Inflection Point

Since yesterday’s update the dynamics have shifted considerably – and I must say the timing of this could not have been more impeccable. Let’s start with a peek at the after hours AUD/JPY chart as shown on the ZeroFX:

I hate to break it to you but if you hold overnight these days you have to watch the currencies or at least the S&P futures. Since I live in LaLa Land I was of course soundly asleep. We got a Net-Lines buy at 78.16 – followed by a half-ass retest – from there it took the express elevator up to the penthouse. If you caught this entry and the ensuing spike: You lucky bastard! ūüėČ

The spoos show us that the picture has now changed completely after a quick slice through those three stacked NLBLs I pointed out yesterday. If you are wearing your favorite tinfoil hat then I hate to disappoint as I am not going to belabor the cause of this move or complain about the Fed’s latest liquidity swap line expansion into Europe. These are forces way way out of our control and as such we simply have to adjust our trading to accommodate overnight surprise moves. Why do you think I keep harping on the futures and currencies all the time? You either learn my way of the hard way ūüėČ

Now, I expect a little retest here and that pretty soon – more on that below. However if we push above that hourly NLBL at 1239.5 then we may just accelerate higher. Short squeeze is as short squeeze does.

The good stuff however is on the long term charts – please step into my dusty lair:
More charts and cynical commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.

Lo and behold the mighty power of magic overnight liquidity. Alright – permit me a wee bit of sarcasm. We are now trading above both the 25-week and 100-week SMAs – which is significant progress. But even better – we are also most likely going to close the month of November above both the 25-month SMA and 100-month SMA. How’s that for a memorable exit?

In case you missed it – we just pushed above a¬†significant¬†inflection point – thus the title of this post. The dashed blue line indicates how 1220 served as support from 2006 through 2009 and since then mostly as resistance. Plotted below is the SPXA200R which shows us the percentage of SPX symbols trading above their 200-day SMA. And it is this very chart that is still giving me pause on a medium to long term perspective. See, it’s rather apparent that the quality of this rally is below that of the 2006 retest and much more reminiscent of the pattern painted during the 2008 crash.

Now, the good news (if you could call it that) is that there appears to be a ‘silent crash’ all around us – economically and technically speaking – but it is not reflected in stock prices for obvious reasons that however exceed the scope of this post – others have covered this subject in much detail.

My ongoing concern however from a pure trading perspective is that we may see one final slice lower after our 2011 Santa Rally, which at this point appears to be finally baked in.

The P&F chart now shows us the low pole reversal warning I was waiting for – plus we are now back above that SMA. Bear in mind that the bearish price objective of 1180 was fulfilled but won’t be reversed unless we push above 1260 to trigger a bullish break out pattern.

Okay, so much for the bull p0rn – you’re getting way to frisky, so let me hose you guys down with a bit of cold water. Mr. VIX is getting a bit close to the lower BB line – so the evil lair is now in VIX surveillance mode. As you know a close outside that lower line would be a first step into a VIX sell signal (relative to equities).

My mysterious market maker mind reader (MMMR), say that three times in a row, also seems to agree. Short term we may see a bit of a shake out shortly.

Before I go let me show you something completely different. This is my P&F gold chart and I just wanted to convey a point, which is that long term gold has remained extremely stable throughout all the recent hoopla. Bad or good economic headlines – this beast just keeps on ticking and if you are a gold bug what you really care about is that long term support line.


Humpty Dumpty

As the tape is not giving us much to hang our hats on let me tell you a little story which in my not so humble opinion rather ominously describes the situation at hand.

I maintain that the bulls are not simply getting out of the gate. For months all we’ve seen are two steps forward followed by three strides back. That may have been permissible during the Aug/Sep/Oct churn but just like German humor it’s no laughing matter when it continues during what is seasonally a¬†traditionally¬†bullish period.

Just look at this chart – or even better, if you have a six year old show it to him/her and then ask the spoiled little bloodsucker where that bouncing ball is going next. I tell you what I’m seeing – the bulls seem to be able to resist gravity within high volume regions but when presented with real hurdles (i.e. volume starved regions) they fail every single time. The only exception was that October spike through our ‘Gobi desert of volume’ which I recall being a bit more pronounced back then. But 1300 turned out that brick wall that Humpty Dumpty wound up falling from.

What’s next? I’m not entirely sure – seasonally the bulls maintain an advantage. But do you remember those times a year or two back when it was the bears’ turn and they simply couldn’t get out of the gate? Just to get clobbered with the pain stick as soon as the bulls saw an opportunity? Do you remember all the bad news back then? Didn’t matter at that time, did it? Well, it feels like that right now again – but this time it’s the bulls who continue to drop the ball.

The tape is weak and continues to act corrective. Yesterday’s super spike on the Zero may actually be supporting evidence to that effect in that a seven day consecutive sell off ahead of a holiday weekend is expected to produce a volatility swing. Except that it didn’t – we went from 34.47 to 32.13 – big deal.

This is how I see it: Unless we push above 1240 by early January I think we are going to close January on a pretty ugly candle. This is the time for Santa to bang the tape higher in preparation for some mid January shake out. The fact that it’s not happening is bad news for the bulls and adds insult to injury on top of the technical damage already endured.

Here is our short term perspective on the spoos. We almost touched our second NLBL today and then dropped back to below 1199. That 100-day SMA is expected to produce resistance and if we somehow can climb above that one plus the 25-day SMA then we may just make it above my magic 1240 mark.

Let’s also take a peek at AUD/JPY short term chart again – plus we are going to visit the evil lair’s futures pit:
More charts and cynical commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.

AUD/JPY – is heading into resistance. That NLBL promised a push into 78.75 and given two entangled SMAs I would be out rather quickly here.

