IWM Crazy Ivan

I hadn't thought about this in the expectation of weakness this morning based on where the 3C signals closed Friday, suggesting they pick up where they left off and we see additional weakness early this week/Monday morning such as we have, just as was forecast this morning in the A.M. Update or last night's, Sunday Night Futures and the Week Ahead or multiple posts near the close Friday.

However looking at what the IWM has done in breaking its range this morning and badly so with TICK readings of -1800...

TICK seeing massive selling, potential capitulation / short term selling event- look for volume to rise in the averages on a move lower that does not hold.

This would introduce the "Crazy Ivan" Concept.

Over the past several months I have shown you numerous assets that have used a Crazy Ivan double head fake to do what they could not within their ranges, XLF was one of the notable ones, although we saw it in UNg, GLD, GDX, numerous other examples.

IWM hasn't been able to break above it's 6 trading week range because it is weak, which is precisely why a break above would inspire bulls, however it still needs the momentum to push to such a breakout, just as XLF did or UNG when I sold it on the day of it's near 6% breakout, only to fail, NUGT, GDX, etc.

It's this same weakness in IWM that would cause it to fall after any such upside breakout, but first we have seen a downside break down. If you have read my two articles, * Understanding the Head-Fake Move Part 1 and * Understanding the Head-Fake Move Part 2 then you'll easily understand the concept and purpose of a Crazy Ivan and perhaps why we just saw the IWM break below the 6 week trading range that has held.

I terms ed the phrase Crazy Ivan shakeout (although I've seen others use it since) based on the movie, "The Hunt For Red October".

In the movie, Attack submarines would attempt to follow ballistic submarines of enemy nations and to do it undetected, they'd travel closely behind the enemy submarine in the region of their prop-wash where their sound/acoustic signature could not be picked up by the submarine being followed so Russian Submarine captains came up with a tactic to avoid this kind of tracking from behind called a "Crazy Ivan in which every so often the Russian submarine commander would order the submarine to do a 180 degree about face turn, in to the oncoming path of any potential subs tracking them and thus exposing them, also known as "Clearing the baffles". 

If you understand how a false breakout of a stop run head fake move produce reversal momentum, than you'll understand how a break below the IWM's range support, would give it the momentum to make an upside reversal and breakout, just like a crazy Ivan  , a turn 180 degrees opposite the intended direction and then another turn 180 degrees again back toward intended direction.

We've only talked about an upside head fake move in the IWM above the range which is meant to serve as downside reversal momentum, but we didn't address the inherent weakness in IWM that has kept it from making such a breakout for 6 trading weeks. A Crazy Ivan, initial downside head fake would help IWM get the momentum to make the upside breakout and look like this...

Here's the initial break, oddly timed after 6 weeks of staying in the range, just as we expect morning weakness to be followed buy the increasing probability of a head fake upside move. BECAUSE THERE ARE TWO SUCH HEAD FAKE MOVES ON EITHER SIDE OF THE RANGE, WE CALL IT A CRAZY IVAN SHAKEOUT, first shaking out longs and bringing in shorts that are used for upside momentum on a squeeze, then a breakout above bring in new longs and forcing them to sell on a downside reversal as stops are hit, the ultimate goal of the exercise. Thus I give you the CRAZY IVAN Shakeout.

Here's how it worked in XLF not too long ago...

After entering a half size position in FAZ (3x short Financials/XLF), waiting to add the second half ABOVE the range where risk was less and the entry better, it started to become clear after a 2 month range that XLF didn't have the strength itself to make the breakout move and I started to suspect a breakdown. At #2 on the first strong day below the range I closed my FAZ Financial short, even though it was up over 2% on the day and almost +8% the last 3-days. You'd think such a break below the support line of the range would be exactly what you'd want in a financial short, but this is how the market uses Technical Analysis against you. I quickly closed FAZ that day suspecting it was the first half of a Crazy Ivan shakeout, with intentions to re-open the position above the range on the second half of the Crazy Ivan even though this was t\only the first day, the concept is that strong it allowed me to correctly forecast XLF's move almost a month in advance and I left NOTHING on the table in closing the FAZ (3x short Financials) long that day. Soon XLF gathered the momentum of a head fake move and broke-out above the range, something it could not do on its own previously, the same as IWM, eventually I re-entered FAZ above the range and it came back down at a nice gain.

