FB Charts

These charts were captured about an hour ago or so, so any changes to them and I'll notate under the chart.

As you know we were one of the only groups of traders to catch the first FB move up while everyone hated FB and we also called the longer term base and move on that. FB is unique in that it can trade independent from the market in most cases, but here it seems it is starting to correlate more with the market.

 In early August we saw a slight move up and said it would be slight, but added that there was a very strong potential for FB to build a larger base from which to rally from, you can see that at the white arrow, this is a large base area and I believe ultimately FB can make a bigger upside move, however I'm concerned about the more immediate future.

 TheVERY influential 2 hour chart with a huge leading positive divergence in the base area, this is exceptionally strong longer term and it is in line with price thus far.

 It is more immediate problems I see for FB, this yellow area I believe to be a head fake breakout, there was accumulation for it at the white arrow, but once again, GUESS THE DATE! In to the breakout there's no confirmation, just a relative negative divergence.

 The 15 min chart shows accumulation back in August where we first said to watch for a base in FB, then a leading positive divergence, however in to the recent move above local resistance we have relative negative divergences, leading me to think this is likely a head fake breakout. A pullback would be welcome, I'd consider buying FB again if there were accumulation on a pullback.

*This chart is currently a little closer to in line with price, however if it was zoomed out a bit more you'd see how negative this chart really is. The current 3C reading is below the 11/12 FB lows.

 FB 5 min is showing 3C in line with price at the green arrow and then as it breaks above local resistance (just as the SPY did and other averages) then we have a leading negative divergence, it seems like that breakout was used to sell/ sell short in to.

*currently the 5 min chart is in a little worse shape


 I said earlier there might be a better intraday entry, we went negative at the a.m. highs and started working on a positive divergence.

*Currently the 1 min 3C chart went up a bit higher, but failed to surpass the negative divergence, meaning it's still negative.

 The 3 min chart however has been leading negative all day, this is a stronger signal and the more important for the bigger picture.

The 5 min is leading negative also at the same area as the breakout took place. Don't just look at the signals and read "breakout", think about why there are negative signals at a supposedly bullish event.

*As mentioned, the 5 min chart is now in worse shape moving toward  a new leading negative low for this chart.

This is more of a trade, I still like FB long term and if it does show positive divergences in to a pullback/correction I'd likely buy it.

Mini Market update 2 of 2

Keep in mind this isn't considering any of the confirming indications or assets, etc, it's just the signals in the averages themselves. As far as the short term intraday moves go, the Futures haven't shown much, but ES is starting a 1 min leading positive divergence, the first of the day.


Here are some of the deteriorating or already bad negative positions in the averages.

 DIA 3 min was already relative negative (red arrow) and leading negative (red box) which is a stronger divergence than a relative divergence. Today the 3 min added to the leading negative downside to a new low. While the 3 min chart may not be significant looking at the 1 day movement for much more than intraday or day to day,  the trend is much more significant.

 DIA 15 min with a relative positive divergence, guess where? Yep, right at the 28th/31st lows. Currently there are two leading negative divergences, 1 longer term represented by the arrow and the near term which is more pressing for the immediate future in the red box.

A leading divergence on a 15 min chart is a strong signal.

 IWM 1 min was in line with price until the IWM hit all new highs and look what happens, a leading negative divergence, the new highs are aggressively sold. This is just another reason why I'd be using any intraday strength to sell or short in to, not to buy (generally speaking as there are always exceptions to the rule).

 IWM 2 min with a positive divergence going right in to the 28th and 31st, coincidence that all these averages and stocks all go positive at the exact same time?

Currently a leading negative divergence with new lows just as IWM makes all time new highs.

 IWM 10 min has remained in leading negative position, never confirming the upside on this stronger timeframe. You can see the 11/16 lows and the positive divergence in to them that started this current cycle.

 IWM 15 min leading negative divergence. This is a strong move and right when the IWM hit new highs.