30-year treasury futures – at a rather interesting configuration. Yes, there has been a bit of downside lately and the hourly panel looks bearish. But look at the daily chart – that 124’26 NLSL was breached but got reversed right at the 25-day SMA. Now since I took that snapshot ZB pushed up to that hourly 143’18 NLBL – so far so good. Let’s envision for a moment it can climb above 143’27, which happens to be the 100-hour SMA, and we should be good to go for a push higher.

This is the long term chart – the weekly shows us tested support at 141’14 – everything on that chart is pointing up. So is the monthly – admittedly looking a bit exponential – I know. But the recent shake out gives this a fair chance to continue higher. If it fails then it probably will do so either right here or at 145’20.

As a second reference here’s the 10-year treasury futures contract – ZN. It’s currently at 129’290 – above that hourly NLBL. If that hourly resistance ahead can be cleared then I think we are good until 131’050. In case you wonder – the numbers after the apostrophe are fractions divided by 320.

It has been a tough fall for soybeans futures – literally. But there are signs of life and I think that 25-hour SMA at 1123 is important for the current bounce attempt. Confirmation of a reversal would be at 1155.75 but admittedly we are quite far from that.

Long term things are looking pretty bearish and if the bulls fail here on a short term basis then we may just slide all the way as there’s nothing but air below on a weekly and monthly basis. Which in itself is a bit of an incentive to keep things at bay right now. So this makes this a pretty interesting setup in both directions. I would currently be long here until we breach that 25-hour SMA – a few more ticks below that and I am looking to the down side for what could be a big money trade.

On that note – it’s also possible that we push a bit higher and then retest 1155.75 – I would probably try to a short position there and only go long once I’m stopped out to the upside.

I concede that today’s setups are not the simplest I have posted and if you feel unsure about playing along here then either risk only a tiny amount of coin or stay out until we see easier tape.



Ramp & Camp Monday

I hope you all had an enjoyable and relaxing Thanksgiving. Those long holiday weekends are always a stark reminder that I am in dire need of a vacation – after about the third or fourth day I am just starting to mentally relax! I am definitely looking forward to our Christmas break and another opportunity to recharge those old batteries. It’s been a tumultuous year – not a bad one for us I can proudly say – but definitely an exhausting one. But heck – let’s be honest for a moment – once all this drama has played itself out, maybe a few years from now – aren’t we all going to bored as hell trading ‘normal’ tape again? That’s right – always be careful what you wish for!

As expected the Sunday night AUD/JPY was a clear reflection of what awaited equity traders in the morning. Nice stair step pattern up and we never even as much as touched any of the hourly NLSLs. What I find fascinating and at the same time rewarding from a technical perspective is that the AUD/JPY reached all the way up to our first NLBL and reversed from there. The hourly is now in a battle with several NLSLs slightly above the 77 mark. Which is also where we have the upper 100-hour BB line. If that support cluster gives way expect the AUD/JPY (and probably equities) to follow lower.

I have one juicy FX setup and more equity specific musing below for the subs. Please step into my lair:
More charts and cynical commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.

NZD/USD – the hourly is also battling the 0.7539 NLSL right now. What I like about the daily panel is that it’s a lot closer to that 0.7575 NLBL, which also coincides with two NLBLs on the hourly right now. Arguably there is a heck of a lot of resistance looming above. Which may mean that this bounce is going to fail. I think the right way to trade this beast is to wait for a push higher and then to remain short until a stop above all that resistance (e.g. 0.7611 – never use an even number) has been breached.

The reason why I’m not too excited about a long trade here are all those daily NLBL looming above – way too much commotion for my taste. Of course what I like and what we’ll get are usually to separate pairs of shoes.

Since I took this snapshot the hourly panel on the spoos has bounced at the 1189 NLBL – again, nice how those repeatedly work for gauging support/resistance levels. As you can see that 1199 NLBL on the daily panel has thus far been too much to handle – perhaps there will be another attempt near the end of the session. It won’t be easy for the longs however – there’s a ton of resistance looming above. We’ve got three consecutive NLBLs and there’s the 100-day SMA followed by the 25-day SMA (coinciding with that last NLBL). That ought at minimum be good for quite a bit of gyrations, so be on your toes and don’t get lured into over trading.

Fascinating configurations on the weekly chart – as highlighted last week, we dropped right to that 1158.15 NLSL and reversed from there. Looming above now is the 100-week SMA – it’ll be a tough nut to crack to say the least. The right panel has us back above the 25-month SMA but we are also right at the 100-month SMA. Having to recapture those old support (now resistance) levels will take quite a bit of doing – perhaps it can be done in low volume Christmas tape.

UPDATE 2:05pm EDT: I decided to tack on my SPX P&F chart as it offers us additional clues. Obviously today’s reversal was rather vehement but you often get those during a down trend. The real test here from a P&F perspective will be a three-fold: First we need to make it to 1210 in order to trigger a ‘low pole reversal warning’. Second we would need to push above that SMA at around 1215. And third we would need to retest that SMA and hold it. Assuming those three events happen then the longs may have a chance to actually enjoy their seasonal Santa Rally.

Bottom Line:

As expected we got ourselves a bounce after seven consecutive lower closes – the setup I presented on Friday fortunately worked like a charm. But whether or not the bulls can stage a last offensive and lead in that Santa Rally remains questionable. Bear in mind that we are smack middle in what is traditionally a very bullish season of the year. To have lost so much territory in late November represents considerable technical damage in itself. Think about it – if the bulls cannot pull their cart out of the mud right now and here, then what’s going to happen once we push into the second week of January? Nothing involving green candles I would imagine.


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