And that's how a Crazy Ivan works, which I suspect we are seeing now in the IWM. I'll be watching for accumulation signals, you too should watch for a candle that refuses to hold its lows on heavy volume, something like a hammer on heavier volume as this would indicate a short term selling climax and the probability we are close to the second half of the Crazy Ivan, the upside breakout we have been expecting since late last week.

Early Update

As expected, early weakness is taking hold, the falling USD/JPY seems to be the main driver this morning, but there were some other apparent events as well and all is FAR from what it seems as I suspect we will continue to see at least up until Wednesday's F_O_M_C.

 First USD/JPY early overnight strength gave out.

As the cash market opened the correlation between USD/JPY and ES/SPX futures became even tighter with USD/JPY dragging down futures/the averages as we expected this morning-WEAKNESS.

However this is abundantly clear as well in TICK, almost more so than in USD/JPY as if this move were intentional as TICK opens at +500 and quickly moved to -1300 this morning.

The 3C concept of price picking up where a 3C divergence left off, even over a long weekend, still holds. This morning's pre-market strength rapidly faded to weakness once the cash market opened as usual, this is a strong concept showing the advance planning of market participants who have the power to move the market.

SPY 1 min negative this morning picking up where it left off late Friday,

The same for the 1 min Q's and

The 1 min IWM

However...  There are still areas of strength in the SPY and especially the IWM, although not so much the QQQ right now, which would be along the lines of the only head fake move really needed would be above the IWM's 6 trading week range.

 IWM 5 min still positive.

SPY positive only goes out to 2 min, relative weakness.

It appears QQQ's positive is fading, which it may be, but we can't say that yet with certainty as this 3 min looks pretty negative this morning...

As does the 5 min.As does this 5 min surprisingly, however there are some additional interesting signals that all is not what it seems.

 HYG intraday weakness picked up where it left off on Friday, but this is one of the keys to moving the market and...

 it's 3 min positive still holds, this will be a key asset.

Also TLT or 30 year bonds...

 Again, weakness picks up where it left off Friday in 3C, this needs to head lower to give the market support.

However as I have been thinking, any such head fake move would be short lived, enticing a Santa Claus rally expectation and potentially slamming the door on it once the bulls start to move through it.

The TLT 5 min chart remains in line with its trend strength.  See above.

As mentioned the VIX star from Friday has already seen weakness this morning which you wouldn't expect on this morning's action, I don't think the VIX upside run is done, but it's not unusual for there to be some small corrective moves in such a large run.

One of the more interesting signals this morning is my custom SPY/RUT Ratio and VIX Term Structure indicators, both giving bullish signals, at least near term for the moment.

 The SPX/RUT Ratio (red) is positive vs the SPX trend above, not confirming the downside. And the VIX Term Structure is above 1 at the white bars, an early buy signal, however it needs to be put in to context on this 60 min chart.

The current signal is not as strong as the one ar #1 from July and you can see that caused a small move to the upside, just what I am looking for. In August and October the signals were much bigger and resulted in much bigger moves so this looks , so far, like what I'd expect, although I was a bit surprised to see it, it is not on par with the August/October lows and serves as early warning as a buy signal.

I won't be changing any positions and remaining short looking for the chance to short more in to price strength, at least as of the moment.

All is certainly NOT what it seems

A.M. Update

Good morning,

It seems everything we are expecting for at least the start of the coming week has come to pass overnight: Higher Index Futures, Flash Smash and Higher Crude Oil, Lower 30 year Bond and Lower Gold.

However it looks like Index futures will see some early weakness from present pre-market divergences, also as expected, our crude oil (USO ) calls should do well this week.

 ES futures up overnight, but in to a negative premarket divergence.

The same with TF/Russell 2000 futures.

And Q.

Crude sees a flash smash higher overnight (green arrows) started to pill back and is gathering another positive divegrence below it now.