 A leading 30 min divergence intraday? YES, again, at the IWM highs, this is a huge move for an intraday chart and very strong distribution signal.

 SPY 2 min, as mentioned is not going positive or backing up the 1 min char, it is leading negative at a new low on the move just after the breakout above local resistance.

10 min SPY also leading negative on the same breakout. Also note the positive divegrence and where? Again, Friday the 28th!

Market Update 1 A

In the last update I posted some charts suggesting the market move higher on an intraday basis from here, several of those signals have grown in strength, they still aren't impressive, but they are stronger at lower prices.

Broader Market Update

This is a look beyond just intraday timeframes. The way I would explain this update would be:

We expected Trend #1, which is to say the first significant move in the market that means something, that was a strong move up, but shorter in duration than the signals we have for trend 2 which is a longer move down. As I reminded you, the duration of trend 1 being shorter than trend 2, did not mean the amplitude or intensity of trend 1 would be insignificant, in fact I said it would likely be stronger than most of us (including myself) would imagine.

There are certain things that happen in a cycle, in a trend and in a reversal, one of the key events is the head fake move and it's important for a number of reasons which I laid out in the first 2 of the 3 part post, Understanding the Head Fake move, which is linked in last night's first post.

So far the way the market has moved has been right on track with expectations for behavior, events and their order. Now we are looking at trend #1 in a strategic way, where it is along the course trends and cycles take and where it is in the up cycle that started on the 11/16 lows, but was being accumulated before that.

Now we are looking at trend #1 in a more tactical light, where and when are the reversal, what other events might occur, this means I have to REALLY keep a close eye on things. If I don't respond to your emails in a timely fashion, that is why, but I will check them and check out stocks and other assets you may be asking about, if I find something interesting I'll post it for everyone, but with the number of emails right now, I can't keep an eye on everything I need to and that's my first priority, to all the members.

So here's an update of the market using the SPY as the example symbol and some confirming assets.

Just as early Friday I anticipated the SPY and the broad market (but specifically the SPY) to cross above recent resistance as a range had been formed and it did at the yellow arrow, I would expect it to spend some more time up there. The reason I expected the move is because it opens up opportunity for large transactions by smart money to take place, they need prices moving in their favor and they need demand with the size of their positions so they don't move the market against them, that is why these head fake moves tend to be a good sign post of where we are along the trend and how close we are to a reversal (assuming the break-out is a head fake move and not a real break out which we confirm with 3C).

So since we spent so little time above the resistance zone on Friday, from a behavior perspective I'd expect the SPY and broad market, to lift back above that resistance area. At the same time we are seeing negative divergences as we'd expect to see, they are using the demand to sell or sell short in to, both transactions come across the tape as sales or distribution. The negative divergences are fairly strong and right now I can't make much of an argument for a move higher other than behavior.

 The SPY 1 min has held up so far in a leading positive position, this gives us at least a consolidation in this timeframe, if it builds out and to longer timeframes, then a short term reversal to the upside.

 As you can see the 2 min chart is not seeing any kind of positive action from the 1 min as of yet, that means longer and more important timeframes are also in negative positions, this puts the market in a very precarious place in which it could break to the downside VERY suddenly which has been one of my gut feelings about trend #1 since the start, a fast reversal.

In white you can see short term accumulation in to last Friday 12/28 right before the move higher.

 At the 5 min chart of the SPY we have a leading negative divergence at Friday's highs or breakout, this tells us the move was used the way we expected, to sell in to, but I'd expect they need more time, I may be wrong, they may have already completed all positioning, but it seems like a waste to be so close and not use that opportunity. I suppose it depends on what the order book loos like and if there's enough demand above resistance to make it worthwhile. The 5 min chart is not positive, but the white arrow is showing recent movement that is more positive that it should be at this point, even though the entire area in the rd box is leading negative. This still hints at the chance for that move to the upside.

