Kind of a Volatile Day

But remember, for what it is worth, the TRIN below .75 as it was yesterday or above 2 almost always produces a close down or a close up respectively the next day. IT's a short term indicator, but all moves/reversals start on the short term indicators.

Here's the fast 1 min 3C chart

The yellow arrow shows a positive divergence, it worked great in forecasting the move back up through resistance (former support), the red arrow shows the negative divergence and the red box shows a leading negative divergence. Note the volume the second time around (in the blue boxes) is a lot less then the first as the stops were cleared out leaving a clean slate.

Afternoon Update

Here's the situation on 3C 1 min charts.


IWM looking good all around-positive divergences

Q's in confirmation with 1 negative divergence

DIA 4 negative divergences

SPY 1 positive, 2 confirming and 1 negative

Interestingly, in the 5 min, all 4 market averages have 3 leading divergences to the downside and 1 either confirming or slightly positive.

Update and a Quick Lesson

Traders love to call support at exact levels like $109.33. The fact is this, support and resistance are zones or areas and that is because of they way they are formed. Remember me saying a correctly read chart will show you human emotion, fear and greed-the two siblings that move markets. Quickly imagine that you have bought the SPY on the way up at $111.45 and now today, it's down below that level. LEts assume you even went in heavily leveraged and even used you kids college money on the trade. Right now, you are at a loss and you are feeling really bad about it, but you don't take the loss when it's rather manageable, instead you say, "I'll sell this position when it gets to my entry price". THAT IS HUMAN EMOTION, the reason is, A) you don't want to take a loss. We've been taught ever since we first walked into a class room with our lunch box, that 60 or 65 is an "F" a failing grade. Therefore we expect to perform in the passing grade level when we trade, we want to see 70 or 80% of our trades succeed, IT IS SIMPLY THE WAY YOU HAVE BEEN CONDITIONED YOUR ENTIRE LIFE. It's not reasonable to believe someone can make 80% of their trades correct, consistently. Instead, think about it in baseball terms, a 300 or even better a 400 batting average can put you in the hall of fame, but that means you only hit the ball 40% of the time, the way we look at the world, that's a failing grade, except in baseball-that's an amazing average. This is how you need to look at the market and risk management will allow you to be wrong more then you're right and still make a pile of cash.

Back to resistance....

So we wait for the stock to come back close to our levels because we don't want the loss and we have an attitude of "I lost it here, I'm going to make it back here". So when prices move close to your level and maybe start to vacillate a little, you get nervous and you sell, maybe for a percent less then what you bought it for-the crowd will do the same thing, therefore your selling creates resistance or supply and keeps prices from moving higher, unless demand overwhelms supply. That is why resistance is at an area, not an exact level-same with support.

Now looking at the chart we see volume pick up a little bit, nit huge so this wasn't a strong zone of support and can and is being broken on a bounce. $111 is the area that will provide support and is the level we want to see broken on big volume.

As for right now....
I warned a bounce was building, here's a look at it now.

Here's the 1 min 3C that called the bounce last update, it looks strong still, but the long term 3C in blue at the bottom is not following prices.

Here's the 5-min 3C chart (stronger signals then the 1 min chart) and it is showing the move stall out, blue 3C looks even worse. As of right now, I don't see this as a threat. i'll let you know if anything changes, but it can be used to get better positioning on any shrorts you might want.

Bounce coming?

It looks like the market will try for an intrady bounce. This is not important for many of you, but day traders or those looking to get into better short positioning may want to use this bounce.

Some Trades

Here are some trades from the spread sheet (L)=long (S)= short a few I have updated the stops for, otherwise the stop on the spreadsheet or in the notes is still effective.

LONG TRADES:

DDE is a long above $3.30 which is $.02 away

PRSP is a long or add to/hold right now with the stop at $33.35

FRX can be bought now, but I'd move the stop up to $28.48 on a closing basis -This isn't my favorite trade, thus the tight stop.


SHORT TRADES

WLT is a short now or on any pullback that offers a better entry.

LINTA keep an eye on this one it is very close to triggering

LCC is a short now

RDY was a short at market, it could still be entered if the risk:reward potential makes sense to you

DUSA is very close to a short now-check the spreadsheet for info.

MGAM is a short now

VRUS is a short now

NGD is a short now

BYI can be shorted now, the stop will move down upon a close lower.



An update is in the works.

Newer Post At Trade Guild

I forgot to publish the last Trade Guild post so please read it and pay particular attention to the parts about the VIX and TRIN Index which is also called the Arms Index then come back here and read on.


OK, got it? There's still nothing that leads me to believe we are seeing anything other then a bull trap. I was interested today to see if the 1 min charts would lead to the 5 min charts starting to reverse and become bullish-JUST THE OPPOSITE. The 5 min charts are again pegging new lows.

