Quick Market Update

I may open an index/average put like SPY or IWM, probably SPY.

There's a lot of weakness and although it's not past 2 p.m. when most contracts are settled and the pin comes undone (this is the time price can do anything, but the 3C signals almost always pick up on Monday right where they left off today), I'm going to try to get charts out (I will, just how many) because this weakness is developing faster than I can get through a watchlist.

I think SPY and IWM appear to be weakest.

I'll have charts out momentarily.

MCP Update - Core Long Position

MCP was last updated Monday of this week, MCP Long Position Update. After doing what was expected (a shake out <$4.70), I added to the core long position (as it was intended to be a phased in entry) and the average price for the position is now at $4.77 which is excellent for the long term core position.

Here's what we have now... It looks like the head-fake moves (Just a massive stop-clearing effort) are all in, there's no utility in moving much lower because there aren't likely to be any "nests" of stops left as the $4.70 area I was looking for was the 2013 intraday low. So we have a position now at an excellent entry point, very high probability, very low risk.

 This was the long term Ascending Triangle base, when triangles are this big, they are not consolidation/continuation patterns, they function as tops and bottoms. 

Then GS came out with a downgrade...
 MCP was sent lower, volume swelled which created supply, who do you think might have been absorbing that supply on the cheap because someone is on the other side of the trade? My guess is Goldman Sachs for a long term position, not a bounce play.

In yellow are the 3 stop areas I was looking for to be cleared, check the post linked above and the links to former posts, we identified all of these levels in advance including the last one of $4.70, the 2013 intraday low. The price pattern is now a large rectangle which is fine.

 Note the Bollinger Bands squeezing indicating a highly directional move is likely very soon. My custom DeMark Inspired Buy/Sell Indicator has flashed 3 buy signals in this area of stop runs, with the BB squeeze, I'd say on that alone we have a 75% chance of an upside breakout. Add the 3C signals and I think this is a home run.

 This is the large triangle area with distribution sending prices down to lower levels where they were accumulated, the $6.25-$6.50 level is the first and with 3C, the first area of accumulation is almost always surpassed by the reversal move.

Then after the GS downgrade, the accumulation went stronger to Leading positive divergences, again there was plenty of supply so seeing stronger signals makes sense as more supply would be accumulated.

 The 30 min chart shows the exact same accumulation areas in what I'd easily term a STAGE 1 BASE (accumulation).

 Here's the 5 min chart's leading positive divegrence as price breaks down from the ascending triangle on the GS downgrade and 3C leads as volume increases on the break and at least 3 stop runs.

 This is the more recent action around the $4.70 level, this is an important area for the initial reversal .  Note the increasing ROC in the leading positive divegrence.

 I'd say this is the reversal process and it looks to be mature, more than half done and the second half is much shorter.

I use a moving average to show the same rounding bottom.

I figured based on a "Measured Move", MCP likely has a target of at least ($6.50 based on 3C accumulation alone) $11.25 just based on the base's measured move.

GOLD / GLD Update

I would prefer to either see GLD ( gold) get on with a pullback/gap fill or really tell us something is wrong as it is a QE asset rather than sit idly and chew up theta. Gold typically rises with QE, but more importantly it rises with inflation expectations. Falling gold has typically been associated with QE-OFF / TAPER-ON sentiment among market participants so it's something to pay attention to.

Yesterday I decided to hold GLD and GDX December calls as it looked like the most probable outcome was for a filling of yesterday's gap up and a continuation higher, it took most of the day to get there so I'll be watching equally as close today, I'd rather take a small loss now than a large one later if that's what the charts are pointing to as the highest probability or a reasonable probability.

Right now, GLD looks like this...

 Yesterday it seemed GLD got a late day temporary reprieve as the 5 min chart led GLD higher with a positive divegrence in the afternoon.

Since then however, this 1 min chart shows the move from yesterday afternoon and a small negative divegrence this morning that "seems" to be building.

