Quick Market Update

Today's action almost feels like an option expiration pin which is possible as the weeklies seem to be picking up more influence in that regard, at least we've noticed that several times which I hope is not the case as it makes for a very boring Friday.

Any way, there's possibly another explanation...

This is the SPY from yesterday and today above the area we were looking for, we are seeing some short term negative divergences, it's not where I'd like to see it right now. There's a few other things I'm interested in, one I'll have to wait for, that's the F_E-d's POMO, the other's I'm watching and checking through the day. The point is this is the area we needed to be above in my opinion before anything significant or any movement toward trend 2 would take place. Normally I'd expect come further upside in this particular situation, it may be that it's a combination of op-ex and supporting price above the trend line.

The TICK data is very, very mellow.

At the white arrow is the head's p the TICK gave earlier I mentioned, but the more important thing here is TICK hasn't crossed above +750 or below -750 all day, this is very, very balanced trade, it almost seems to balanced, as if it's seeing a bunch of slight corrections to keep price (and breadth) very steady. If this is the case, a large algo program could probably pull it off , especially one operating from 33 Liberty Street, NY.

The last few days the data has been much better toward the end of the day, I'm not going to slack because of that, but it is what it is. The mission now is to understand why and what it means for the market and what opportunities that opens up.

Quick Market Update

So far there's what looks to be a small intraday reversal, the TICK chart is supportive, but didn't lead the move (actually it did for 10 mins, but you'd have to be really good with divergences to see it); 3C intraday charts are mildly positive to inline with some of the longer intraday timeframes seeing some more negative action which is something as I explained earlier today as one of the markers we are looking for in the area and as  explained all this week, "We are not likely to see these signals until price makes the move above last Friday's level". So yesterday's move was important, it leads us to very fertile ground for signals and likely for the next scenario we are looking for in trend #2.

If any charts stand out as interesting, I'll post them, right now the description above is more than sufficient.

AAPL Update

Here's what's going on with AAPL, if you saw last night's post on the AAPL signals, this is a good follow up.

 AAPL 1 min was the problem timeframe yesterday which would not confirm the afternoon move up telling us distribution in to price strength was the most probable situation. This morning's gap fill high was also distributed, but there's still probably enough strength on the 5 min chart to take AAPL higher, right now it's more or less moving with the market.

 The 2 min chart was in line with price yesterday so we know the distribution wasn't that heavy yesterday, but at the gap fill high today you see a clear relative negative divergence between yesterday's high and today's high, this is distribution migrating to a longer timeframe as I explained in last night's post.

 The 3 min chart is not seeing distribution signals as of now, it is in line with price action.

And the 5 min chart is still leading positive.

I suspect the size of the 5 min chart's positive divergence suggests the accumulation size was probably gibber than what has been distributed so far. If that's the case, what do they need to distribute the rest of the position? They need higher prices that create demand, for that reason I still like the AAPL Call position open and think we will see some more upside.

Opening Indication

So far there's been a negative divergence on the intraday timeframes that has carried over from late yesterday afternoon. It's still pretty early, but this is what we have for right now.

 So far all the averages look the same, the DIA 1 min.

 IWM 1 min.

 QQQ 1 min

SPY 1 min.

Clue in Futures

Long time members know this already, buyt recently we've had an influx of new members so I don't want to assume that you know what I'm talking about when you may not have been around for the background or how we tend to do things here at WOWS.

Most often I'm not going to tell you about a trade that is breaking out and say, "I like this", by that time it's too late, the profit potential is too low, your risk is very high and the timing is way off.

Most often I'm going to tell you bout a trade set up that I expect because of something I see, if and when the trade starts to do the things I laid out in the original idea, then we look at execution of the trade, in this way we are in before the move starts at better or sometimes like with CAT, the best price, we have lower risk and much higher probabilities.

With regard to trend #1 which is one of 3 trends (actually there's hints of a 4th, but with the changing F_E_D outlook on QE recently I don't want to start looking that far out), although I've only really covered the first two as this is a rare event and I don't want to make it any more confusing than it already can be, I laid out several things we are looking for with regard to a downside reversal which at these levels, dovetails nicely in to trend #2.

