Going Nowhere Fast

I certainly was wrong about today promising to be a boring session. To my credit I was however right about it going sideways as we seem to be heading nowhere fast. This will be a very quick update as I am ready to embrace my well deserved long weekend and already have a ‘Maß’ (i.e. German 1 liter mug) of Hefeweizen waiting for me.

The highlight of the day on the charting side is that we may just get our second leg into a bonafide VIX buy signal. If you are a noob then don’t be confused by the terminology as it’s relative to equities. Per the rules please check the cheat sheet. Well, the fat lady hasn’t sung for the session yet but judging by the current gyrations on the spoos we may just get lucky here. Tuesday would be such a nice opportunity for a confirmation – but let’s not get ahead of ourselves.

Talking about the E-Mini – the 25-day SMA seems to act as solid support thus far, adding further credence to my suggestions that we may be getting a sideways correction here. Admittedly any solid bets are off ahead of Jackson Hole, which invariably will introduce more volatility into this snoozer of a tape.

Meanwhile over at the woodshed ole’ bucky is making valiant efforts at recapturing its Maginot Line but thus far has been failing ignominiously. Today’s stab lower may pave the way for future weakness – pretty tired looking chart this.

Silver – finally arriving at our target after making a quick detour through the drive-in. If you have not done so take profits here and add another notch to your ‘kick ass trades 2012 board’. Like on gold you got two entry opportunities here and if you snoozed them both then you only have yourself to blame. Of course if you weren’t a sub then you can claim ignorance of the law but that won’t help you much with Judge Mole – I hear he swings a heavy hammer.

EUR/USD continue to nibble on that 100-day resistance. If we get a breach here Monday then I think things on the equities side could fall into place nicely.

Cable – as suggested it snapped back up to its NLBL for a retest – which was the very reason I wasn’t interested in a short position here. Mostly looking out for a long breach here. Once she’ll clear the NLBL I think it’s going to be golden.

I know I said no setups ahead of Tuesday but I ran into two futures setups simply too juicy to pass up – please step into my evil lair:
More charts and non-biased 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.

Sugar – let’s see what we have here: Possible floor formation after a relentless sell off. Break out attempt – failed and any longs taken to the cleaners. Now we have a double inside day + NR4 combo. I just can’t let this one slip – need to grab at a few contracts on an inside day breach probably Monday night. Noobs – read the rules on the cheat sheet!

ZN – the 10-year futures contract. 100-day SMA fail followed by a NLSL failure – interesting! Now at the 100-day SMA and either it’s a last kiss goodbye or a long entry. I have no directional bias here and will follow whichever side of the SMA it decides to pick.


Honorable Mention:

The Mole signals are kicking ass lately – if you are a Zero sub then I certainly hope you are paying attention.

That’s it – wishing y’all a relaxing and fun Labor Day weekend!


I Don’t Trust This Tape

As we are approaching the long Labor Day weekend I do not expect too much in terms of fireworks for the remainder of today’s session. Tomorrow we’ll most likely see a slow sideways churn as pretty much everyone worth their salt is already stuck in traffic on their way to the Hamptons. I myself may chime in if I see any activity on the board – and of course something interesting to write about.

No new setups today as I am not going to take on any additional positions ahead of Tuesday. I however wanted to leave you with a few key perspectives. The first one is that the spoos have touched their first level of support which is the 25-day SMA. It is possible that we drop through a little but in recent history we recovered within three candles. However, if we continue downward then the next logical support cluster is around 1360.

The other more salient one is that we may start our countdown into a VIX buy signal today – assuming of course equities don’t run into magic bidders again ahead of the bell.

Some of our current FX setups make good guideposts for where we may be heading. Here’s cable (GPB/USD) which failed its NLBL yesterday/today and is back on its way down. You recall that I was not interested in a short trade there as the 100-day SMA is lurking right below. And that one will most likely act as support next week.

Here’s the EUR/USD – in essence I’m still short but am not excited about this trade whatsoever. As a matter of fact I may close it out before the bell. We should have dropped quite a bit more today and I have an inkling it’ll make another pass at that Maginot Line next week.

AUD/JPY – usually another good harbinger of what may happen on the equities side. We did drop through the 100-day SMA but today it’s limping behind equities.  Which is concerning as it has been leading them down all week – except for today. Do you remember my correlation chart I posted two days ago?