This is the troublesome 3 min chart from yesterday, it still looks bad so if the 5 min divergence which was rather small and already fulfilled in price movement continues to go more negative, once again it will be a decision as to whether it looks like a shallow gap fill pullback in which case I'd be ok with holding the December GLD calls or if it looks more serious for a deeper base building pullback which would be nice for GLD's longer term trend, but would chew up calls.

I'll check on GDX as well, but they're usually not too different and I'd think gold would likely lead GDX at this point.

Liking IWM short or SRTY long

I would add to the SRTY 3x leveraged short Russell 2000 if I had not already added and if there were any advantage which there is not as the position is flat at break-even, but it does look like IWM is going to give us that nice Channel Buster Example I can use for a Resources and Concepts post.

 IWM downtrend Channel Buster looks ready to fail (A type of head fake move).

 The intraday 1 min is not looking good as IWM underperforms again today.

And a zoomed in look at the 15 min chart shows it too has flipped and we have some bearish engulfing candles on timeframes from 15 to 60 minute.

If I didn't have a position, I'd enter SRTY in this area or perhaps TWM (both long). 

If there's a decent intraday pop (set up), I may consider some IWM puts.

SPX 1800 / China Liquidity Crisis and QE for EVERYONE

It was a busy night with the Nikkei having a huge run after the failed Abe / Kuroda (QE-Zilla) has failed to turn the economy even a bit (kind of like here in the US) so the assumption is, if a lot doesn't work (and remember, their QE was to double their monetary base in 2 years), then more must be even more useless, or maybe they just need to make it a bit bigger for it to work.

In any case, we have the ECB hinting at QE very openly, Yellen is as dovish as they come and Japan who will not be outdone in the size and scope of Quantitative Easing, looks set to unleash even more.

However there's one country that's not taking part in the liquidity overflow game and that is China, once again as we saw in October and the market didn't care for very their liquidity draining stance much, China has once again refused to inject liquidity in to their system at Thursday's regularly scheduled Open Market Operation, Reverse Repo, NOTHING.

As a result of China draining liquidity on the whole for the week, the overnight repo rate spiked to 5.32%, it's nothing like the 10% June rates last time China REALLY tightened down and drained liquidity, but it is the biggest 2-day jump since then as smaller Chinese banks scramble for liquidity.

It seems to me the last time this happened in Chine Shanghai Real estate had jumped by something like 11% in a week, China had started rocking the boat with Japan at the same time over the Senkaku Islands which is China's go to play every time they have trouble with Japanese hot money flows causing inflation in China, especially in real estate (remember the big clash over the Islands that left every Toyota dealership in China either spray-pained or with rocks through their windows?)

While it seems the S&P Futures are being drug toward 1800 like a tractor beam, China is apparently letting the world know what it will do if the world makes good on all of these QE noises that sends hot money pouring in to China and thus inflation soaring. I'd say China is firing warning shots, but as they do so, the smaller banks are having trouble finding funds on surging overnight repo rates.

The last time this happened in October, the next day there were a string of very strange events and cracks in numerous areas, VIX Futures were bid heavily, protection was being sought and Credit markets haven't recovered since then, it will be interesting to see how far China goes this time (in October they skipped 3 regularly scheduled liquidity injections on a bi-weekly Tuesday/Thursday schedule).

In the US this morning, Industrial Production declined by -0.1% in October from the upwardly revised 0.7% increase in September.

So here we go on a Friday Max Pain Op-Ex operation day, expect volatility around 2 p.m. until then it will be interesting to see if we see any of the same distress signals in areas like VIX futures and a drop in credit as we saw last time China tightened and as we saw yesterday afternoon.

Daily Wrap

I still think there's more to be learned in overnight activity than usual. A lot of old tricks aren't playing out so well and a lot of old tricks are playing out exactly as they always have, what do I mean?

If you've been with us for more than 4 months then you know I ALWAYS warn to "BEWARE THE KNEE-JERK REACTION" whenever it comes to F_E_D, F_O_M_C or really any Central Bank news or policy.