30 year Treasury futures fell as expected, but showing an early positive divegrence, meaning early market weakness likely.

And gold fell overnight, but it too has a small early positive divegrence.

Everything we expected to happen has happened, but looks to pare back some of the gains/losses in early trade, which is also what we expected in early trade today.

We'll know more soon...Looks like a great start to the week!

Sunday Night Futures and the Week Ahead

Good Sunday evening to you, I hope you had a fantastic, peaceful weekend.

As for late last week's action beyond some of the worst markets in 3 years, one of the things I didn't do a lot of last week was put out new trading short set ups and while that is based on signals at the time as we can only see the money flow, not know what it will mean in days or weeks, looking back on the week, just about any short entry would have left you chasing at worse prices, higher risk and potentially some near term draw down so the signals were correct in not calling for new shorts as the market continued the week to end at the worst performance in 2.5 to 3 years on the week for different averages. Sometimes saving money and not unnecessarily risking it is just as good as making money as losses are very difficult to make back ( a 50% loss requires a 100% gain just to get back to break-even).

However I did make clear Friday in Planning Ahead and then again Saturday that I think something is up, a short term head fake move, one that would look bullish near term , but have exceptionally bearish effects, I'm not talking about the pattern in price played out over the last several weeks being the same as the October 2007 high and the decline that led to, but something different that I haven't quite pegged yet.

I started to elaborate  the subject Saturday in MACRO TRENDS AND CHANGES IN CHARACTER.

Much of what we do with forecasting starts based on concepts that we have seen over and over on the market and if there's overwhelming evidence that builds from initial indications, we have a good idea of what's coming and how we can use it to our advantage.

Right now I'd ask you to join me in doing what a lot of our concepts are based on which comes from real experience and that's THINKING LIKE A WALL STREET CRIMINAL.

What are two seasonal events that just about EVERY trader just assumes is a birth right? The first would be the Santa Claus rally which s usually speaking, broadly through December but especially the last week of December with year end Window Dressing (THE ARE OF LOOKING SMART) also in full effect and the second is the January Effect, a supposed deluge of new money coming in o the market whether from tax based events at the end of 2014 or new commitments to 401ks and other investment vehicles.

The last concept I've already touched on pretty thoroughly is the 6 trading week range in the IWM that hasn't moved at all and is SCREAMING for a head fake, false or failed breakout move.

Take these 3 Mass Psychology events together and you have a head fake breakout in IWM that gets a lot of attention as it moved to a level not seen in, well a lot longer the 6 trading weeks, but becomes a very obvious event.

This then leads to the assumption that the Santa Claus rally has began. Now should this be a true head fake move as all of the long term charts, leading indicators, breadth and just about everything else suggest it would be, then a failure might even possibly rip the Santa Claus rally out of the bulls arms which in turn , if ugly enough, may kill the entire January effect, no one wants to put money in to a market that looked like October's declines, not even the buy the dip crowd was willing to.

Each concept flows in to the next and amplifies the next. If it were me, I was the crook controlling the short term game with charts that show my activity looking like this...

 long term 2 hour SPY and..

long term 2 hour QQQ...

both of which strongly suggest I (as the Wall St. criminal) have not only already sold my long holdings, but have gone largely short and am in place, then I stand to gain a lot from a move significantly lower and a head fake move, for all of the things it is and does, is a momentum igniter on a reversal (this case a broad downside reversal that many might argue has already begun).

As I look at the futures tonight as they open for the new week's trade tonight, I don't see anything of particular interest in Index futures, however remember the late Friday afternoon post, Planning Ahead. This post showed short term intraday 3C charts either negative or in line with the horrible price trend at the end of the day closing at the lows. ONE OF OUR CONCEPTS THAT WORKS LIKE A CHARM IS 3C DIVERGENCES PICK UP WHERE THEY LEFT OFF, meaning that even over a long weekend if the closing divergence was negative, the probability of price action Monday morning would be negative until a new divergence forms.