 This is a closer look at the 2 min chart, it i showing short term distribution in to the break above resistance as well and no migration of the 1 min divergence, therefore no signal yet for any mov back above resistance here, yet, this can move fast though.

 The more important chart is here on a 10 min, it's a more important timeframe, it shows the cycle up from the 11/16 lows, the selling in to strength and the accumulation for the Trend 1 move up, that also sees heavy distribution as the 10 min chart (far right) is in a leading negative divergence, thus this makes the position of the market even more precarious.

Treasuries as the Flight to Safety Trade...

 Longer term the F_O_M_C minutes may totally change the outlook for Treasuries, but for now they have been seeing strong 15 min chart leading positive divergent signals in to their lows, suggesting money is moving from the market or risk assets back to the Flight to Safety trade.

 Even short term we are seeing leading positive divergences in Treasuries, this is also strongly suggesting trend 1 is the head fake move is was always expected to be (even before it even started).


Volatility (This moves like Treasuries, opposite the market)

 VXX (short term VIX futures) have been seeing short term positive divergences, these we normally see when we are very close to a reversal, this is also strong as it is a leading positive divergence.


Here on a very important 15 min chart (the longer the chart, the more important the signal), we see a positive divergence around mid December that takes volatility higher, then a negative divergence guess when? Right in to that Friday, the 28th before the market popped the following Monday, odd isn't it how all these asset classses seemed to know which way the market was going as did we as we entered calls on that Friday. The current signal here is leading positive also, this suggests the cycle starting at the 11/16 lows is close to failing, that starts trend #2 which should easily move below the 11/16 lows and should be longer in duration than trend 1, quite a bit longer I suspect.

The easiest and best thing for us would be a move in the market higher, but with strong leading negative divergences in the market, confirming positives in Treasuries and Volatility as well as leading indicators.

We have built some short positions already for trend #2, but I'd still love to use this price strength to enter even better positions and other positions. All in al, the strategic outcome is exactly as expected, but we have to wait on the market to give us the signal on the tactical entry/exits and the market right now is very weak in a lot of timeframes, more or less at the point where it could break any minute.

However, I don't make decisions based on fear of missing a move or guess work, I make them on objective data.

AMZN Update

Since I have several emails about AMZN, I figured I'd just post it. It's making a new high today like many stocks and the Russell 2k did last week. AMZN on the longer timeframes and even intermediate still has very negative divergences so the strategic view is negative on AMZN, the important part now is taking advantage of the price strength in line with our strategic view and I call that the tactical view or the entry. As for the entry for new or add to positions, as of this moment we are not there, but AMZN is not that far away it would appear.

This may be a part of an earnings play as well, we'll have to see what the charts look like closer to earnings, for now though here's the basic break down of the strategic to tactical.

 The longer term view with AMZN in a stable uptrend or stage 2 mark-up in green for a +425% gain, in yellow the volatility starts to get a little wild, this is often a sign of a stock moving from stage 2 (the easy money) to stage 3(distribution/top). As you can se since the volatility has crept in, AMZN has about a 67% return.

 This almost looks like a large H&S top and it could be, but all H&S tops start out as Broadening tops first. It's hard to confirm a H&S top here with volume as volume has been declining throughout the entire market.

 The longer term strategic charts like this 2 hour suggest AMZN is under distribution as it is nin a new leading negative divergence.

 I'm not posting al timeframes as it is redundant, but here at an intermediate 15 min chart, this recent high (which would be a head and a H&S pattern) is showing a larger negative divergence than at the area that would be considered the left shoulder, so this is in line with a H&S or Broadening top. Whatever it is, the move higher in price has a worse negative divergence suggesting much heavier distribution.

 I don't know why this chart didn't load above the 15 min, but the 30 min chart is showing the same thing (this is more important than the 15 min chart), lower 3C highs at higher AMZN highs, a leading negative divergence through this entire pattern.

 Very short term and closer to intraday, we have some confirming 3C readings, mostly on the 1-3 min, but zoomed out to their trends, it's a different story.

