This isn't going to cover the highest probability charts, they are in deep negative territory, breadth and Leading Indicators are as well, I'm more looking at the area of a descending triangle coming off head fake move/failed breakouts that (at least in technical traders' view) would have nullified any concern of a Broadening top in most of the averages. Last week I also talked about this being a sticky/choppy area because of not only the support trendline from the triangle, but a convergence of all of the important moving averages in to the area. I'll try to do this with as few charts as possible, but there's no point in the post if it doesn't give you a picture you can understand.
First of all, as we covered in the last post, the 3C concept of picking up where it left of (which was negative on Friday's close, which would mean even over a 3-day weekend, the next trading day should pick up with the same tone/divergences that we saw at the close of the previous trading day (Friday). I didn't think this would happen judging by the Index futures pre-market charts, but once again the concept came through and this isn't anything about 3C, this is about the market, 3C is just showing you the underlying trade, so you can learn a few things and probably come up with a few assumptions about how market makers and others operate based on this concept working so frequently, it's way beyond the normal probabilities.
The market did break on the decline, BATS Options declared self-help against the Boston Options Exchange and NASDAQ OMX BX Options declared Self-Help against BOX. Some have commented that the timing of the morning (cash open) decline and the market breaking and the a.m. bounce off the a.m. lows beginning is evidence of manipulation of the market. While I can't say for sure, they have their opinion, I have mine, I suspect that this market is so fragile (the actual market itself, meaning the exchanges), for whatever reason, perhaps the HFT influence (quote stuffing and other practices that can overwhelm a system) that in times of stress like this morning, it breaks. We have seen this numerous times, which has to make you stop and think, "What happens if we get a 2008 type decline?" Obviously markets would break, but that stop in trading in a market that is in sharp decline is not likely to produce a "cooling off " effect, but rather more panic. Just a different perspective and something to think about.
I won't post all of the averages, but as I was posting last week, there are a number of important technical moving averages in the area, for the SPX above the 50-day in yellow, the 100 day which was just broken in orange and the 200 day which is just about acting as support near term as I suspected it would last week, creating more choppy trade in the near term, but it doesn't change what's going on below the surface, what the trend of underlying trade is. The 50-day being right above would be a a natural target for any bounce attempt, of course a break below the 200-day would likely have a panic effect, but prices tend to loiter around these averages even after they break them. Changes in character of price action on breaks of these averages should be noted.
The NDX is trapped between the 100 day below and 50-day above. With the 200-day quite a bit lower around 3980, it should be close to 4k, a psychological level, so again, the potential for chop in the area is still high unless there's a sudden change of character in how price reacts at these closely watched technical averages.
The Dow is essentially sitting right at the 200-day, again, a swift and clean break below rather than loitering in the area would be an important change of character, one I'm thinking more and more that we are going to see. The 50-day is above price so it's a natural target for any bounce "if" the market could get one off without it being sold aggressively.
And the Russell 2000 is sitting right at the 100 and 200-day averages, so we do have a chance here to see a change in character, that's important because changes in character lead to changes in trends. Again, the 50-day is above price.
(This will show multiple timeframe confirmation, you can't see it here because it's too many charts, but the Index futures do not contradict anything found here, they are actually right in line with the theme. I tried to use several of the different averages for multiple asset confirmation as well, which I could do more to show, but given a reasonable time to get this post out, I think it serves the purpose).
The SPY from a trend (clean) of higher lows/higher highs, to a lateral Broadening top having made a significant lower low. This is a change in character and trend from up t lateral, if you think about the simple 4 stages of a trend, stage 2 is up, stage 3 is a top which is also lateral, the next is stage 4 which is decline. This tends to work on just about every trend cycle you can imagine in every asset and every timeframe whether a weekly chart of a 5 min chart or whether it be a swing trade , position or day trade.
SPY with the 50-day (yellow) and 200-day (blue) which is converging with the support area of the descending triangle which came off a failed breakout above the Broadening top. This is obviously a very important area. Again, the 50-day would be a high probability upside target, the behavior on the break of the 200-day would tell us a lot as to where we are in the stage 3 (top) process.
From the 3C charts, I'd say we are very late in the process, the top's size is appropriate and proportional with the preceding trend.
As for the charts, both near term and as I started this post out with, describing the sub-intermediate term which I'd consider to be around this descending triangle.
I can't get every timeframe of every major average as well as the futures, but I have looked at all of them, and I think I can give you a pretty decent representation of the theme.