However I also showed you several charts in the same post of slightly longer timeframes that were positive suggesting early trade start negative and at some point in the day either start turning more positive in price or growing a larger divergence. In addition, HYG has seen short term accumulation which is also in the same post linked above and there's only 1 reason to accumulate HYG in to these prices and that's to act as a market ramping lever, PERHAPS TO CREATE A HEAD FAKE BREAKOUT ABOVE THE IWM'S VERY OBVIOUS AND WELL KNOW 6 TRADING WEEK RANGE.

You also know that treasuries , especially 30 year (or TLT) have short term negative divergences in them despite one of the most blistering hot auctions of 30 year treasuries this last week in a very long time. Why would they be showing short term distribution with such demand just days earlier? I can think of two reasons, to knock weak hands out and take their positions over at lower cost or to be used as a short term lever to help ramp the market to an IWM breakout/head fake move or BOTH!

So far I have evidence of these things, the rest such as the taken for granted and assumed Santa Claus rally and January effect initially looking like they are working and then suddenly failing , something most traders couldn't imagine, would be a set up for the perfect storm and as I said,

IF I WERE THINKING LIKE A WALL STREET CRIMINAL, THAT'S EXACTLY WHAT I'D DO.

We'll have to see about the rest and even the initial divergences that have formed, but I suspect this is EXACTLY what is going on, especially since last week's performance, BUT YOU'D BE SURPRISED HOW QUICKLY THE BULLS WILL GET BULLISH AGAIN WITH A BREAKOUT IN SOMETHING LIKE THE IWM, ALLOWING SMART MONEY TO SET A BULL TRAP THAT IS ON PAR WITH THE KIND OF UNBELIEVABLE EVENTS THAT HAVE FUELED THIS MARKET THE LAST NEARLY 6 YEARS.

Just think about it, you know traders expect the Santa Claus rally as if it were their birth right and the January effect, a head fake move above the IWM that hasn't moved at all in 6 trading weeks would start that and to turn traders birth right expectations on their heads, would be a most fitting end to this bull market with a mega dose of downside momentum. That's a working thesis for the time, but for know I'm sticking with hard evidence and staying short without hesitation or a second thought unless the market gives me objective reason not to.

Looking at Futures tonight, there are some interesting things. First the intraday futures in almost every asset (1 min) are dull, not showing anything which would suggest that trade continue to be weak early Monday, but you don't have to go far to see the same changes in short term Index futures that we saw in the Averages, again this post makes them clear, Planning Ahead.

 As mentioned, 1 min charts show nothing tonight. Even 5 min charts for the most part like this ES/SPX futures 5 min chart shows the trend in line , meaning continued bearish near term, however...

While the ES 7 min chart is still confirming market downside, the NASDAQ and especially the one average I'm looking at the most, Russell 2000 / IWM are showing something...

A 7 min positive divergence, you'll see the same thing from Friday in the averages especially of QQQ and IWM, it could be SPY has weak relative performance and barely participates, the IWM is really all that's needed to create a false breakout and is the most effective average to do so with that 6 week flat range.

Remember HYG is showing short term accumulation which almost always means they need it's support as a lever to help manipulate the market higher. Yields and bonds have also been showing divergences as they too can be used as a market supporting, ramping lever and interestingly tonight...

 The short term 30 year bond futures which had a scorching hot auction this week are STRANGELY showing a 5 min (futures) negative divergence.

However as I showed Friday, their intermediate to long term uptrend is still very safe and very strong so this looks like a short term, quick manipulative move.

Even the 7 min chart of 30 year treasury futures is in line with the uptrend , thus making the short term divergence look like a manipulation move to help ramp the IWM over its 6 week range and get longs buying creating a bull trap.

I still expect negative market action in the early morning and maybe through most of the day, but we will asses that as it happens tomorrow.

Some other interesting discoveries I made, I said I'm sticking with the gold short in effect for now because there's something on its charts I don't like...

These are 7 min gold (/YG) futures and there's a down sloping range with a negative divergence, thus I'll wait and see how this plays out and leave the gold short open for now.

Even more interesting, the speculative long call USO/oil trade posted on Friday, Trade Idea: USO (Speculative Options) Jan $22 Calls with these charts as evidence, USO Charts have picked up more short term bullish oil divergences.

 5 min CL Crude oil futures with a sharpening divergence on the open of new trade for the week.