 For instance the 3 min shows a negative divergence and then accumulation right in to that last Friday before the entire market popped higher the next Monday, coincidence? I highly doubt it as we see it everywhere. However the 3 in trend is not confirming the move higher.

At 5 min we see the positive divergence that started the cycle off the 11/16 lows, again just like the rest of the market.

At this point we have more than enough longer term data suggesting heavy AMZN distribution, we just need short term charts to give strong tactical entry signals, I suspect they will follow the broader market.

I'll keep an eye on AMZN as I want to add here and get a piece of AMZN at these prices.

Following up on Early Indications

It's also VERY early to be looking at our Leading Indicators layout, but I wanted to see how they opened.

As mentioned last night, this past Friday was almost the mirror opposite of the previous Friday (Dec. 28th) when the market saw a downside move, but risk assets and Leading Indicators held steady suggesting the market was seeing manipulation pushing it down to lower prices to be accumulated ahead of Monday's strong move up, this is why I said late Friday I was much more comfortable holding QQQ Calls going in to the Fiscal Cliff debate weekend than being in puts, risk assets were telling us something.

This past Friday as the market broke north of some key local resistance areas (again as predicted early Friday based entirely on the fact that we know how the market behaves and this was the highest probability move, which was put at 80%) there was one problem as I pointed out Friday and again last night, like a mirror reversal of the previous Friday, other risk asset classes DID NOT follow the market higher.

So far on the open we have High Yield Corporate Credit in a bad spot, negatively divergent with the SPX on a relative basis which is all we really care about right now. There's a "reversion to the mean" as talked about last week as it could happen a couple of different ways, in the $AUD which is moving toward the SPX on a short term basis. The Euro intraday is close to in line with slightly better relative performance. Yields also are showing slightly better relative performance intraday,as is High Yield Credit.

More or less what opening indications among leading indicators are telling us is basically the same thing that opening indications in the averages are telling us, this initial opening move is not being confirmed and I wouldn't suspect it would be as the break above local resistance happens for a reason and that reason can't be fulfilled in 30 minutes at the end of the day on Friday.

Here's a look at the opening indications on the 3C charts...

 QQQ did move down to confirmation and then to a leading positive divergence.

 SPY stayed in a leading positive position, never confirming the downside move.

As mentioned, the IWM was the weakest and did confirm the downside off a late Friday negative divergence.

Here's the catch, these are ALL 1 MINUTE CHARTS. There's very little to NO strength at all in anything longer than a 1 min chart for all of the averages. For those who don't know already, a 1 min. positive divergence in this situation could simply lead to enough support for a consolidation and then the market continues lower. We need to see more strength in the 1 min charts and then some migration to longer and more important charts like 2, 3 and maybe even 5 minutes.

If we don't get the migration, I'd be skeptical of playing any intraday longs on an intraday bounce. What I'm basically saying is I'd hold right here until we see if there's more strength to build in, right now there's no high probability trade with only a 1 min positive in the averages.

Opening Indications

It's VERY early to look at 3C opening indications as I like to allow at least 30-45 minutes for charts to catch up, but at least on the 1 min intraday which can confirm a move in the market fairly quickly or at least move in the direction of confirmation, we are getting some interesting signals thus far.

The SPY, DIA and QQQ are not confirming the downside move in the market this morning, the IWM which has seen relatively weaker underlying trade (as it also has made an all time new high and therefore has opened up more demand and the best prices one could ask for) is confirming the move down.

I'd be careful about chasing this, it's early trade over the weekend, early trade is always deceptive as stops and orders are hit.

ES and NQ are in line so far.

Expect upside intraday.

Pre-Market

Today is beyond light on economic data, it's pretty much non-existient, tomorrow it picks up a little bit and Alcoa will be kicking off earnings season tomorrow as well. One interesting thing we have this week that I think will be watched closely by the market, but ignored by most retail traders is the number of F_E_D speakers this week starting tomorrow with Lacker (Tuesday), Bullard, Kockerlakota, & George (Thursday), and Plosser (Friday).

