The Woodshed

Everyone was invited to the woodshed this week and apparently many decided to dress up and attend. As someone suggested in kind this morning – the Mole woke up and had to watch his USD exchange rate being stomped into oblivion. Anyway, based on what I’m seeing on the Zero only a small minority of traders benefitted from today’s Euro drama sponsored short squeeze:

I’ve added another day to the Zero Lite chart to show you how minimal the participation today in comparison to what we saw in the past few weeks. Looks to me a good number of hobby bears got taken to the cleaners today.

In particular if you held puts overnight – or calls for that matter as vega killed premiums on both. That’s right – volatility crush is a raving bitch from hell and today she’s partying like it’s 2012.

Okay Mole – now tell us something we don’t know. Happy to oblige – and you really don’t want to miss our chart of the month – which won by a wide margin due to sheer evil intent. So please drop your bottle of Xanax and step into my ash covered lair. I’m not kidding by the way – there are wild fires near Valencia and the sky is orange red and we’ve got big flakes of ash dropping all over the place. As a Californian that almost makes me feel like home!

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.

So it seems we just get that inverted H&S after all. After some soul searching I decided that the neckline of the damn thing can be debated until the cows come home so instead I decided to keep things simple/stupid (to my own benefit) and use that conveniently placed 100-day SMA as the line of truth. I think it’s fair to say that a breach should probably propel us higher toward our P&F bullish price objective:

Here it is in case you don’t have it handy. It’s amazing how orderly this thing looks like once you remove all the noise and in particular how that diagonal support line held in place rather nicely.

And here it is: A double spread of Mrs. June 2012 in all her glory. And of course it has to be the weekly/monthly Net-Lines chart on the spoos. Yesterday we were comfortably trading below on both and with only one session to go a weekly NLBL reversal plus a monthly NLSL confirmation were almost baked in. But not so fast – what a difference a day can make. I hope you were watching FX overnight – by the way a suggestion I have been making frequently.

Now did I expect yesterday that today’s spike would be happening? Hell no! But I did suggest that market makers may just be looking to the upside as evidenced by a continuing divergence on the VXV:VIX front.

Plus the JNK:TLT ratio has been supportive – no divergence on the horizon just yet. Sorry perma-bears!

In terms of setups you can imagine that the pickings are rather slim due to long candles from hell pretty much bunker busting any technical configurations. Not that I was excited about much in the first place. I did however dig up two FX configurations worth keeping an eye on:

The first one is the NZD:USD – today’s Friday surprise puts us right at a NLBL plus the 100-day SMA. Quite a bit of resistance and even better support if we make it above. Cancel out your emotions and see it for what it is – a good short trade with a tiny stop above the SMA. And as usual I would be happy to go long on a breach – when it comes to inflection points I tend to swing both ways.

Almost the same setup on the AUD/USD, since I took this snapshot it actually pushed just below the 100-day SMA, so this is a good time to get positioned. Same rules and worth flipping to a long if it resolves higher.



Eclectic Thursday

I really don’t have a central theme today so please forgive me if I simply post a wholesome medley of market musings, updates on previous entries, setups, etc. As usual we start with the spoos which seem to be painting a step down pattern.

I am not sure if that’s an official term but to me it depicts a slow descend from one resistance/support zone to the next. First it was the 100-day SMA (always a pleasure) – and more recently it was a Net-Line Sell Level (NLSL). Next target zone is around 1288 where we find the bottom of our 100-day Bollinger.

The volume profile chart shows us that this is also where we should be running out of volume to feed the current limbo weather period. Yes, we often get them during summer – what can I say – I don’t make the tape, I just report it. In any case – I recently suggested that we may be painting some inverse H&S here and if that’s the case then the current shake out attempt (i.e. honeypot but I didn’t want to overcomplicate the chart) should not drop below 1300.