Some of the things are obvious, like once we are above the level which happened briefly Friday and then yesterday a.m. and then again yesterday afternoon, to look for distribution in 3C. Another thing we want to see is our Leading Indicators turn negative. One of the odder things I want to see (as it's not normally something we watch for) is the S&P and NASDAQ futures 5 and 15 min charts turn negative. This is only 1 of several things I'm watching for, but we have it right now for the first time since trend #1 started.

 ES 5 mins

 ES 15 min

 NQ 5 min

NQ 15 min

All 4 charts finally have moved to the negative side.

Pre-Market Futures

Good morning,

Overnight there wasn't much action in futures, a slow drift that last from the NY close to a few hours after the European open and as of now ES (S&P Futures) are at the same level they were at yesterday at 4 p.m., the market is set to open pretty flat.

 ES with a relative positive divergence, the green arrow is the European open.

NASDAQ futures look to have a slightly stronger positive divergence right now.

After moving lateral/flat overnight, the EUR/USD made one more parabolic spike.

For now this should be supportive of the market in the early going, but makes the EUR/USD move more suspect.

As I said yesterday, I think we have some more upside or at least some more time above the breakout level we were looking for from yesterday.

Quick Market Wrap

As you know we have several different signals representing several different trends which is unusual. Our analysis led us to believe that the first trend would be the shortest in comparison to the other 2 trends and it would be a sharp move to the upside, it would also likely be so strong that we even fail to appreciate how strong it will likely be. I also have a gut feeling that this trend will (when it's time) reverse in an event kind of way rather than a process, meaning much faster than normal, perhaps even intraday.

Trend 1 came, here's what it looked and still looks like...

 This is the IWM which made an all time new high on Trend #1, it's also been about a +6% move thus far.

The QQQ was even in decline and made a move of over +5%.

Here's the SPY which has been the focus of our attention for tactical purposes being our strategic view is for trend #2 to be market downside.

As trend #1 created a range, it became more and more likely that we'd see a head fake move as there's too much money for Wall Street to leave on the table when they just need to make a slight move above resistance and tag all of the orders on the books which most of us can see, but they can see the full depth of orders and know where they need to take the average. Friday (to the left), we had a 30 min break above resistance at the end of the day, it's enough to tag orders, but there's another reason for a head fake move, it's to draw in retail, get them to buy and create demand and higher prices which Wall Street can sell and short in to.

If you haven't already seen the two article of the 3 part series, Understanding the Head-Fake, here they are...

Part 1: How Technical Analysis Went From an Asset to a Trap

Part 2: Motivation

Since last Friday, this week I've been looking for the market to make another move above Friday's intraday highs, for Wall Street's purposes (in creating and using Head-fake moves), price needed to spend some more time up there. How much more? We let the market tell us that, but the size of the head fake is usually related to the size of the move it's working on which would be trend #1.

The larger trend started at the 11/16 lows, a move up that had been accumulated right in to the 11/16 lows, the QQQ 15 min chart best illustrates this cycle, I call it a "cycle" because it was clearly planned out ahead of time.

There's early accumulation at the first white arrow, but the really strong accumulation was near the lows as the divergence went leading positive (in the white box). From there we saw distribution of the move, a larger head fake move above the yellow trend line that saw distribution and then Trend #1 which has a deep leading negative divergence suggesting heavy distribution in to higher prices.

IBM is a good example, it's a short position that's currently open at a gain of nearly 9% and not only shows how we stalk a trade, let it come to us (because we get the best price, lower risk and higher probabilities and timing), but also how we use the head fake move to enter positions which is only possible because technical traders are so predictable that it makes Wall St. predictable in many ways. This is just 1 trade, but nearly every one of our core positions was entered like this...

