Another negative divergence

It looks like we will get the close I mentioned earlier as there's a negative divergence in the 1-min chart, suggesting a pullback into the close.

Pullback is coming

But the 5-min positive divergence is solid. This will probably end up as a doji day-open and close are nearly the same which is a typical reversal signal.

If you can, watch the market now

It's very interesting. I still feel we will see upside based on the 3C charts, but a late day support level at $107.14 (SPY) just got taken out, watch how the volume rises there as the stops that people place with their brokers (A BIG no-no) all get hit. This is a typical maneuver on Wall Street now-a-days, you might call it fueling up. They continue to prod the area and volume is falling off, suggesting they hit the stops there. Now is the time you might anticipate an upside reversal, but we shall see. It's interesting to watch how they operate and how the "tools" your broker provides are actually being used against you!

Remember, what does Wall Street produce in their factories to make money? NOTHING! Trading is a zero sum game, for them to make it, you have to lose it and a big group just lost it.

***Update -a second after I pressed "Post" the market put in a nice tall candle. Hmmmm....

morning update

It seems we'll get a small gap up this a.m. which leads me to believe this is a real move and not a false move as the false gaps tend to be bigger and for a reason, the market makers are using them to fade the gap to make money, a small gap doesn't show that intention.

A break above the $108.75 area on the SPY today would be a fairly definitive short term reversal. We are looking at using UPRO to hedge our shorts and ultimately make a little money on a counter trend move. Seeing as the market typical overshoots normal targets as part of it's shakeout maneuvers, I fell it is possible for a bounce to carry as high as the $112.25 area on the SPY which would be good for anyone wishing to go short the market. I do not think it will cross above $113.20 to make a new high. The target may be even lower and of course there's the possibility it just fails altogether. The financial reform legislation can not be a good thing for the market, except for giving individual investors more confidence, but they account for so little of the trading right now, I doubt it'll make a big difference at least on the upside, especially when compared to the downside of which will be marked by a lot of firms doing a lot of things to get compliant and to find new ways to skirt the bill.

Considering nearly everyone on Obama's team has spent some time on Wall Street, I imagine this is more bark than bite, but there will be consequences-mostly unintended as there always are when the government tries to do anything. It's all a moot point, just as long as we are on the right side of the trade.

If the market begins an a bounce, you can monitor it to know roughly when to get out by using a 50 bar simple moving average on the SPY on a 15 min chart, it seems to work pretty well. Usually I use the close as an indication of when to close out positions but intraday volatility may mean that intraday stops or scaling out on intraday breaches on the 50-m.a. may be more wise. Looking at past performance, even in substantial trends there will be the occasional break of the 50, but only for a little while and the trend continues. So another thing you may wish to through into the mix is the direction of the 50 bar average-as long as it is moving up, any break of it may be temporary. Typically it takes a little time to distribute positions and the 50 will usually go lateral to down at a trend change while momentary violations of the 50 may be false if they occur while the average is still trending up. This is why I advocate a possible "Scaling out" exit, but if you choose that, scale out on the first substantial sign of a break, don't wait for it to drop several percent as the strategy would make no sense at that point.

What is a Divergence?

A divergence in 3C is simply an indication of accumulation or distribution. We try to narrow it down using multiple timeframes, but ultimately we do not know how long smart money will be accumulating or distributing, still it gives us a much greater advantage then almost any other indicator I've seen.

Read Trade-Guild tonight. You will see that there are enough divergences to the upside in enough timeframes that we should see a bounce. The trades posted last night should work fine, or you can try out some ultra/3x long ETFs, but this is only a minor move, don't be fooled by it into thinking the market has become bullish.

I listed one new inverse (short) ETF tonight I saw on Telechart. the volume is low, but it is a textbook, picture perfect setup. While the market may bounce, it may fall and make for a good entry. Do not be surprised to see a move below the lower support line of the triangle as Wall Street shakes everything before they let it move. I'll keep an eye on it, you should too. Here's the chart-oh and UNG violated the stop by a penny, it's not a big deal in my book, but much more and I'll have to re-evaluate our position there.

Watch for a market bounce as early as tomorrow.

Update 2

We now have positive and fairly substantial positive divergences in the averages. You may want a long ETF to try to make a quick 1-2 day buck

Update

While the 1-min divergence was short lived if lived at all, the 5-min divergence persists which suggests a move to the upside in the next day or two, at least as of now. I would not change anything with the core shorts, but perhaps some of the longs will pop, I will have to re-evaluate the stops and entries based on today's decline.

Any 5-min positive divergence is an indication of a retracement which is totally normal

pre market update

There are 1-min positive divergences even though it looks like we'll see a gap down. We have seen plenty of false moves to the upside that were at odds with 3C readings so don't be surprised if we see a gap that is filled. In that case we may see upside from there and last nights longs may work well today. However, if the market just goes into an early free-fall with no signs of recovery, you must be selective about the longs and see which ones are bucking the trend as they did yesterday. Again, while there may be a few positions that turn into trending trades, the majority are meant to be quick pop trades. If they advance 5-7%, there's a chance they may trend more. If they pop over 10-15%, it is more likely they will be short lived.

