Something potentially very ugly happened this morning – I am not sure if it’s coincidence or if this was yet another setup to punish the poor battered bears. Either this is very good – or very bad. The good news is that we’ll know very soon:
Alright – pick your poison:
Among all the whipsaw hoopla this morning some may have missed the fact that the SPX busted what I had previously counted as a first wave of a developing motive.
Now, thus far we are okay – assuming this is Soylent Blue. If it is not Blue and we breach 1120.95 then it may get very ugly for the bears – very ugly. Because the best way to count the recent drop would be as a second wave inside a third wave – to the upside. And although a third wave does not have to be the longest – it however can’t be the shortest. Which means that if we breach 1120.95 on the SPX the upside potential for Soylent Green has just been extended. Ouch!
What To Do – What To Do!
No reason to panic however – actually this might make for a great trade setup. Stay short until 1120.95 – if we breach it a bull call spread or even a bull call ladder with the second short leg above this year’s highs may be good medicine. If you have no clue what I’m talking about – then you might catch up on our ongoing series on EWP Option Strategies.
Nothing really has changed on the wave count. So as to not bore you to tears with the same old story I dispense with my usual wave update and will share with you my latest creation, which admittedly is not something completely different but a merely a different outlook on something that’s right under your noses every day. Besides, it makes for a damn good excuse to post a Monty Python sketch.
I’ll reserve the ‘unexpected’ for when it’s time to quote the Spanish Inquisition. Soon, my impatient steel rats – soon![amprotect=nonmember] Charts and commentary below for anyone donning a secret decoder ring. The rest of you guys will have to wait until tomorrow – sorry. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
And there you have it. This afternoon I was playing around with my charts (no, I don’t have a life) and I suddenly had this weird urge of slapping an SMA on various renditions of the NYSE A/D ratio. I tried various levels of smoothing the daily signal and as so often I like the 13-day SMA the best.
Now, there are various ways of looking at this chart – I have hacked the original TOS study to also present a D/A ratio and it’s shown as the red line on the bottom. Something that is immediately apparent is that the moving average of the bullish ratio has remained above the zero mark nearly for the entire past year (actually since March 2009). Since then we it only breached very briefly and it was at the very low of 1010.91. There are also various divergences I welcome you to seek out and put into context.
The red D/A panel looks a lot more tortured and I think it is an excellent visual representation of the wretched existence the bears had to accept in the past year or so. The heights of the positive signals breached the 2.8 mark only once during the ‘Fat Finger Freddy’ slide in May. What I find extremely interesting on that part of the chart is that the signal kept pushing higher, despite the instant snapback – thus suggesting that more downside was in the making. And that is indeed what transpired.
When I see divergences like that I do take note and I look for more ‘harbingers of truth’ if you will. If you look at the most recent push that brought us back to 1120 then it’s very hard to miss the accompanying strength of the green A/D signal. Yes, we’ve had some weakening in the past few days but that does not necessarily mean that we drop from here right away.
Look at the red D/A signal and it is actually as weak as it was back in April. Which may be a good thing as meaningful reversals seem to occur after a push above below the 1.0 mark on the D/A panel. A little bit like a swing above the 20% mark on a stochastic. As of tonight we are above that mark but we are pointing down a tiny bit – which may mean equities rally a bit higher before they are ready to drop. Once we see the red signal climb up just like in late April, then we may be more bold when projecting a reversal in equities. Until then I will continue to entertain Soylent Green. Unless of course we breach the 1088 mark – but I reckon that this would be accompanied by a stronger red signal as well.
Before I go let me thank the small group of intrepid stainless steel rats who have made it a point to keep the comment section humming during this summer of pain – despite the fact that many old regulars seem to have vanished in mid air. You can imagine that sitting down and writing a productive post nearly every trading day (and Sunday) of the year is not the easiest thing to do. And trust me – it’s a lot harder when you see participation take hit, may it be because of whipsaw tape, seasonality, or other reasons. Most of the time it’s fun and comes easy – and sometimes it’s a chore that I force upon myself as I feel a responsibility to my subscribers first but also to anyone else who frequents this site. And I will continue to do so as long as I feel appreciated and my charts make a difference on your side of the trades.
We’re definitely getting closer but I don’t think we’re there just yet. A drop right here and now would be juicy and today’s little sell off sure makes it look like this thing is about to roll over. So is it really downhill from here or are looks deceiving?
Whatever you do – stay away from her anal probe. Then again… could be fun!
I updated my ISEE chart today after we saw some rather bullish readings throughout the day. We closed at 240 which is getting interesting – but we did see a similar spike like that plus outside the BB a few weeks ago and it was completely faded. So, I’m holding out for higher readings here. A push above 280 would get me a lot more excited. But this is a good start for sure – retail trader are ‘buying the dip’ – and in a majority of the cases they are left holding the bag. For proof just look at the chart above and parse for spikes outside the 2.0 BB. It rarely fails.
Looking at the ever mighty EUR/JPY chart for guidance is not so encouraging tonight. We basically burned off al ot of bearish momentum going sideways – the tape in equities was very clear about it’s purpose. One to lure in a few more bears and second to drop momo indicators enough to re-energize selling. Now, if we stay embedded down here we could actually see a real drop – but thus far it’s not happening just yet. The Dollar is closer to painting a low (it’s taking its merry time it seems) and a reversal in the EUR/USD may favor a drop in the EUR/JPY and perhaps the AUD/JPY – thus far they have roughly been moving in unison.
Today’s tape played out just like expected – it stopped where I thought it would yesterday (1120), then dropped today and bounced three handles above 1100. Not much of a drop really and it’s possible we’ll see another attempt at the 1100 line tomorrow. But I again don’t think that we’ll see a massive slide here just yet. Soylent Green is just too juicy of an opportunity right now. The Bollinger on the VIX is dropping along with the signal and we are slowly pushing toward the 20 mark. For the bears it’s death by a thousand paper cuts and every day is a bit more theta burned.
The uncle point for the Blue Plate Special is 1085 – I’m not taking it serious until we breach that line with some violence. Not a teeny weeny test of it – but a hot knife cutting through it with confidence (and hopefully matching Zero readings).
The uncle point for Soylent Green is a few handles above yesterday’s highs – a breach of that diagonal (which again proved to be spot on) would get things going to the upside in a jiffy. Target for that scenario is around 1160. A ramp to those levels would literally destroy any remaining teddy bears and the VIX would probably touch the 20 mark which would be extremely frustrating for anyone harboring illegal puts.
My momo charts are somewhat in limbo still but what I can tell you is that there seems to be sufficient room left for further upside in equities. That narrow summer tape is not helping to matters either which is why I remain suspicious. What I do know is that when it drops it’ll drop like a rock as the engine pushing this turd uphill has been running on vapor. Once that runs out I expect there to be nothing but air underneath. We all know what this is – and now it’s just a matter of waiting things out.
I have seen a distinct drop in participation in the comment section and I’m not surprised. I swear – I could run a contrarian trading indicator purely on Evil Speculator traffic pattern. It really starts getting interesting when the trolls start showing up and I actually had to manhandle a few in the past few days. Prechter bashing on other sites is also on the increase again – after everyone called him ‘the man’ on the way down. The snarkier the remarks the deeper the drop – so I’m looking forward to some real nasty stuff.
The patient bear will be amply rewarded. I am very much looking forward to fall – the season as well as the verb 😉
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