You might recall there was an earlier January (6th) bounce (base) cycle put together, it failed by January 8th in a very obvious and visual way on the 3C charts. The next base/set-up was from the 14th-16th which you can see as a positive divergence/stage 1 (bounce) base, it too saw aggressive distribution/selling as you can see by the 22nd , only 2 days in.
To the far right is where we are now, it looks like there's still a desire to bounce or achieve higher prices, I'm guessing for the same reason we have seen all of January, to sell in to or perhaps they are trying to get off a head fake move, but like we saw with AAPL in 2012, the sellers were just relentless.
This is the SPY 2 min chart, there was already a "bounce" divergence there
before this morning's exchange breakdown that some are saying rescued the market and got it to bounce off the a.m. action, but as of Friday, we knew both about the early a.m. negative action and obviously that it was going to be a.m. action as a small positive divegrence for a bounce or to halt that early a.m. action was already in place. I do believe there are a lot of unfair practices in the market, but I don't think everything is beyond coincidence.
This also fits with the time still needed in some of the Leading Indicators to give their signals.
The very fact the market has not seen a horrendous decline and Leading Indicators have not given that negative signal alone, tells us that Leading Indicators are working and it's worth waiting on their signals as they have been correct thus far in not giving an across the board negative leading signal.
The 3 min IWM chart shows the same theme, selling in to price strength aggressively and the same bounce here/ now.
This is VERY near term price action, again in line with the time needed still for Leading Indicators to give the same kind of full house we are seeing in the intermediate to long term 3C charts.
QQQ 5 min shows the first bounce attempt in early January and the fail at Jan. 8th as well as distribution in to just about every move higher, not allowing any kind of a breakout. I'd refer you to the SPY Descending Triangle chart above, the 3rd chart down.
We anticipated in advance that we'd see a breakout move above the triangle to serve as a head fake move, it did make the breakout, but even in this case it couldn't hold for more than a couple of days and flat at that.
DIA 10 min from the October lows which is what I'd consider to be the intermediate (maybe sub-intermediate) cycle still in effect right now. The increased ROC of 3C to the downside is what tells me we are at the end of stage 4 of this cycle.
Using the SPY 15 min chart which has the same 3C signal to the right side of stage 3 like the Dow, I've labelled the 4 stages, stage 1 base.
Remember the concept of wherever you see the first divergence in 3C, despite ongoing divergences after that and lower prices, that area will be surpassed. So if you were to buy SPY at the very first sign of a positive divergence in to the October lows around the white trend line, no matter how much lower price went in to that base/positive divegrence, you'd be at a gain by the time prices moved off the positive divegrence as they would and almost always do surpass the earliest place we spot a divergence, even knowing it's not nearly complete.
Stage 2 mark-up or participation is clear, stage 3 distribution is clear (top) and the extreme leading negative divegrence is clear on all of the charts, again telling me we are at the edge of a major top.
It's only the very short term in which Leading indicators aren't giving the negative signals, the big picture like this shows they are very negative, so it's really down to a timing or tactical issue, not so much a strategic analysis issue.
SPY 30 min is a bit out of scale, but the trends of price and 3C are very clear.
The 60 min QQQ shows a stage 2 mark-up area and confirmation which turned negative and then deeply leading negative on a VERY strong timeframe. Again,
I don't think the strategic analysis is in question here.
And while not scaled the best due to a lack of enough price history, the 6 hour chart's trend is very clear.
Multiple timeframes are all showing the same thing.
I think even short term timeframes are showing the same thing and I think the moving averages all bunched up in the area are part of the reason why there's all of this chop with the added volatility of what has been aggressive selling throughout the last part of December and all of January.
I think short term leading indicators are the key to timing, I also think bonds have a story to tell that may be changing a little, but I think is going to be just as important as some of these 3C charts above, I just need to put together some of the pieces I'm missing, which may be coming around since some movement since the F_O_M_C which was obviously taken as being hawkish,
despite all of the economic data that is horrible which would suggest a rate hike be put off if the F_E_D were truly data dependent, but being they upgraded the economy at the last meeting in the face of all of those misses, I think they have another agenda and they will say what they need to to justify rate hikes. If the F_E_D has looked at the incoming economic data that is missing badly, worst start for macro data in over a decade, they would have put in at least a mention of a short term downgrade or "transitory weakness", they saved that for inflation which is also nowhere near what they'd need to hike, but if they did that, they'd paint themselves in to a corner even more because it seems they need to hike, the policy statements and economic upgrade alone seem to make this very clear.
So what does the F_E_D maybe know that we don't? I'm sure you've also heard of the new trend of money managers buying up farms...