QE3 released on Sept. 19 2012 rallied for 2 hours about and that was the high not to be surpassed until mid-January of 2013, the initial strong knee-jerk rally was just that, a knee jerk. Just as the ECB's Euro drop on their surprise rate cut which lasted less than a week was a knee-jerk and the WSJ article that sent the Euro lower lasted even less, maybe an hour or so, but the initial move (like the nearly 200 pips on the rate cut) look very strong, they are usually just wrong.

Don't forget what happened just previous to yesterday's Central Bank ramp, the ES futures fell 10 points overnight, it was not set to be a pretty day and it wasn't strong demand, it was instant discounting of unheard of news, "The ECB in QE".

The ECB ramp worked better for the market than it did for the Euro.

When the surprise ECB rate cut didn't hold the Euro down they tried some intense jawboning, the Euro is now at the exact level it was at just before the ECB/WSJ article came out, but note the negative divegrence in the Euro and keep the EUR/JPY's lifting capacity for the market in mind because, something happened with the Yen today as well.

This is around 2-2:30 today when several markets did some strange things like the VIX futures.

If these divergences play out as they look prepared to do, then Euro lower and Yen higher means

This general trend in EUR/JPY (candlesticks) vs ES (purple) changes, more than that, unless the $AUD and/or $USD are extremely strong, it knocks out those two carries as well, but they have been showing less and less correlation over the past week.

Other oddities around the same time...

 First the 1 min chart, then 2, and 3 min ...this is the 5 min VIX/VXX intraday chart. This is a 3C edge, you don't have to look for it, it jumps off the chart.

This is the 2x leveraged version of the above, it looks like it started earlier, but perhaps as Yellen finished and didn't surprise? A Leading positive divegrence took off from an "In line" status.

Check out Spot VIX...

My Custom DeMark inspired buy/sell indicator works great with the VIX, note the buy and sell signals. they aren't often, but they are impressive.

However what's impressive now is the directional move building in the VIX, look at the Bollinger Bands pinch. If that VXX / VIX futures divegrence keeps up, I think we know which way this breaks.

However many times in the past I've seen Crazy Ivans here, that's our term for a shakeout of both the up and downside, both get shaken before the trend emerges.

Remember how many times this week (and over the years) I said the range in the market (2.5 weeks of chop) still had not created a head fake move and in general and in any timeframe, we see a head fake move about 85% of the time just before a reversal.

You might remember when my forward trend analysis was a wide, choppy range? Well that went on for 2.5 trading weeks, it's way too obvious not to hut and the articles, "Understanding the head fake move" will clearly explain all of the reasons why or at least numerous ones. This isn't a coincidence it happens so often, it's not random, there's a reason for it and rather than memorize a price pattern, it's much better to understand the psychology and utility of the move.


I mentioned the intraday look in the averages today vs the charts just slightly longer, take a look.

 SPY 1 min almost perfectly in line overall since the ECB story in the WSJ yesterday

However the 5 min chart is not only in a large relative negative divegrence, but a leading negative that started... guess when? Right on the open today.

 This is the 10/9 cycle to present. It might surprise you to know that we predicted this move BEFORE we had any signals based on market behavior and our watchlist.

It might also surprise you to know there were 13 days of accumulation in to the 10/9 lows and a head fake move below the yellow trendline. The mark up period lasted approx. 2 trading weeks and the distribution period about 3 trading weeks, however the distribution period is often in to higher prices that aren't actually mark up. It appears we have a head fake above the yellow line just like at the bottom of the cycle and leading divergence in to both.

 QQQ 2 days intraday 1 min in line...

However just at 2 mins we move from in line yesterday to an almost immediate negative divgerence on the open and leading negative which is interesting because that's what we saw overnight in Index Futures (5 min charts).

 I think the intraday IWM 1 min needs no commentary or drawing, that's as clear as it gets and the only average to both close in the red today and to put in a Harami (bearish) reversal. 

And the IWM 5 min chart. I really expect, but REALLY hope that both the IWM and PCLN become textbook examples of Channel Busters, if so, although I've covered the concept many times, I'll put a full post and link on the site- they are just that predictable, you could run scans looking for Channel Busters and have a high probability bunch of winning trades.