The two advantages we have tonight on the short side are both the VIX hitting multi month lows and the TRIN Index hitting a level that is commonly sold off as I demonstrated in the Trade Guild post tonight. The VIX is the CBO volatility index or known to traders as the fear index. It trades inversely to the market. When we have high VIX readings, we see a rally as fear is strong in the market. When we have low readings like tonight's multi-month low, it shows complacency in the market and typically we see a sell-off from there. The other bit of good news for bears is the TRIN Index also hit a multi month low and in the Trade Guild article I told you the results of the last low reading. A low reading like today's is usually followed by a move the next day or two, but usually the next day. When it's low it indicates an overbought state and when it's high, ESPECIALLY if it is above "2" you almost always see a rally the next day. We are well within the range to produce a sell-off and considering we are probably looking at a bear trap, a sell off just needs to break a few nearby support levels which WILL trigger the bull trap, which most commonly and reliably leads to a panic sell-off. So tonight we are in good shape, beyond the 3C charts and breath readings. The fact that 29 DOW stocks closed up in and of itself, is a bearish event showing an overbought market, the same thing the TRIN and VIX indices are pointing to.

I have custom tailored some trades (there are over 20 tonight) to this situation to take maximum advantage of the situation.

Check out the most recent spread sheet "July/August Trades" for tonight's trades, many of which will execute tomorrow. If you have any of the high flying cats and dogs trades, email me for the most current info and stops. When we see the "cats and dogs trades", which are low priced and high flying like JDSA from last night, it is a sign that we are at the end of a rally or bull move.

Statistically and probability wise, tomorrow is the best setup we have seen in awhile. Get out there and make some of those trades! Remember to use your risk management plan but also remember that as traders, we re paid to take risks. We just try to mitigate the risks and put the probabilities in our corner.

Best of luck!

Read Trade Guild 's last 2-3 posts tonight

to get up to speed on the broader picture, I will post here as soon as I'm done with the details

Like I said,

If you are truly concerned about the market moving higher (which it certainly can-does it create a technical situation that changes trends or the bigger picture, not now-there's no evidence of that yet; however we save 25% even in a fully loaded bear position for longs like JSDA that I threw out there for you last night-up 12.39% today and from a buy at market on the open nearly 10%. That in itself is a profitable hedge. However, you can also use UPRO (3x leveraged long SPY) to offset any move without giving up positions that you amassed at better pricing on the short side. This is why I say keep at least 25% in cash.

Take a look at this 1 min chart

This shows a decent trend at 3pm, volume was rising, but keep it in perspective-it's a 1-minute chart. The MACD did well until the end. At the last minute of the day we saw sell side volume pick up-this in my mind was computer programs executing sales-the actual pattern of the last 6 candles is a candlestick reversal pattern and the volume on the last one sure make it look real.

3 out of 4 3C/4C indicators followed the end of day trend up, but only 1 confirmed it, the rest remained in a relative-negative divergence. One of the more important 5-min charts confirmed the move, 3 actually made new lows which is to say the selling is getting worse. I suspect the one that did confirm it is not in tune with the trend as it hasn't performed well in the past on SPY in this timeframe, the others have.

If you feel worried, the market is down already in after hours last time I looked, you can buy UPRO which is the 3x leveraged long on the SPY and it will partially or fully hedge you and make your portfolio market neutral if you buy enough shares to correspond with any losing short positions.

I don't see any real harm in taking out this insurance policy except that it will have a small premium, you will have to close it should the market move down, but as you saw today, we broke one fairly important support level and one not so important. You need real confirmation otherwise you'd be closing on a break like that just to see the market head higher-using today as an example. This means you'd have to probably wait for a major breach of support like $110 or you would have to wait for a lower close at the end of the day, in which case, the short positions would not make you any money as the market heads down because you are market neutral. So I don't see it as a big risk IF you are feeling shaky and this is scaring you, it will give you some comfort, or as I said, you can reduce your exposure by selling part of the short position and if the market heads up for a day or two more and then reverses, you can add them back at better pricing and make up any loss on the way back down.

Personally I don't like making rush, emotional decisions, but everyone has a different portfolio, style of trading and different risk tolerance so you must do what you are comfortable with. I'm comfortable with hanging in there right now as nothing of any significance has changed yet-$113 hasn't been taken out, 3C hasn't moved into an accumulative stage, the market has increased on rising volume-in fact the opposite, volume is lower today then yesterday.

Your other route is to take some of the long trades I've been putting out there, several did very well today.

That's the info I want you to have right now as the after hours market is still running and you can buy something like UPRO if they haven't closed it for the day, at a discount from the close.

I'll be writing more tonight with more trade ideas and more in depth analysis.

Not that I would at this point,

but if you are concerned about the market going up, but some UPRO right now. i personally wouldn't at this point, but it can't hurt

CURRENT 1 MIN 3C

We broke a support level or two and as is normal we're getting a bounce, you can see 3C called this last one as well. Right now, we're just waiting for that to turn negative on the 1 min. You can see below on the LONG term 3C in red how it stayed pretty much above the middle line most of the day and now has dived below it. It takes a long time to move this one so I regard that divergence as serious. We'll just have to wait and see if they keep this thing hovering as it has been all day or if they sell it off into the close.

I'm a little impatient and would like to see the break soon, but it doesn't really hurt for it to be up here as long as they are distributing which they are, it just makes the bull trap more powerful. We keep seeing these early moves up and then lateral trends most of the day. I'm taking this to mean that the early trade which is largely the small fries like us are bidding the market up, but once their demand is gone, there's no institutional demand pushing the day higher. I' thinking it's because they are distributing at higher prices and who wouldn't want to sell/short at higher prices?  At some point though it will end and they'll pull away the little support they give to keep prices stable/lateral and the market will sink and no retail morning trade will be able to compete with what they have in store-that's my take.