The 7 min chart with a large positive

The 15 min chart with a stronger positive and even the 30 min chart,  however make no mistake, I think this could be a very profitable oversold bounce/short squeeze, not a change in trend as the long term 60 min+ charts are still in line with more downside, but a quick squeeze with the leverage of the options we used could make this a golden trade in a very short period.

While no one in the world wants to touch oil long except the knife catchers, we have objective evidence of what looks like a super sharp short squeeze in the making and are prepared for it.

Tonight I've talked to you not like a tinfoil hat conspiracy theorist, not like a member, but like I'd talk to a friend who asked me what I "think" is most like going to happen in the market, this is largely based on my second favorite for of analysis, Mass Psychology which is based on our concepts which are based on objective evidence and testing them through the years.

From here on out, the charts will have to provide the rest of the evidence, but  as I said Saturday and as I said last week when it looked for a moment like we may get a bounce, USE IT TO YOUR ADVANTAGE. If we do, I suspect the IWM leads and shows the most relative strength besides maybe the Energy complex.

If you are wondering if I'd consider going long the broad market for such a bounce, my answer is a resounding NO. You saw 5 weeks of gains taken out in a week, I've seen the same done on one morning's gap down, so I would not trade against probabilities, but use them to let the trade come to you unless you are a VERY nimble day trader.

Have a great week, I'll see you in a few hours!

MACRO TRENDS AND CHANGES IN CHARACTER

I've been avoiding this post because you don't subscribe to hear what the media the world over is parroting, but there are certain aspects, especially as we enter the period of the Santa Clauss rally, that can't be ignored and more importantly, the concept of "Changes in character lead to changes in trends"m can't be ignored.

More than once recently I have described the market and being long in the following terms...

Friday, December 5th's Daily Wrap...

"Why does no one ask themselves why professionals (as retail doesn't trade HY credit) sell a risk asset as the SPX, a risk asset moves higher? This is ONE OF THE SCREAMING MESSAGES OF THE MARKET COMPLETELY IGNORED AS TRADERS WHISTLES PAST THE GRAVEYARD FOR A +0.38% SPX GAIN ON THE WEEK!?!?"

December 10th's Leading Indicators....

"This is the kind of chart that would cause me to lose sleep if I were long the market. How anyone could ignore this screaming red flag is well beyond my comprehension, but it happens at every bull market top/bear market decline."

It didn't take long before our Macro themes on long term 3C charts and signals such as this SPY long term chart,

 SPY huge leading negative divegrence as expected BEFORE the forecasted rally began...

OR...

Leading Indicators like HY Credit, or our VIX buy signal and pinching Bollinger Band, Market Breadth failures and any other number of signals all pointing in the same direction.

This is why it's hard for me to believe people could be long and sleep at night, however I have to remind myself that they are largely using the same tools Wall Street uses against them every day and they don't have privy to the same information we have although I post the occasional warning as part of my civic duty.

The result... As I have often said, when things are this bad you are likely to wake up on some unassuming morning and see weeks of market gains erased in a single gap down.

As for this week, I'm sure you've already heard, the SPX had its worst week in 2.5 years and while each charting system starts their week off on a different day, I think the point below is well taken...

 The SPX taking out 5 weeks of gains this week and closing at its lows.

You may have even heard that the last time this happened was just after the 2007 SPX October high that led to a massive decline in to the 2009 lows, wiping out 5 years of bull market and an additional -15% in less than 18 months.

SPX weekly chart in 2007 taking out 3 weeks of gains before plummeting lower.

The Dow Industrials were at the worst weekly loss since 2011, 3 years!

This week's Dow's losses took out almost 5 weeks of gains and ended at the lows for the week on increasing volume.

The media's 30-second sound bite is that this is all because of oil which saw WTI crude have its second worst week in 3 years, however...

Falling oil prices (red) didn't seem to cause the market any concern before this week.

In fact even Transports that should sky-rocket on falling oil prices declined.

Weekly chart of IYT, one of our short positions recently put out as a trade idea. It would seem the last two weeks have seen Transports lower with lower oil prices.