Also mentioned last night was not so much the level of the CBOE SKEW INDEX, but the Rate of Change. The CBOE's SKEW Index tries to predict unpredictable or unlikely events such as a "Black Swan" or sudden 1987-type crash.

$115 is the safe or normal zone, above $130 and it starts to get troublesome, $140 and it's in the red, but it has picked crashes in the $130's.

Now both the ROC and level are getting worrisome.

I decided to hold GDX/GLD for a bit longer, the reasons (although a tough choice) can be summed up in two charts each.

 3 min GDX looks negative and likely a gap fill pullback, but...

 There was no negative migration to the next timeframe, 5 mins which remains leading positive suggesting any pullback would see another leg higher. If GDX pulls back, we should confirm intraday positives, but it looks like a good area for a GDX call option or a 3x leveraged long, NUGT.

GLD is the exact same situation...

 Toward the end of the day several timeframes went very positive like this 5 min, again around the same time as VXX or the Yen or HYG.

The 15 min is still leading so I'm still thinking any correction will see a leg higher. I do think GLD is not done yet with its final pullback before a strong up trend, but this is tradable.

In Leading Indicators there were almost no surprises, things looked like the 1 min charts of the averages, only in a few places are they odd.

Take Yields...

Yields (red) vs SPX (always green) recently converged or reverted to the mean as the market chop ended, however now yields are heading lower and they tend to act like a magnet for equities until they revert to the mean and touch. Long term there's a huge dislocation.

High Yield Credit (Credit leads, stocks follow) was not playing along today.

Not only did HY Credit not play along, it closed right off its low of the day and on just about 2x volume.

HYG Credit is an arbitrage (manipulation in this case, but typically short term ) asset because algos read HYG up as institutional money in risk on mode so it often is lifted to create an algo driven rally, in fact Capital Context's SPY Arbitrage model only uses 3 assets, TLT, VXX and HYG.

While HYG was in line with the market...

 3 min went leading negative around the same time VXX went leading positive and the Yen changed as did many other assets, something around 1-2:30 today

Since the 5 min chart (even though the reversal process was very close to a "V") is still not that far out of line, I expect it will take a little more time (and it's hard to get any changes on Op-Ex Friday until after 2 p.m.) for this to go negative and thus be out of the game, however maybe it does move during the pin.

We had a Dominant Price Volume Relationship in EVERY major average except the Russell 200 which only diverged because it closed down.


These are the component stocks in each average, not the averages themselves.  The Dow, SPX, Russell 2000 and NASDAQ 100 all closed: Close Up / Volume Down, this is the most bearish of the 4 combinations and it was so dominant that it accounted for more than half of each index.

Typically this is amn overbought condition or a market losing support for higher prices, typically the next day closes down, HOWEVER TOMORROW IS THE TYPICAL MAX-PAIN OP-EX FRIDAY, which means until most contracts are closed around 2 p.m., the market doesn't do much of note. AFTER 2 p.m. price will do whatever it wants, it usually has no value for next week analysis, but the 3C signals in to the close almost always pick up on Monday right where they left off Friday regardless of what price does.


USO is one I like and last I updated it I said I thought it had a little more lateral reversal process, I think it's pretty close to done- THIS IS NOT THE SAME AS THE ENERGY GROUP, it's a part of the group, but only a part.

 The long term 60 min set up from distribution to lower prices to accumulation and a bottoming process, I think USO can make it back inside the channel before heading lower.


The 15 min chart is going from in line to a clear positive divegrence and that lateral, wider reversal process I thought we should expect to see, but from here I think it's very close to a strong counter trend rally on the upside of course.

Finally here are Financials as I already covered Tech.

 In my last Financial update, I wanted to see XLF>$21 before considering a short/put and FAZ <$24.

This is the entire cycle from 10/9, significant accumulation, distribution and the move above $21 with a leading negative divegrence, there's serious damage in place everywhere.