In essence I’m not buying this drop – well, I may have ‘sold’ it if it wasn’t for the low vol holiday tape. We’ve been sideways all month and suddenly this drop right before the long weekend? Do the words ‘big gaping bear trap’ mean anything to you? Heck, maybe I’m wrong but I don’t like the odds of participation here. As a matter of fact: IF you took a short position at the NLBL this week then I suggest you close out and wait for further instructions.

Call me paranoid but this tape seems engineered to trap folks into bad positions – and that ahead of a long weekend. Be careful and always remember that our prime directive is capital preservation.




Sideways Correction

Yesterday I posted a chart of the NYSE advance/decline ratio on which I highlighted that the past two weeks were more reminiscent of patterns we see during lows and not something we observe during advances. FWIW – right at the top I am also seeing our coveted Gothic Church Tower fractal, have a look:

Well, one of our fellow steel rats decided to chime in and shared some rather interesting statistics:

I see other things, that normally happen at lows. For example, ES open interest is  about 2.9 mil cars. Last time it was that high in end of May – beginning of June. A time before that was in end of November 2011. Also significant low. Sept – Oct of last year was as high as 3.1 mil cars. I started to keep these records around that time, because I noticed that open interest increases when market falls. Its not a fact, just my observation. I could not find historical data, so can’t check if its reliable at all. Also, I understand that open interest may naturally increase towards expiration, because more and more people getting stuck, but during Jan – Feb this year it stayed around 2.5-2.7 mil. And right now we are nowhere close  to expiration anyway.

Now let’s look at another chart that is looking rather peculiar, given that we are currently trading 14 handles below this year’s highs:

Just eight sessions ago the VIX was frolicking below the 14 mark, dropping as low as 13.3. Today we almost touched 17 and that’s an increase of 22%. And this, my dear steel rats, is exactly what I was referring to a few weeks ago when I suggested OTM put lottery tickets. While prices on the underlying have barely moved premiums on SPY or SPX puts for instance have risen simply due to a 22% increase in vega. Even calls bought near the top should have remained near break even, despite the 14 handle drop.

Case in point – SPY ATM calls bought on the 17th – after 12 days of theta burn and a 14 handle drop have only lost 60 bucks. Know your greeks folks!

But wait there’s more – make sure your tinfoil hat is in place and you have tightened those chin straps. Here’s another chart I posted two days after we painted those lows on Mr. VIX. Remember those peculiar spikes we saw on the SPX:VIX ratio?

Someone got to buy premium at bargin basement prices and whoever did is now smiling all the way to the bank. Despite the fact that the SPX is trading only 14 handles below its highs. Nevertheless all characteristics of the tape in the past week point toward an ongoing correction. But it may just be a sideways one. Which means that give it a few more days of this Chinese water torture and the Mole may just get excited about the long side again. For now I remain guarded – but the odds of upside continuation will increase vastly once that NLBL expires. The bears had plenty of chances here to take things down by a notch or two but thus far it’s not happening.

But the running theme of today’s post is that we seemingly have reached an inflection point across the board. I am seeing an almost identical configuration fall into place across both currencies and commodities. So let’s take a look, shall we?
More charts and non-biased 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.

USD/CHF – still dancing on its Maginot Line (i.e. the 100-day SMA). We went long here yesterday per the rules. But I am really waiting for a fall through here. I definitely want to be on board for that one.

Cable already tested its own Maginot Line and is now approaching its NLBL. That is really all that’s separating it from a  stab higher and I am waiting for a breach. Not interested in the short side here.

Continuing our prevalent theme is the EUR/JPY. Yes, it’s permissible to be short (until we cross over) but I have an inkling we may get a push higher here.

AUD/JPY – yes, you guessed it – just bounced off its own 100-day SMA. Good spot to be long, assuming the existing trend continues upward.

To freshen things up a little we have an inside day + NR4 combo on the USD/CAD. We actually had one three sessions earlier, which I think I missed for some reason. If you are short already then today’s lows will be your continuation signal tomorrow – today’s highs should be your stop. Otherwise treat it like a regular ID entry setup.

Not to be outdone ole’ bucky is also painting an inside day. Have at it.

Over on the commodities side we have copper slowly following its Maginot Line downward. I concede that this is a tough setup to the upside. But if you are short then resistance is falling in your favor.

Finally we also see our new favorite theme on cotton – here I am mostly interested in a long breach. If we get it we will most likely see a bit of a shake out here, so be prepared.

This ought to keep you guys busy for a while 😉



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