Things Aren't Always What They Seem

In the market, things are rarely what they seem; everything is a deception. From level II to earnings reports, interviews, the pundits, it's all deception.

Today seemed like an incredibly strong day and a huge victory for the bulls. The fact is, Geithner's expedition was what the market and the insiders needed to push this thing higher. Since there was so much distribution yesterday, I assume they sold out of the long position and today was all about selling short. Why? The candlestick that is deceptively bullish and the percentage gain as well. Here's some of the proof of that-

A quick reminder on the lost art of volume. Any move up should see volume move up as well, it shows that traders are aggressive and they are bidding prices up. Therefore the most bullish of price/volume relationships is price up/volume up. Can you guess what the most bearish is? You might say price down and volume up, but actually you'd be wrong. The most bearish price/volume relationship is rising prices and falling volume. This shows traders are not aggressively pursuing prices and there's most likely an element of temporary manipulation which drives prices higher. This is why I have this custom scan to look at each of the major averages when we have a day like this. First I have my 5%+ Gainers; you'll see we had 928 of the NYSE stocks close up 5% or greater, but all on falling volume-BEARISH. Then we had 499 close up with volume up-BULLISH. However, we are looking for the dominant relationship, it could be by 30-50%, today nearly 100%; the dominant relationship was extremely bearish.

We do the same for the averages. In the NYSE we had 3946 stocks close up on falling volume which is nearly double the 2042 that closed up on rising volume, again the dominant relationship was extremely bearish. In the Dow that bearish dominance was nearly 5:1! The NASDAQ 100 was 6:1. Remember, I said 50% would qualify as dominant, here we have 600%! The S&P was nearly 4:1 so today was a big deception.

It's always good to look at the market's breadth, here's an indicator on the QQQQ that like MACD, should rise with price

Above is today's QQQQ 15-min Advance/Decline Histogram-again, rising prices should see more stocks rising, instead we see fewer stocks advancing into the close

Here's the 5 min SPY-the white arrows show divergences-where the arrow end you should see the result of the divergence-a reversal. White=positive divergences, red= negative divergences. the blue line is a very long version of 3C. You can see today we saw no positive divergence, again suggesting this was a manipulative move, there appears to be no accumulation whatsoever.

Here's the 1 min 3C chart, while it did rise with prices, it formed no positive divergence and when compared to lower prices a few days ago, both 3c indicators are significantly lower-this is bearish.

Again, the white arrows show positive divergences or accumulation. Note today was a fairly spectacular negative divergence which tends to confirm my suspicions, today we saw a lot of short selling into the rally.

Another 15-min 3C chart used for confirmation, again, 3C does follow price, but the only divergence created is a negative divergence as 3C moves down from much lower prices several days ago and especially into the close. This could very well be a false breakout.

Finally the 3rd version of 3C 15 -min. Again, today saw distribution or short selling into higher prices.

As I have said, we can only make decisions with the information we have at hand, but I do not recall seeing any failed divergences on these charts, just some that take longer than others for a multitude of reasons.

For those of you who have started a short position, if you want to hedge the shorts against any further upside, which I do not find likely based on what we are seeing and holding over a 3 day weekend, you can always buy something like FAS. If the market goes down your shorts hedge the FAS position until you sell it. If the market goes up, the FAS position hedges your shorts, , eventually we will add at the reversal and you'll have a quick profitable trade and a better position on your shorts.

If you are not already short, I do not recommend this course of action. Any short positions being put together should be at 50% or less of the intended final position. We may add a little before, but the trigger to go all in will be a break on the SPY of $104.50

For that reason, I will not be positing any new trades tonight, I do not trust this market to go up in any consistent manner that is worth the risk. We also don't want to add any shorts until  we have a reversal.

If you have specific questions, email me at BT46n2@gmail.com

Update

Look for a move below $108.70 on the SPY, that would be a decent area to add. In the area we are in now, it's also a good ares, but up here the position should be smaller, then under the support level it can be a bit bigger. We are trying to end today (if the market cooperates) with 50% of our position in place.

This may be it

it looks like the market has finally broken down as the charts pointed to, but I think we get one last bounce maybe to 109.70-109.80 on the SPY. Possibly a new high as a false breakout, but that is the least likely.

Opening Gap

There are small almost indistinguishable positive 1 min divergences, the only one that really stands out is in the QQQQ 

This would be enough to rise to the gap we are seeing this am, if I had any longs left I would be using the gap to sell into. Instead I'll be selling short into the gap, but again in small pieces, perhaps 15% (initial short positions taken yesterday at 25% on our intended position)

Here's the more dominant 5-min chart. Granted it could change to a bullish divergence if the 1-min carries far enough, but at this point it does not look likely and we make decisions based on the information we have and the probabilities at that time.

So we are not concerned with this gap up and expect to see it dissipate by early afternoon. If anything changes I'll do my best to keep you up to date.