 Inrtaday, XLF saw strong and clear distribution

The 5 min chart shows the positive where I called a "mini cycle" and now a clear leading negative in to the move above $21 which is what I wanted to see to consider adding to FAZ long or for an XLF Put option. I'll be watching for an opportunity if anyone is interested and I'd be interested in a put.



As for Index futures tonight, they moved up last night and then were nearly unchanged at this morning's open. The same nasty 1 min negative divergences are in place and the 5 mins are moving in place as well. Last time this happened Tues.-Wed. overnight in to Wednesday's open, ES lost 10 points in the overnight session before the ECB news sent the market knee-jerking higher. It will be interesting to see how this resolves, I wish it weren't an op-ex Friday tomorrow.

 ES 1 min

ES 5 min

NQ 1 min

NQ 5 min

I'll let you know if anything changes.

XLK / Technology / TECS Follow Up.

TECS (3x short Technology ) is a trading position and I have been thinking about adding to it at the right time.

Tuesday I posted an XLK/TECS update and the gist was still that XLK wasn't there yet, the rounding process, the Igloo with a chimney pattern wasn't there yet, but I do still like it and continue to hold TECS long as a trading position.

Yesterday I added to the TECS position by a little. So I'm happy to see XLK underperforming today.

Today among other areas of dispersion in the market, Technology is seeing it too, which is unexpected when looking at the Q's (tech heavy).

. *Remember that tomorrow is an op-ex Friday, typically the market opens Friday near Thursday's close as it seems Thursday is often used to get the market near "Max pain", especially if it is way off as it would have been yesterday on the open with overnight futures down -10 points until the ECB/WSJ article.

Here are the updated XLK charts

This is an hourly chart of XLK, the red trendlines are the range from open to close, yellow is today's range, down -.29%while the Tech heavy QQQ were up +.27%, an odd dislocation.

This might have been because the NASDAQ 100 which is heavily weighted with AAPL benefitted from AAPL's close of +1.48%.

However, I wouldn't get too attached to AAPL longs...

 AAPL 10 min leading negative from inline, this is probably good for at least a swing trade short.

 AAPL 5 min from small accumulation to inline to a relative negative divergence (the weaker kind) to a leading negative divegrence (the strongest kind).

AAPL 1 min intraday from in line to NO DICE, not even the 1 min intraday will follow AAPL higher.

*Market Makers, Specialists, Tech traders, etc. know what the flow or the tape is, these are the stocks they trade every day, they know who's buying or selling so it wouldn't surprise me if they were seeing trends in technology flows emerge and that's what we are seeing emerge in XLK.

As I typically show, a bottom reversal is tighter than a top most of the time, but the same concepts are in play, the "Igloo with a chimney" even at the bottom, just inverted. There's about 2 trading weeks of accumulation in to the 10/9 lows, we saw this in advance and had expected to see it before we even had 3C confirmation.

On the top side, we have about 3 trading weeks of distribution, I didn't count the mark up in the middle, we also have the Igloo/Chimney.  THESE ARE THE SAME PROCESSES, JUST IN DIFFERENT SITUATIONS, BOTH HAVE HEAD FAKES, LEADING DIVERGENCES AND AREN'T TOO DISSIMILAR IN TIME.

If you haven't already, I'd encourage you to read the two articles linked on the member's site:

"Understanding the Head Fake Move: How Technical Analysis Went From an Asset to a Trap"

Understanding the Head Fake Move: Motivation

It wasn't just XLK's daily price weakness, there was clear 3C weakness right off the open in a fast timeframe that picked it up immediately.

This is the 3 min chart, divergences migrate to longer timeframes"IF" they are strong enough.

Here we see accumulation right at the area I called a mini cycle a week ago tomorrow. The leading negative divegrence is CLEAR, but look at where the divergence started!!! It started RIGHT AFTER PRICE MADE WHAT WE'D CONSIDER A HEAD FAKE MOVE ABOVE RESISTANCE.

Selling in to strength, buying weakness, both are visible on the same chart.

It goes without saying, I like the TECS 3x short technology long trading position added to just yesterday.