Fitch Rumor Used Strategically?

The range I talked about early in the week that needed to be in place for a reversal with a chance of any sustainability beyond a day bounce has done exactly that and through the intraday and day to day volatility, has indeed formed exactly the kind of range I was trying to describe.

As for a head fake move because in my opinion, the range is about the right size now, there's a rumor from earlier that is being blamed for the market sliding from the opening highs, that rumor is that FITCH will downgrade the US from AAA, this however is highly doubtful as we are 2 weeks before a Presidential election and Fitch themselves said any downgrade wouldn't come until 2013, but it's a rumor that works and does what needs to be done if we in fact confirm this as a head fake move which I think we will as everything else has developed exactly as planned since we saw the first positive divergences on Op-Ex Friday around 2 p.m.

As for the divergences, we continue to move in the right direction.

AAPL Update

AAPL is near the same position as the market averages were before they broke that support level (where we look for the head fake move as 80+% of reversals in every time frame see a head fake move as the last move before the reversal). I suppose technically AAPL did break the support level, but only by a hair and volume wasn't impressive.

Here are the AAPL charts

 AAPL daily

 This price pattern surely will be seen by traders as a descending triangle which is a bearish consolidation/continuation pattern, I would think AAPL has to break below that support level before it can reverse.

 Since capturing this chart, AAPL has moved just below the level, it hasn't triggered any significant volume yet though.

 AAPL 30 min since the last decline and the range with a leading positive in the range and a large relative positive before it.

 10 min leading negative at the last top we saw last week, positive at the lows and leading positive currently.

 1 min intraday was negative on the open, however it is leading positive and this is after the support level was broken.

 3 min AAPL

 3 min AAPL trend

5 min AAPL trend from negative at last week's top to positive in this week's range and leading positive now.

Update

Since the last post both the SPY 1 and 2 min are clearly leading positive

Charts

Volume still hasn't been impressive, only the SPY really shows any notable spike on the actual break, so they may look for it or that may be all there is. In any case, the divergences I mentioned earlier that we'd need to see to confirm a head fake (and on that I would increase my long positioning as the reversal would be very close and prices wouldn't get much better) are developing now, they start from the 1 min and move out.

 The SPY was the only average that didn't confirm this morning, it stayed nearly perfectly in line with price on the move down which means it wasn't in a leading negative divergence (heavy distribution), more just the intraday chart in line with the intraday move. We have seen the 1 min chart this week act as an intraday only indicator in some averages whereas others it has been a more important divergence indicator.

 For instance it seems to be acting that way with the SPY as the 2 min chart has several positive divergences on the way down.

 DIA 5 min simply shows the range, the break above and below the range today (Crazy Ivan( and no damage at all.

 The 1 min chart did put in a small intraday negative at the morning highs then was in line and since has gone leading positive

 The IWM was also in line on the move down and positive since. While the IWM did not break the lows of its wider range, it did break under local support.

 IWM 2 min also from in line to a leading positive

QQQ 1 min from in line to the start of a leading positive

 The 2 min like the SPY shows several areas of positive divergences on the move down, if I remember correctly it was the QQQ/SPY that were seeing the 1 min chart act as an intraday only indicator earlier in the week.

ES has stayed positive throughout and leading positive.

If the divergences really stand out as they continue to develop, I'll add to the long positions, almost all of which are already filled out to the speculative size I intended originally last Friday.

SO FAR THE PROBABILITY OF A HEAD FAKE IS LOOKING GOOD

The divergences needed to confirm the head fake move and put us that much closer to an upside reversal are developing well.

I'm loading the charts now.

Leading Indicators

We're in the zone now for the SPY, DIA and QQQ, only the SPY has really triggered any volume yet which is also an important part of a head fake reversal, the stops need to be hit and the shorts need to move in, volume surges are a good indication of that.

As far as leading indicators go, almost all are holding up well.

 Yields popped this a.m. to put them at a large near term positive divergence, they are already at a large positive divergence for the reversal area of the entire range and have been.

 The AUD intraday is not quite as bad as the SPX, over the last day and a half it also has popped huge in the near term, it is also already in a larger timeframe positive divergence as well.

 HY Credit was positive yesterday and is positive today, this week is the first time HY credit has broken away from an in line relationship with the SPX.

 HYG Credit is also holding up better, still in the green and also hugely positive in the longer term as well like the others. Both the longer term for the entire range is positive and the near term local divergences are positive in leading indicators.

The move down this morning though is pretty complete in many groups and stocks.

Sector rotation makes that obvious.

Market Update

You've heard it hundreds or maybe thousands of times depending on how long you've been with us, but here goes again. We see head fake moves over 80% of the time before a reversal on every timeframe. So that's something I'm on the lookout for early today, there's really only 3 averages that have a clean enough range for the move, the SPY, QQQ and DIA; the IWM's range is too wide.

Here's what it would look like, if we did get it on positive divergences confirming the head fake, I would probably kick up my commitment to the leveraged longs. ES has stayed positive throughout the morning.

These are definitely the most unpleasant and nerve racking market events to go through, but they also tend to be the best signals for timing a reversal.

 DIA with what could be a small Crazy Ivan shakeout/head fake

 The QQQ head fake range that would have to be hit.

 And the SPY with a possible Crazy Ivan too.

ES positive throughout the morning.

EIA Nat Gas Report/UNG

Released On 10/25/2012 10:30:00 AM For wk10/19, 2012 Prior Actual Weekly Change 51 bcf 67 bcf

Highlights Natural gas in storage rose 67 billion cubic feet in the October 19 week to 3,843 bcf. An injection of 70 bcf was expected. This is a place I would consider adding a little to UNG, it seems it's seeing some accumulation on the EIA reaction which is also in head fake territory.  Here's the ascending triangle we talked about at the last update and a break below it's support which isn't surprising as a head fake move.  A look at UNG this morning on the EIA report...  The short term charts have gone in to leading positive divergences on the reaction from the EIA report. 1 min  2 min 3 min So far I like what I see, I'd like to see it continue, but if I needed to add to the position I would consider adding a little here, if the divergences keep building as only 40 minutes has gone by, I would add more.

Adding a little to UDOW Long

This is one I started a partial position in, I'm going to go ahead and fill it out, the final size will still be speculative as was originally planned.

Market Update

From the looks of ES and the overall look of the market, this looks like a last ditch shakeout attempt, the range developed and I think we are pretty much near the end of it.

 ES remains positive and actually leading positive on this morning's early volatility (same thing we see every morning one way or the other).

Longer term...

DIA 15 min with a nice positive divergence in exactly the kind of range I was trying to describe early this week, as I mentioned, it's hard to imagine it in advance, but easy to see it once its there.