Taking it a step further, if we look at the correlation between ES/SPX futures and SPX itself...

The correlation between ES and the SPX is nearly 1.0, perfect at .99763


However the market's correlation to oil...

sits at .607 for the week and that's only that high because both were falling. 

When oil prices were up, the media blamed market weakness on them, when they are down, the media blames the exact opposite cause on weak market prices. The fact is oil is only one of dozens, maybe 100 or more indications that have all been telling us the global macro economy is slowing, oil isn't presenting any new fundamental data!

As for our macro themes in addition to the worst weekly market performance in 3 years, one of our macro themes...

-Financials had their worst week in 2 months  while it was just this past Monday XLF (Financials ) short and FAZ (3x short Financials ) long was put out as a trade idea, XLF (short) / FAZ (long)

-Materials had their worst showing in 38 months.

-The VIX buy signal and pinching Bollinger Bands that indicated a highly directional move up sent VIX to its best weekly performance in 38 months!

HY Credit which we have been screaming about (see the chart above) saw its worst week since May of 2012.

Even the safe haven of Investment Grade Credit saw its worst week in 2 months.

Yields have been a macro trend and leading indicator seeing the 10 years worst decline in yields since June of 2012.

The $USDX which has been a macro theme of weakness saw its worst week since July of 2013 and Yen strength a macro trend helped with the $USD weakness to send the USD/JPY (another macro trend) to its worst weekly performance since July 2013.

The Greek stock market is seeing its worst performance since 1987!

Yet the traditional Santa Claus rally through December and especially the last week as Window Dressing takes place should be upon us.

If this isn't a change in character, what would it take?

Yet, I suspect there to be a short term game afoot, I've been struggling with its analysis all week among a declining market, and it might just be initially tied to hopes of a Santa Claus rally, it's the range in the RUT which I mentioned numerous times later this week as a perfect head fake spot to act as a timing mechanisms to a real fall that's beyond "Worst week since...".

In just over 6 trading weeks the Russell 2000 has moved a total of 0.29%, a tight and obvious range primed for a head fake and fantastic additional short entries if I've ever seen one.

Over SIX TRADING WEEKS and a return of -0.29%, for all intents and purposes, DEAD FLAT, a range that will easily gather notice and a break above such range would give rise to the expectation of a Santa Class rally, which is already genetically built in to traders' belief system.

What better way to ensure a bull trap than using the IWM.

While this has been a rather new theory for me, there's some recent evidence that suggests such a scenario probable or growing in probability.

First the daily VIX close.

 While I don't believe the VIX is done with it's move higher, not everything moves straight up and Friday's Star candlestick close indicates some loss of near term momentum.

While accumulation very short term in HYG late this week...

Suggests the market support need to make the head fake move in the IWM which would do everything Wall Street needs to sell/short in to, cause demand with a 6 week range broken, increase demand so they can sell/short their large positions, use the psychological Santa Rally against traders, engage the "Buy the Dip" crowd, and give them the best prices to sell or short in to, EVERYTHING a head fake move is suppose to be, just look at what happened at the last one...

The last head fake move in the SPX was after the August rally and just after the rounding stage 3 top began to break lower, the head fake in yellow with huge 3C distribution (which is already in place) in to the move, seeing it fail and immediately sending prices to a new lower low, the October low and many of you may have forgotten how bearish sentiment was then, but it was near record levels for many sentiment indicators.

W/hat would be so different this time other than the market is in much worse case.

I figure the worst that can happen is our short positions continue to gain on a downside move if such a head fake move doesn't present itself in the Russell 2000, but better case scenario is offering fantastic entries, lower risk and the best timing you could ask for before a move of even greater downside momentum than this week's occurs.

So far it's a working thesis that I've already presented Friday, but I'll stay on top of it, don't shy away from any such move, this is the gift that few know to take advantage of.

I'll keep you up to date as best I can with the best entries possible (as I called very few this week for obvious reasons now looking back in hindsight as the 3C signals for short entries in to price strength weren't there, no wonder after we see the week's closing performance-We Don't Chase OPrices, we let them come to us and this looks like a fantastic potential set up.