 This is a daily chart of IBM, at #1 we have the resistance level traders will be watching in the future, at #2 we have a bullish "Bull flag, but we already knew there was a negative tone to IBM at that point, now it became a matter of the entry. At #3 IBM breaks above resistance which pulls longs in, this is the day we shorted IBM as you'll see below and #4 is a head fake set-up.

Zooming in on the tactical area or entry, You can see the bull flag at #2 and from that a breakout that should have move much higher according to the measuring implication of the bull flag, but we just needed a break above resistance. We also went short at #3 as you can see below at a price of $210.74. Between #3 and #4 there's a bullish ascending triangle that is taken by technical traders as a consolidation/continuation pattern to the upside, instead it broke to the downside and IBM failed quickly and hard, "From failed moves come fast moves" and that's part of the reason head fakes occur just before  reversal.

Here's what 3C looked like and this was our edge in knowing the difference between a real breakout and a head fake move that is best used as a short entry.

 I've rolled the history back to the entry area and just before. This is a long term 60 min chart. At #1 we have the bull flag, but 3C is already telling us there's distribution in IBM, we now have a strategic view, we just need a tactical set up. At #2 this is the breakout above resistance and where we shorted IBM, notice the 60 min 3C chart is now in a worse leading negative divergence.

While the 60 min is one of the strongest indications of what's going on, it's not the best timing timeframe.

I can only go back 5000 bars so I can't show yo how all the timeframes came together, but this important 15 min. chart also shows the bull flag at #1 and the breakout above resistance at #2, the same day we entered just about as close as you can get to the absolute highs i IBM. Again, the 15 min chart was confirming what the 60 in chart was telling us. Shorter timeframes gave us more confirmation and when IBM broke out, instead of 3C confirming it or leading it, it showed us distribution so we knew this was being used as a Wall St. Head Fake and they were selling and selling short in to the new highs, we did the same.

Essentially we are in the same position now in the market, we have broken out to the area that would be like the new highs in IBM, we just need confirmation of the 3C charts showing us distribution of risk assets as the breakout came very late in the day, they'll usually run price up a bit if the demand is there and sell in to that.

We just wait for the message of the market and objective data to confirm.

AAPL Calls and a 3C example

The AAPL Call trade is in the green and still open.

A member who also uses 3C sent an end of day email trying to better understand how to interpret the AAPL 3C signals, I thought it was an interesting question and answer that some of you may be interested in, so here's the email response from me and the charts I'll add to this post.

Divergences start on the shortest timeframe usually (unless there was a decent chunk of accumulation and one of the longer timeframes caught it at exactly the right time). If a divergence, buying or selling, is strong enough, it moves to the next longest timeframe and so on and so forth. So we watched AAPL today move from intraday charts in the 1-3 min range to the 5 min and at that point right before the move there was a stronger signal in the 5 min chart, a leading positive divergence (leading divergences are the strongest and often found near the end of an accumulation or distribution phase). So basically looking at AAPL only and today only, the positive divergence built out to the 5 min timeframe.

Here are the 2, 3 and 5 min charts as they developed at 1:45 and 2:45 today for AAPL...

 AAPL 2 min chart is in a leading positive divergence, 3C is making a second higher high as price is flat or even lower than the previous positive divergence earlier in the day.

This strength migrates to the next timeframe, which will not look as strong, but the longer the timeframe, the more important the divergence.

 The 3 min chart is also making its second higher high, but it has not quite made that higher high, still it is positive.

The strength here has migrated to a more important chart, the 5 min which is the first timeframe where we typically see institutional activity.

 Here there's less detail, but the trend is clear.

Now at 2:45 today...

 The 2 min chart is now making its 3rd higher high, the divergence is growing stronger as the day moves on.

 The 3 min chart is also moving to make a 3rd higher high in a flat price range.

The 5 min chart is now even higher, it has less detail as it should, but the divergence had enough strength to migrate through the timeframes.

This is what the 5 min chart looked like at the end of day.

Now back to the email...

The negative on the 1 min is showing there's no confirmation and the signal is telling us there's distribution in to both demand and higher prices, the two things institutional money needs to move around (or on the flip side they need supply and lower prices for accumulation).