I think few realize how important last week's release of the last F_O_M_C meeting's minutes actually were/are. Look at QE3, the market rallied for about a day and a half on the announcement of QE3, sure most expected it and it was priced in many will argue, but the market actually dropped after QE3 came out, adding treasuries to MBS is the same play from QE1 that did nothing for the market in 2008 until Treasuries were addd in 2009 to QE1, the same happened (from F_E_D policy) with QE3, it started as MBS and then they added Treasuries.

If you ask me why the market didn't rally, why gold didn't soar, it's not just because it was priced in which I believe is true as we had negative 3C signals going in to the announcement, but watching Bernie speak at the press conference, the question about onflation and how it may effect policy execution was the one that stopped the market in its tracks and that very minute as Bernie responded that they would do this and that "Within the CONTEXT OF PRICE STABILITY" told the market that QE3 was an adjustable program depending on inflation that it created.

WORSE YET, the F_E_D started changing their policy accommodation yard stick from a very stable date based one that the market could count on to an economic performance, which is almost real time and the market would have no idea how QE3 would change as economic reports changed. If there's one thing the market hate, it's uncertainty. So far the new policy yard stick has progressed from an idea to taking actual shape and the market is not keen on not knowing for sure on what date rates will change, whether a POMO may be decreased or cancelled because of a good economic report, etc. I think the F_E_D is doing the right thing, but when you have a rally from 2009 built on a QE/F_E_D liquidity House of Cards, right or wrong, the market is going to be cautious so these speeches from F_E_D members this week will be very important in my view.

As for the market overnight, it looks like 3C may have sniffed something out in the EUR/USD with last night's 5 min positive divergence...

Other than the opening Sunday night that was much higher and told us a Monday morning pop in the market was very likely, the pair has diverged from the market ever since, which is not good for the market, yet the market has maintained in a range and broke above it late Friday as we predicted, which is just norma behavior that is often part of a head -fake before a reversal. Whether this was because of year end Euro-Repatriation for EU banks closing books or something else really doesn't mater at this point, what does is it seems the Euro is going to make a move to the upside, the pair and the SPX will meet at some reversion to the mean, now the question is whether the market makes its way down to a rising Euro or gets a temporary boost?

A closer view of the pair shows some pre-market strength.

So far ES is down around 5-5.5 points from Friday's 4 p.m. level and hasn't moved with the Euro, that often changes on the open. We'll see what opening indications look like.

EUR/USD

I'm not going to read to much in to this as it is an early signal and the EUR/USD hasn't exactly been tracking the market recently, but there are some signs on a 5 min chart that the pair may look to head higher soon, that would be supportive for the market very near term, any further out and there's still a large divergence between the two that is more negative, but this could spell early strength for the FX pair that historically correlates to market strength-again we are talking about very near term.

The point of the break above recent or local resistance that I mentioned as likely to happen early Friday and did happen late Friday is (at least in a head fake situation as this seems to be) to open up demand from retail which also lifts price, it's a perfect set up for a bull trap and allows larger funds to sell in to that increased demand without sending prices lower or sell short. It also sets up a bull trap which becomes a failed move, which becomes a fast and deep reversal move.

I may be getting a bit a had of myself, but Friday's late break above resistance certainly wasn't enough time for smart money to make any significant moves, some extra time and demand helps them, as I always say, "Price is Deceiving, and Friday as I also said, it's a gift for us as well.

We'll see what the underlying trade says if this EUR/USD signal leads to some strength. This doesn't nullify or change any of the earlier analysis from last week or tonight.

3C looking more positive as the pair finds some recent support after a move down.

Opening Trade for the New Week

I hope everyone had a safe and relaxing weekend.

So far ES, NQ and the EUR/USD have failed to impress much on opening trade as of about 7 p.m. EDT.

