SPY, Isn't It Your Turn?

A Leading Divergence is All it Takes

The Bond Bubble

One thing about bubbles is they go on a lot longer then you expect. I recall looking for a house around 2002-2003. There was one particular neighborhood I really wanted to live in, we drove that neighborhood every weekend for close to a year. We were inside every house that had been for sale, we had contracts 3x that all fell through for one reason or another. At the time, the median price was around $220,000-some at $175,00, some on the water at $350,000.

In any case, real estate wasn't really hot at that point and many houses had been for sale for over 6 months or more. I recall one small house only 100 feet from the beach, just cross the street, it needed work, but my father was a general contractor and I had worked with him growing up, I'm pretty handy. The house was $187,000.

We went on a 3 week vacation to Europe and when we got back, we drove the neighborhood as we always did each weekend. None of the houses we had looked at had sold, but they were now at least 30% higher in a matter of a few weeks. We didn't get it. The house I was partial to by the beach was sold, several months later a builder squeezed a 2 house town home on the tiny lot. Then slowly they started selling, the prices kept going up and soon you couldn't find anything for less then $300,000. Houses on the water started at $500,000. We had a fantastic, large apartment on the beach so I was in no hurry to move, I told my former wife that this was clearly a housing bubble and we should wait it out. Then it seemed like it would never end, prices were getting ahead of what we were willing to pay and we finally settled on a fixer-upper, but it had a large lot and it was in east Boca Raton, a fairly prestigious area. We bargained and after an inspection report that gave us some leverage, we got the house for $205,000. Within the next 18 months, you could virtually sell the lot alone for $400,000+. McMansions started popping up all over my neighborhood. Around 2007 I did a 5 part series on bubbles, the housing bubble included. I remember saying, "If you find yourself at a barbecue and everyone there is a real estate speculator (as everyone was) you know the end is near." This was the video I released while CNBC talking heads were still pumping the idea of Dow 20,000. I had a very different target, if I recall correctly, I said before this is all over, I believe the Dow will be trading at 5500. I know, pretty extreme, but this is the nature of the market. Soon the market topped and broke down and my site received a lot more traffic. I don't believe CNBC was unaware of the truth, I just don't think they were quite speaking it. I have nothing to gain by pumping or bashing, only by giving factual, unbiased and objective analysis.

So we have another bubble-I call the man at the Fed, Ben "Bubbles" Bernanke, although in fairness it's just a matter of Fed policy no matter who the Fed president is.

So look what we have, a possible bubble forming in treasuries.

Above is a negative hourly divergence in the Bull ETF for 30 year treasuries.

Above is the bear ETF (short treasuries) with the same hourly 3C, but in a positive divergence.

It seems that we will see this bubble burst as well, we can see the ground work being laid for it, the question is, id the Fed (Bernanke will be speaking this week) about to do something to impact treasuries negatively? Or can this bubble keep on going far beyond what we may have imagined?

In any case, keep your eye on this and those of you in the Wolf Pack that have a lot of experience in economics, or anyone with an opinion, please leave a comment. It's difficult to know what's going on, but we can obviously see that something is going on here.

The market may actually be in a holding pattern right now because of the pressure on Bernanke to act and his speach coming up tomorrow I believe.

USO Update

Price has drifted lower in a tight range after the initial morning push, you can see price's trend by the green arrow. 3C the white arrow, has been on a steady march upward, this is a positive divergence, if this continues uninterrupted, I'd be watching for a breakout to the upside in USO.

The dollar is nearly the mirror opposite.

Fractals

You may have heard me mention that technical analysis is fractal in nature meaning that you can see the same price patterns on 1 day charts, 1 month charts or 1 minute charts. The only difference is the time span. This is because the price patterns we observe in Technical Analysis are in truth, reflections of human emotion, this is why the patterns have not changed in over a century and why we see them on different length charts.

Look at this morning's chart of the QQQQ...

