of the retail trade, it's called a head fake and it is an important part of any upside reversal.
Here is the recent trading range in the SPY that has been under accumulation, note prices are getting high in the range, smart money wants to accumulate at the lowest prices, so a move toward the bottom of the range or below the range is beneficial for smart money's long position and ultimately, the uptrend that follows.
VXX-Volatility
VXX trades inversely to the market, so seeing 5 min distribution hints that the market is under accumulation and VXX will fall as the market rises.
The VXX 3C depth chart here also shows this current round of VXX distribution represented by the depth of the crest, is lower then the last downside reversal/distribution, so it too implies a larger move to the upside for the market.
This slightly longer chart of VXX also confirms the same and shows distribution has been taking place in VXX as it makes higher highs, as I said, smart money almost always distributes their long position in to strength., the white boxes are VXX accumulation ares, the yellow arrows show the depth of distribution.
The 5 min chart shows where they accumulated VXX in bulk at the white box and how distribution has grown stronger following the yellow arrow as well as the 3C negative divergence.
The more important 15 minute chart shows more history and once again at the white box you see accumulation, the yellow boxes show distribution in to rising prices, currently distribution is stronger then the last move down.
Here's the open tonight of the EUR/$USD currency pair, there was some initial strength in the Euro which faded, however in currencies, a lot happens overnight. A strong Euro usually accompanies a strong stock market and vise versa.
This 15 min chart shows some potential areas of support for the Euro.
FXE-Euro ETF
FXE 5 min is in a leading positive divergence, it seems the Euro is being accumulated, contradicting news and price action, however there was some Friday weakness which is probably being reflected in the Euros move down tonight.
The 15 min chart shows several divergences and the proceeding trends, currently we have another leading positive divergence as if someone knows something.
We even see it on a 30 min chart, which is rare
Even more rare is the Euro under accumulation in to weakness on a 60 min hart, implying heavy accumulation, which is supportive of the stock market.
UUP-$USD
If there's accumulation is the Euro, we expect to see distribution in the dollar, a weak dollar is positive for the stock market. Late Friday we saw signs of short term dollar strength, which is being played out now with the Euro falling and the dollar rising, however this is a short term trend.
The longer chart of the dollar shows accumulation, a move up that i confirmed and current distribution
The 10 min chart is confirming dollar distribution, also market positive. Thus far we have good confirmation between the markets, volatility and currencies.
UUP 15 min negative divergence at new highs in price.
Amazingly, in confirmation with everything else, we see 30 min distribution in the dollar as well, this is strong distribution.
And even more impressive, 60 min distribution, implying a strong round of market accumulation is under way.
I suspect we will see early weakness in the market sending it toward the trading range lows and maybe lower, but I also expect to see smart money accumulate on price weakness, if so, I will add to my long positions. One of the best timing indicators as we transition from accumulation to an uptrend has almost always been a shakeout or head fake, a move below the market's trading range would do that and allow smart money to accumulate in much greater volume. It would also create a short squeeze as the market moves higher and give the uptrend and added boost as demand overwhelms supply as shorts seek to cover. Currently short and margin interest is about at the same level as we saw at the 2000 tech bubble top, so a move higher would create an extreme short squeeze sending the market much higher very quickly.
Well watch for any indications of a move to the lower end of the range as well as a head fake. So long as accumulation stays strong, it will be an excellent, low risk/high probability time to add to long positions or initiate new ones.
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