It's no wonder the market is so consolidative today... From a quick look at 3C, most of the averages seem to be gaining ground (3C-wise), the Q's the IWM, the DIA still seems a bit consolidative and the SPY too, but the SPY looks better than the DOW; the Q's are really making progress.
So you may have noticed I don't use a lot of MACD, Stochastics, RSI, etc. That's because the information there is market wide, everyone knows the same thing, in reading interviews with some of the top traders the theme is pretty consistent: #1 Risk Management, no matter how good your system is, trading comes down to averages and consistent risk management may not be fun, you may miss a few trades, but over the long haul it is really the only thing that will let any trading system (that works-many don't as I have back-tested just about every popular system out there) give you a steadt equity curve rather than a volatile choppy curve with 40% gains and 50% losses, you're much better off with a steady equity curve and that should be a part of everyone's trading journal, THAT'S YOUR REPORT CARD.
#2- Can be summed up as, "To make money you have to see what the crowd missed", it's hard to do that if you are listening to Cramer or using the standard TA Tool kit.
The Risk Asset Layout was an idea I got from looking at CONTEXT and pondering the asset classes that make up the model. I think we look at currencies about as often as the normal trader looks at MACD and I wonder if the normal trader has any idea how much influence currencies have on the market. In any case, the Risk Asset Layout has a lot of leading indicators, not because I read somewhere they were leading indicators, but because we've used them with so much success in supplementing our analysis. So I took a look at them to see what exactly is going on today.
The market today-very consolidative, positive, but consolidative. I don't typically get wrapped up in intraday trade or day to day trade, I trust my indicators and I try to keep my eye on the big picture. When you get "Lost in the lines" all you do is create emotional burdens and uncertainty, when in doubt, look at the bigger picture. Looking at charts in multiple timeframes from 1 min (when I was day trading I used 3C successfully on TICK charts, every tick!) to 1 month, you'll be surprised what you find, most traders have 2 or 3 timeframes they look at, but usually 1 that they depend on, that's only a fraction of the picture.
Commodities today look a whole lot like the SPX, that tells me something is going on with currencies, specifically the Euro/$USD.
The bigger picture... When we get a potential head fake move as we expect to get, it's important to confirm it, commodities did just that as they moved higher while the SPX moved lower. What do you think 95% of traders in stocks were watching? Thus they missed this signal, it's only 1, but we don't make decisions about probabilities based on 1 signal and never market action alone as market action is deceptive.
High Yield Credit is one of my favorite leading indicators, it isn't negative today, it's right in line with the SPX and considering where price is relative to the pennant, that's a bullish signal.
HY Credit is the second signal in a row showing the probabilities are the recent move down in the SPX, below the pennant and 200-day average is a head fake move. We already know that any easily recognizable pattern in the market is likely to see at least 1 head fake move, I'd guess at least 80% of the time and on EVERY timeframe. The more obvious the pattern is, the more likely it will see a head fake move. I have explained in the past why head fake moves are important to reversals, if you don't recall, just think about it for a minute, it will come to you.
Here's the 3rd signal, Yields which are like a magnet for stock prices, but they almost always lead, note them giving a signal before the SPX even bottomed, why is this important? If you have good confirmation you can use the market weakness to enter long positions. Today's action is consolidative.
Here you can see it closer, consolidative, but improving.
The overall position of Yields vs the SPX points in the direction of highest probabilities. Probabilities are the best we have, the only certainty is after the trade is over and there's no money in that.
The Euro today since the 9:30 US open-consolidative.
The $AUD as a lading indicator among currencies (the Yen works too), that's what, the 4th signal of 4? As you can see it too is consolidative today.
A closer look at the $AUD
The Euro itself, positively divergent at the bottom, we now have 6 of 6 all giving the same bullish divergence?
Here's High Yield Corp Credit, another risk on asset class, not a flight to safety trade. However looking at the 1 day timeframe this tells you NOTHING.
Looking intraday this makes 7 of 7 calling the SPX bottom and the probability of a head fake move is much higher.
Intraday HY Corp. Credit (Credit leads-stocks follow) is pulling ahead of the SPX.
Sectors, Energy bottoming before the SPX, it's been fairly volatile today.
Energy Intraday
The volume at the lows today is interesting, we'll have to take a closer look at that.
Financials, I think it was yesterday I said I thought Financials were about to rotate in, and another confirmation in relative momentum vs the SPX.
Financials really made up for lost time today, they are outperforming the SPX easily.
As for head fakes, on this daily chart the large bearish ascending wedge which TA teaches should break to the downside when it reaches the apex put in a decent size upside had fake, but these patterns are still useful, you just have to know in the near term they will be manipulated, so a big upside manipulation, short traders entering on the bearish wedge are stopped out, TA says a when you find a failed pattern reverse your position, traders go long and are stopped out again, at the yellow arrows recent head fake moves around the bear pennant, first an upside breakout that fails, exactly what traders are looking for to go short, then what they view as confirmation with the downside break, yet we have plenty of evidence it's a head fake move, now we have a bunch more shorts that will feed the initial short covering spark and provide momentum on a reversal.
Tech-as long as I have thought we's see 1 more volatile (even scary) upside bounce before the market tanks, I have thought Tech would lead it, Tech certainly was much more positive than the SPX or any other major industry group on the move down.
Intraday though, consolidative. How does this ultimately resolve, once again, when in doubt look at the bigger picture which is above.
XLK's/Tech's consolidation today. It's little wonder the market has been in a consolidation today. We just have to watch for Wall Street games as nothing is as easy as it appears to be.
Finally Sector Rotation, I just want to point out Financials at the bottom, yesterday I thought they'd come in to rotation based on charts, today they have rotated in.