Repost from Trade guild tonight

This is a repost from Trade guild. Note the positive divergence that started quite a bit before 2:15, I wonder if the Fed is leaking too?

In any case, there may be a rally tomorrow based on the 10-min chart, or it may be just be lagging the divergence that started earlier today. If we do see a move up Thursday, then there's quite a few trades I listed tonight that are pretty speculative generally, a few could trend. The point is all of these stocks were strong in a mediocre market today. Take a look at them. Many are biotechs. Email me if you have specific questions, we are still maintaining our shorts as the market is moving in our direction, but believe it or not, there are generally more up days in a bear market then down days so if we get a pop, these stocks are likely to see more upside. these are counter trend, not trending trades. So if you get that 1-2 day gift, take it. These are not meant to be position trades, but a few do have that potential.

Here's the post from Trade guild:


First, lets deal with the business from last night and today at Wolf on Wall Street.

"As for tomorrow, the only thing I see is a slight positive divergence on the 1 min timeframe which may lead to some early strength, perhaps a gap up. As of now, All other timeframes are showing heavy distribution. I'll update the charts tomorrow as they develop, but the changes will only be tactical in my opinion, the strategic outlook is the same we have had for several months now and have already set our positions into place." Trade-Guild.net 6/22/2010 9:00 p.m.

While we did not see the early strength during market hours, we did see it pre-market. The indicator was showing someone, most probably market-makers/specialists buying a little at yesterday's close to sell into early strength, it doesn't have to happen during normal market hours and could very well have been distributed during pre-market.

If you lick on the chart, you can see 3C was very accurate again today.

As for the Fed's announcement, this is an excerpt from Wolf on Wall Street today at 10:15 a.m.

"The Fed is widely expected to leave rates unchanged, but the markets know that. What the markets are looking for is any hint that the language has changed. Even one word that most of us would miss or dismiss could be the catalyst the market is looking for to go in one direction or another.

In the past the Fed has been very willing to step in with some tidbit to halt a market's slide, like the slide we have seen the last few days, thus the Fed is known as the "Plunge Protection Team". So today is a bit of a wild card, but as far as I can see with 3C, there is not much in the way of high hopes. The markets do not look like they are i a holding pattern, they look bad and this may be part of the market's ploy of playing possum to get the Fed to move when they'd otherwise maintain course, even if it is just a few words changed in the policy statement.

"The Fed Effect"- There is a tendency for the market to react or overreact to a Fed statement the day it comes out, within a few days the market seems to have slept on it and goes in the complete opposite direction. I don't know what's in store as Fed policy announcements are not as easy to spot with 3C as are government reports and earnings. However, if you see a wild move after the Fed decision, don't be so fast to react to it, give it  day or two."

Today we did see a pretty initially aggressive upside move after the announcement and then it came back down a bit. 3C 10 min charts are indicating a retracement of the last two day's drop-

If this scenario pans out, it would not be out of character at all, typically the initial reaction to Fed policy statements is the wrong reaction and after a day or two, the market reverses. Lets assume we do see a retracement to the upside in the next day or two, it came because the Fed showed concern and was fairly strong in their language that they would hold down rates.

What would make a move up based on that statement reverse? After a day or two of sleeping on it, traders come to the realization that the Fed's econo-friendly policy statement was there because the economy is not at all in the good order that we have been hearing about for months AND.... What does the Fed have left in their arsenal? Buy more toxic loans? Lower rates that are already at 0-.25%? They don't have much left to work with and traders will realize this in fairly short order. The only bullet the Fed has left is to cut interest payments to banks holding money in reserve, then the banks may be forced to make some loans tp generate some income. Even that is not likely to avert the disaster that the government has been trying to avoid. Imagine a ship full of holes and they have all 10 fingers and 10 ten toes in a hole, but there are still multiple holes spewing water and the hull is filling up fast. That is exactly the reason we have such a big and well formed Head and Shoulders top, the market knows what is able to be held together with bubble gum and what is likely to fall apart at the seams.

So for now, we'll use any opportunities to the upside for quick trades and to sell short more stock at better prices.

Sometimes the bear just gets you, no matter how many hot dogs you throw it's way.

If you don't know what to do by now, you might consider going into cash. there are great trades out there and we have a ton of them at Wolf on Wall Street, check it out for a month and see for yourself.

Back into the Blender

The Fed's very soft and cuddly stance on the economy seems to have gone over well with traders, we have positive divergences from 1-15 minute which formed quickly. Remember my earlier warning that the initial reaction is almost always the wrong reaction. Later tonight I'll show you some charts that seem to indicate the news may have been out before it was "out".

In my view, this still changes nothing and I'll elaborate later tonight.