Both ES and NQ are slightly lower than where they were at 4 p.m. on Friday. ES has no interesting divergence as of yet, NQ is a bit positive on the intraday 1 min timeframe and there's nothing too interesting about the EUR/USD although we are VERY EARLY in overnight trade.

The big story is TREND #1, which we predicted to be a strong, volatile move up (I said several times likely stronger than we can anticipate),  has made its move placing the S&P at levels last seen about 5 years ago. So far this move is good for about +4.54% over the last 4 days. This tend, compared to evidence we have of other trends to follow such as trend 2 (down) has always been expected to be the shorted lived of the two trends.

2-day SPX chart with the sharp mov of trend 1.

We were also looking for the SPX/SPY and other averages to take out local resistance as one just about every timeframe, before we can get a reversal we see these head fake moves as the open up demand and higher prices that Wall St. can sell or sell short in to and there are many other reasons you can find in my 2 part (of 3) article, Understanding the Head-Fae Move. Part 2 of the article can be found at the link and part 1 is linked at the top of part 2.

This is the suspected head fake move that was predicted early Friday that came to pass late Friday, this was not based on early signals, but market behavior we have seen time and time again.

It is above this area that we want to look for the tell-tale signs of heavy distribution suggesting a near term reversal so we can take more substantive action.

The averages in the very near term ended Friday with the SPX and DIa looking ok, as if they might move a bit higher, while the QQQ and IWM didn't look very good at all.

Treasuries moved higher suggesting a flight to safety trade had already begun, basically money moving out of risk assets and in to the safety of treasuries, I believe that might be an accurate signal, but the big news of the week was the F_O_M_C minutes in which for the first time we had more than a single member openly questioning "Accommodative Policy" which may have intense and unexpected repercussions on treasuries, especially in the long end as the market now fears that QE3 may be shorter lived than thought and that the F_E_D may even move to normalize policy (meaning a rate hike) sooner than expected. This may cause a complete "Re-set" in the market as everything previously thought is now in the realm of uncertainty which is the place Wall Street hate more than any other. The effects of "Accommodative policy" and QE on the market since 2009 cannot be fully appreciated, they virtually were the market.

As for the week ahead, we'll be looking for signs of a reversal of trend 1 and seek to confirm trend 2, trend 2 may even be worse than originally expected due to the F_O_M_C minutes, but I want hard data, not guess work.

As for other indications from Friday other than Treasuries rallying with the market, equities rallied the last 30 mins to make it above that resistance level predicted as a break through target earlier in the day, however the bulk of other risk assets did not follow, this is almost the exact opposite of what we saw the Friday (12/28) just before the market popped the following Monday, we saw a late day sell-off in stocks (I expect they were being accumulated for the pop), while risk assets failed to move lower.  

Among the risk assets not buying the market breakout above local resistance were High Yield Corporate Credit, High Yield Credit, the EUR/USD moved, but not nearly like equities, Rates weren't biting either and as I pointed out Friday the NYSE TICK showed strange weakness in to the move higher, it failed to make the higher high it should have. This is the kind of behavior we'd expect to see in to a head fake move, it doesn't mean the market can't move higher in the near term, that's part of the reason for a head fake move, but at least our prediction was right and the way risk assets acted in to the move also seems to confirm the reasoning behind our prediction was also correct.

Context will give you a quick and dirty example of what I'm talking about above...

The ES CONTEXT Risk Model did not move higher (green) as the ES (red) did, but I also confirmed this with our Leading Indicators.

Other than that, we are just going to following the market and letting the market's underlying trade tell us when and where.

However I cannot underscore enough how important the F_O_M_C minutes were this week, this was a total 180 degree turn from the F_E_D and we'll see if the market starts to make new pans, largely based on an earlier than expected F_E_D exit from policy.

Have a great night, I'll update you if anything big happens before tomorrow morning, otherwise I'll see you pre-market.