The first yellow arrow to the left is in the middle of a slanting H&S top. The measured move or price implication of such a pattern can be measured from the neckline (slanting red trendline) to the top of the head, in this case it is roughly $.30. The second arrow pointing down shows the break of that neckline, our implied target is $.30 lower from the break, price nearly hit the target exactly. In the large yellow box is a what may be considered a bottoming formation (I say may because depending on how it develops it could also be a consolidation pattern, but I believe it looks more like a bottoming formation based on the spike in volume. It's initial implied move is the distance between the top and bottom of the box once price where to breakout above the top line-approximately $.20 taking the Q's to the $44.20 area. This is not a final target, just an implied move where we may see some consolidation, depending on the sentiment. The point is not to make any proclamations about today's trading action, it is to show you the fractal nature of technical analysis and when we see these patterns, that you understand they are generally created by human emotion. Try to put yourself in the emotional spot of a long or short position with each swing. The more you imagine you have to lose, the clearer each swings emotional make up will be.

Here is a chart of the SPY 1 min. 3C. Thus far today it has been very accurate in calling each swing.

DIVERGENCES

I have now, several positive divergences through 3 versions of 3C in the 1-5 min time frames-they are positive and found in the DIA, QQQQ and SPY. They are not as consistent as I'd like to see, but it is the best I've seen as of yet and it's near a support zone. If they improve, I will send out another update. The longer term divergences are pretty much in-line with price action.

Update

There's been some 1 min negative divergences near the tops today, it looks a lot like a morning trading range is settling in. This doesn't tell us much yet, this is just the volatility of intraday listlessness. A breakout from the range will be something to pay attention to. It's still very early on though.

All Will Be Revealed In Time-or at least some

So, remember I said something about we may see a reason for this bounce in the days to come, it's likely to be something that will spark some buying interest, but in the big picture, it's insignificant; ergo the Jobless Claims Report this am that came in a little better then expected.

I don't know, I post so much and write so many emails, but I do believe I have said or am about to, "Very few things happen in the market that were not pre-planned". In other words, leak on the jobless claims or what they were going to look like, most likely. Market just rising out of nowhere for no reason, not likely. That is how manipulated this market is, this is why Wall Street almost always wins, they write the game as we go along. Luckily for us, they leave little bread crumbs we can follow and maybe catch a sneak peak of what their up to as the busily set about their business of shaping the market.

I know it's hard to believe, even for me, but we see the evidence of it so often, how we can we just shut our eyes to objective data, even if it points to a world in which we suspected may exist, but had no idea that it was so much further along then we had ever imagined?

Stay Tuned.....

As for the market right now, it appears those who set their buy orders and headed off to work were made to pay a premium, those orders filled, the retail demand drops off, maybe even a few get taken out the same day on a stop order on the pullback. It's typical market maker stuff and shouldn't be read into for much more then what it is. 3C showed the pullback off the gap, but it happens quicker then I can type it. I'll keep you up to date, lets see what the tricks will be today.

PLA long triggered, also I got a trigger for IBCA but I need to look it up on the spread sheet.

Check Your Trade Triggers

I have at least these that triggered today GMT, HAE, HAFC, NXTM and WABC

TRADES ARE UP

Ok, what I did tonight was provide you with some long trades. These trades all have very high short interest, I went through about 200 and looked for the ones, that I personally would be scared to hold if I was short and then I looked at 3C and made sure they showed the tell-tale signs of accumulation. For many of these the accumulation is recent, there's high short interest for a reason, they probably aren't the best long trades in the long run, but we don't care about that because they are for THIS bounce. If I used a limit order it was because there's a chance of an intraday pullback in my view. If I used a market order it's because they closed strong with 3C. However, when thinking about these orders, if you see the market will gap down, you have to consider whether you want to take it at market. Stocks that closed strong today and look as if they will gap up, I would be more inclined to take them at market. A lot of the time, a stock that starts strong in a high momentum atmosphere, will never look back and it will close near it's highs so those , even though they are gapping up at higher prices, often tend to be the ones that just run and don't look back.

You can modify the stops any way you like, if you want them really tight that's fine. Just remember, these are trades that are short term and remember-gifts-double digit moves are worth considering taking some or all of the profits off the table. In an ideal world, you take your initial investment so you are guaranteed a profitable trade and let the rest run. You can also use leveraged ETFs like SOXL which I think is one that should do well or just a market exposure ETF like UPRO.

When you are planning your trades, don't just take for granted or assume that yes we will have a bounce, always think in terms of worst case scenario for risk management. I never consider the gains I might make in a trade at first, I always consider what I have to lose.

If the bounce is strong, start looking for the shorts you want to short INTO STRENGTH, you don't want to wait to get your feet wet until they are already in decline, that is when you want to think about adding to them.

Now, I'm going to spend a little time with my VERY patient wife.

All my best Pack!