Trading The Swings In A Short Intermediate Structure

There were two things developing into the 1st week of Oct that were telegraphing a weak market -- Despite the fact that the market had closed strong at the end of Sept on the Monthly and Weekly time frame, as I reported in previous 2 posts. Trade 31 Long was driven by weak hands in the market - 'locals' or  momentum traders from Sept 29 - Oct 5. This was indicated by the weak up-volumes at high levels and weak up-rotations off of lows. I began to see this as the trade developed into early Oct. The market was having some difficulty moving above the 2816 level. We always need to be aware of 'rotational quality', especially at high levels -- this was the other tip-off that the long trade signal 31 was in jeopardy. On Oct 2nd the market tried to sell below the all-important weekly low boundary which had served as support for 4 months (since June) and failed to turn the market lower in this time frame. The giveaway was that there were no strong buyers in the trade, rejecting the price back up and into the weekly channel. Despite this, the market rallied and formed a top on Oct 8 = UpThrust Day

The UpThrust pattern signal -- is generated by any day that makes a new pivot high, higher than the previous 2 days, but reverses and closes lower than either of the previous 2 days, establishing a wider range day that closes below the mid-point of its range in the process and on heavier volume to indicate the long liquidation in the trade. This day stopped me out of my long, where I took a small loss, recognizing the the set-up, the weak market, and the potential top as indicated below in the day chart by the 1st red arrow -- adjusting my perspective and getting immediately short.

The first green arrow in the day chart below delivers the up swing counter-rally that was entered on a 'Spring' day closing, implied by the pivot low on that day with a reversal that enabled the market to close higher than the previous 2 days, though on relatively lighter volume. The market simply got too short here at green arrow 1 and needed to unwind. This rally lasted for 3 days, taking the market back up and into a text-book structural level where one could expect some selling. The catalyst for the selling just happened to be there, in the form of unexpected GOOG earnings, intraday, and not-to mention weak earnings.

Trade 34 Short comes in yesterday on the sell off catalyzed by GOOG earnings intraday, generating a 'SE' (momentum intrday signal) on huge daily volume -- long heavy liquidation day as per the image below and the 2nd red arrow on the day chart above. Having said that there wasn't an excessive amount of fresh short-money put to work as per the lack of extension or elongation in the profile.

Expectation for the trade given todays very weak close and heavy liquidation could see the NQ at 2600 as per the brown horizontal line or the Monthly swing low.