My VIX:VXV ratio chart (i.e. short term vs. three month volatility) has been bullishly divergent for the past month or so. The 1.15 is where we should see another bounce. If not then I expect further downside.

Someone asked me the other day how to deal with inside day fake outs – you know where you for instance get a sell signal breach, which goes for a few ticks/pips and then pops the other way. Rather simple – you haplessly take the first entry and immediately set your stops a few ticks/pips away (based on your own stop and capital commitment guidelines) and if get stopped out you wait and do nothing. If it drops below again then you take the entry – AGAIN. If it goes the other way then you simply wait your turn (i.e. until you get a top breach) and then go long with a stop below the entry line. And if it does it to you again then you wait for a third term. If the bugger stops you out three times then walk away as it’s simply not a good setup. They should usually hit and hit hard (you will see an example below).

In any case here is yesterday’s entry of the USD/CHF – a clear inside day + NR4 setup. Except that we got faked out first after which she popped the other way. Look – there’s nothing wrong with simply taking your stop and walking away. Sometimes a little clue is velocity. If she drops below and immediately pops higher fast then you know that you may just have been taken to the woodshed. However, I don’t recommend taking another entry unless she pushes above the upper entry line. It’s sometimes easy to get whipsawed, depending on the contract, volume, seasonality, etc. There are no easy answers that address tough tape – you’ll have to get a sense on your on that fits only you like a glove. I can only suggest reasonable and time tested approaches – feel free to make them your own.

Now here is an example of the one that makes all those stop outs worth the hassle. USD/CAD yesterday also painted an ID+NR4 setup which I pimped to my intrepid subs. What a nice candle and I would start scaling out right now as you usually see a counter response – yes, it’s just like in physics.

Another ID+NR4 setup on the EUR/JPY which resolved to the downside. So far so good and once she gets moving you can move your stop down a little.

Ole’ bucky actually gave us two entries – one ID candle and one NLBL – a third one if you consider the NLSL retest. Which ever you took – it’s now time to start taking profits. I would however keep one or two contracts in play as my P&F claims a target of ~84.5 – wouldn’t that be nice.

Crude – I sent out an email to my subs this morning suggesting a long setup at that diagonal support line. And yes, I did mention that a breach would turn this into a short trade. Not sure who took that one  but if you are in it – well, there’s nothing for you to do right now – I would simply move my stop slightly above 78.

Natgas is a potential new setup which I decided to throw out for free. I would buy that NLSL line until it is broken – at which point it becomes a short trade with a stop above. BTW, similar rules regarding attempts to kick you out of your trade. Often you see a ‘last kiss goodbye’ which may pop above the NLSL and then fall back – of course you have been stopped out by then. I usually set another short entry below after being stopped out just for that potentiality. Again, I do have a limit of how often I get stopped out as it can get expensive quickly. The good trades are usually the easy ones and there is no reason to spend too much time/thought on one damn setup. Simplemente no vale la pena.


Narrow Range Inside Day Mania

I hate to plaster all over Fearless’ most brilliant browser buster but we have setups to attend to. More specifically there seems to be something brewing on the Dollar side as I’m seeing various pertinent pairs paint inside day + NR4 combos. And you know how much I cherish those:

Alright, one for free the rest is for my subs: EUR/USD – I think it’s running a bit out of steam here, would love to see a visit of that NLBL above.

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 – same story but I’m directionally ambivalent. Take it either way it breaks.

USD/CHF – could go either way.

And USD/CAD – we’ve been in a range for a while. Perhaps this’ll be the ticket out.

EUR/JPY – also would love to see this one paint a reverse and if we lucky we may get even a Variation Retest Sell near the NLBL.

And now for something completely different – TLT – same setup though. Yes, you can play TBT or ZB or ZN if you prefer.

That was it for today – quick and painless but I hope productive for you all. Keep it frosty! It’s summer tape – which can make you sweat if you don’t pay attention. If in doubt play along but limit exposure. This way you also sleep better 😉



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