This is what the 1 min chart looked like as AAPL rallied this afternoon...

Note that not only is the 1 min chart not following price higher, it's actually making a lower 3C reading and then a new leading negative low, back to the email....

I'm guessing that the 5 min signal is strong enough that they still have some selling to do, although it's hard to say as that 1 min chart didn't budge(move higher). The charts past 1 min (like the 2 or 3 min) don't matter unless the divergence from the 1 min is strong enough that it migrates to those longer timeframes which it didn't. Right now they are just moving in confirmation as they should until something bigger shows up there. My gut feeling here (and I hate when they run these plays so late in the day like last Friday, but that's when they come out and play) there's probably more distribution to go (meaning there's probably more upside in AAPL).

FX

There's a lot to talk about today:  individual stocks like AAPL and some interesting short term behavior,  a possible war between  Ackman/Tilson and Loeb over HLF (Short vs. Long)- aren't you glad we waited for a solid signal and didn't get caught up in that mess?

There's market behavior that is part of a reversal of the Trend #1 we hit on the head, a strong move to the upside (one that we may not even be able to imagine) that took the IWM to new all time highs.

A Big drop in the $USD and parabolic EUR/USD trade today.

Possible F_E_D POMO influence in the market (POSSIBLE!)

Which assets are looking the best right now and whatever spring cleaning might need to be done, like the AAPL calls.

More importantly, today's action, just like Friday, the level we were looking for was hit so late in the day that no one is fast enough to look at all the assets and correlations that need to be seen to tell where we are at, but we are in the zone now that I've been looking for and my next trend (bigger Picture) is trend 2, a stronger, longer move to the downside.

Apparently we also had Demark call a top, I'll have to look at my custom "Demark-based" indicator.

I can't get to all of this tonight, it's just too much, but I'll get to the important stuff. One of the first things is the biggest drop in the $USD in 4 months. The EUR/USD pair traded in parabolic fashion which is supportive of almost all risk assets, I know for sure some didn't play along, but the question is how long can this parabolic move hold. You know how I feel about parabolic moves, they are not to be trusted.

So right to it...

 This is the EUR/USD pair since FX trade opened this week, to the right of course is our parabolic rally in the EUR/USD.

 A closer look shows a loss of momentum as the Rate of Change slips, this "may" be that little "U" shape that is followed by a nearly vertical drop, this is how most parabolic moves end.

 As for the 3C signal in the $USD,  you can see through December it was largely confirmation (trading with price), then a leading negative divergence in early January around the 4th and a larger relative negative divergence yesterday. Today we have the start of a positive divergence, in fact it's even leading a little.

 On the other side of that coin, the Euro/FXE with several negative divergences on the way down , a large relative positive divergence that really took off the last 2 days and the gap up today with a small negative divergence.

Usually these ETF's of the currencies (somehow no matter what the overnight trade is) manage to pick up almost exactly where they left off, so there may be a lot of volatility i the EUR/USD tonight on the downside and upside.

Either way, it doesn't look like a sustainable move, at least that parabolic portion would have to be dealt with and it fits our trend expectations as it gave the market that extra support it needed to break the level we have been predicting since Sunday night.

If the EUR/USD falls, the $USD rises and that's broadly bad for risk assets whether commodities or stocks.

 Here's a closer look at the Euro/FXE and the 5 min leading positive yesterday and a smaller leading negative today.

 This 1 min ES (S&P Futures) chart shows the entire day and the overnight action including the European open. The divergence I'm most focussed on right now is the start of a leading negative divergence during the last hour to present.

NASDA Futures are showing the same. This may be based on trade in the EUR/USD, quite often divergences in FX end up bleeding in to equities. 

I'll be updating you on other developments, I have a lot of charts and indicators as well as internals to look at. However you may want to watch the Futures as well as the EUR/USD, that could lead to some excitement.

Overall tone is turning negative

However it's not screaming. Remember my gut that this could turn very fast once we get above the level we crossed today, but I'd still think a bit more time up here would be desirable