A Few Charts-Back on the Short side

Last night I warned that this market could turn very quickly,
"I would continue to hold the longs. I WOULD NOT ADD to them. Remember, this is a correction, not a bull market move. Smart money is selling into it and soon you too should be selling in pieces, taking some profits off the table. Do not get greedy and hold too long. We should see the reversal in 3C, but I do not know if they did the same as we did and set up a larger core short position, if they did, then the change in the uptrend could come very quickly."


Today at 2:07 we sold all of our longs at an additional profit and started short positions. I intend to add to those shorts, but at specific levels and when 3C suggests it. Below $104.50 this time I doubt very much will be a shakeout, i think it will be the break of a Broadening top, at that point we want to be pretty close to fully loaded. Remember, markets fall faster then they rise.


We started with Short leveraged ETFs, we may add individual stocks if I believe the return in those stocks will be greater than the ETF's.


Here are a few of the charts of some of the ETFs I mentioned today. Click on the charts for a larger view. All have very positive divergences, as I mentioned, we are long term bearish and were short term bullish for the bounce only.

Now it's about correctly putting these positions together. We have reason to suspect downside so we started the position. As the market moves in our favor and the signals get stronger we'll continue to add. This is part of our risk management, not add everything at once as the market can be very unpredictable at a top like this.


The nice thing about the shorts is we will be entering into a trending trade, there's a lot less to do. Not to try to up sell you, but it would be very helpful for you to have my Trend Channel Custom indicator which is only available on TeleChart or StockFinder. 

This system adjusts to each individual stock and takes arbitrary opinion out of the equation. With my Trend Channel (which received an award) lets you catch the meat of the trend and get out before the lateral volatility (opportunity cost). Other methods are too easy to be shaken out and arbitrary decisions could have left you with a gain of 10% rather than 50+%


If you want to take a look at the charting software, click the links below. I am an affiliate so i would appreciate you letting them know Trade guild sent you. In addition, this is the only two platforms that will run my 3C indicator which you see above.






I'll add the positions in the post below to the spread sheet and be on the look out for any other interesting trades. This should have been a good week for most of you, I appreciate the emails and I'm glad to hear that so many of you are doing so well. Just keep the risk management in the forefront and you should be fine in any weather.


One last note, I'd like to create a library of common technical indicator, show you their faults, how Wall Street uses them against you and how you can use them to turn the tables, so send your suggestions of your favorite indicators and we'll get that library up for you. any other requests, let me know.

Here are the candidates

These are the positions we picked up in the last few minutes-they were all bought at approximately 25% of out full intended position, maybe a bit less.

There are two I think look good for tomorrow, those are:

SSG > $17.53
SMN > $43.02

The ones that we just purchased-(remember these are ultra or 3x short ETFs so you are buying, but the net effect is you are short the underlying index or issue):

FAZ- 3X leveraged gives us exposure to financials
TWM 2X leveraged gives us broad market exposure in one of the more volatile averages
SRS 2x leveraged, not a big position here, but some exposure to real estate
EDZ 3X leveraged exposure to emerging markets which should be hit hard in a global fall
EEV 2x leverage on emerging markets through Proshares instead of Direxion-this and EDZ will              be treated as one position
FXP 2x leveraged against China-a little correlated, but they should suffer in a global crisis
ERY 3x leveraged short on Energy-less economic activity, less demand for oil

You can see with the exception of the emerging markets, none of the positions are too correlated. Also these are baby steps although I do believe the next break of $104.50 (SPY) will be the real deal.

I hope you made some nice profits the last few days, it may not be over, but the situation changed too fast as I warned might be possible because of smart money's averaged price being lower because of the shakeout yesterday. This means the accumulation at $112 was averaged lower and as I said, "They may not need to go that high".

A little Bear Buying

OK, I think you can go ahead and take on some Ultrashort/Direxion 3x Bear ETF's-they should be on the 2 lists, I'll add more.

UYG, SKF, QID, TWM, TZA, SRS, BGZ are a few examples-still do not take on more then 25% of your full intended position, have a stop that is a bit wide, even if you have to take on less shares and position size so that your stop getting hit will not risk either more than 2% per position or divide the number of positions you intend to have into the 2% to figure out how many shares you can buy.

*UPDATE
Here are the leveraged shorts you can buy that look decent, be careful not to over/cross correlate positions

TZA
TWM
SKF
SRS
QID
BGZ
EDZ
TYP
EEV
FXP
ERY
FAZ
PSQ
DXD
SSG
SMN

Short?

It's really too early to tell if this is just going to be a mediocre day in a larger trend or the end of the bounce. In any case, we are buying FAZ in a very small portion if it crosses $115.85. I'll post more soon, this is just to get your toes wet, especially if you didn't already buy a long term short position over the last few weeks.

These two charts are the reason we are taking profits now, it may change later as we have positive charts on the longer time frames, but the 5 min deteriorated rapidly as I said it might last night. with a profit we are being safe than sorry.

Take Profits!

The charts are starting to fall apart, I'd be taking a majority of profits right now. We may see strength later and add them back, but I would at least get out my original investment and let the profits ride or get totally out. The charts have fallen apart very fast as I warned they might do.

Later today could be different, but for now, I'd close the longs. Keep an eye on both sites, things could move fast.