Substandard High Intensity Tape

In the past week we have been seeing increasing volatility in all equity indices – as of right now we remain locked in a limbo period (for more info on the definition please point your browser to my pertinent post). In a nutshell the implications here are to a) stay the heck out or b) play the swings to your best abilities.

2014-09-05_spoos_update

Now when it comes to limbo tape there are of course various flavors. All of them are highly volatile of course as the idea is to produce maximum amount of noise in order to draw impatient participants into emotional trades. Revenge trading and tape chasing is the order of the day and market makers usually love every minute of it. But there is one flavor that’s particularly nasty and it’s the type we’re stuck in right now – long wicks combined with small real bodies and all that in a sideways trading range. The technical term for it is Substandard High Intensity Tape – or more commonly referred to as SHIT.

2014-09-05_spoos_ST

Suffice to say that if you happen to come across SHIT tape you stay the [insert expletive of your choice] out.

Seriously speaking however – this thing should have been resolved by now and the more it coils up the more explosive I expect to be its resolution. Unfortunately I do NOT see any directional signals here that I would feel comfortable considering, let alone use for anything but intra-day swing trades. At this point we should embrace the fact that we do not know which way it’ll turn, at least not yet. And if that means we may miss the rocket then that’s okay. This is the type of game you’ll only win by not playing.

2014-09-05_shut_up

Alright – I know: “Mole, shut the hell up about your damn Dollar campaign already!” I apologize for having to post this chart again but there has been a change. Given the current velocity I have decided to set my trailing stop to 15% MFE and turn it into a monthly campaign. I am certain a shake out is coming soon here but I now see the potential for a run into 85,

2014-09-05_Dollar_PNF

I looked at several intervals on my P&F chart and ~85 seemed to be the consensus. So let’s see if it plays out.

Two juicy commodity setups below the fold – so please grab your secret decoder rings:


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Alright, I think we’ve done enough damage for this week – it’s been fun. And you all know what comes next for the Mole:

beer3

 

That looks about right. (the beer of course)

Cheers,

Long Term Perspectives

Equities are bubbling higher with the ES futures touching the 2k mark for the very first time (the cash did it yesterday). Since there’s not much to be said on the trading front this is a good time to run through a few long term perspectives. Now that another major milestone is in the bag the question once again returns to how long equities can keep this pace up!

2014-08-26_spoos_update

Let’s start with price and our volume profile on the E-Mini futures. If you ever entertained illusions of possessing any clairvoyance in regards to the market’s direction then think back to early August when we were in the midst of what looked like a correction with legs. Since that time we’ve seen one of the most profitable reversals of this bull market.

2014-08-26_PnF

Actually there was a very similar one earlier this year in February. Looking at the P&F the setup and ensuing resolution looks almost identical to the one last winter. What followed was quite a bit of sideways churn and plenty of guesswork which lasted all through June. It’s possible that we’ll be entering a high volatility sideways period in a few weeks from now, so enjoy the getting while it’s good. However, that said – I don’t think any correction (sideways or down) would drag out for months again as we usually see more directional tape in the last quarter.

2014-08-26_JNK_TLT

If you recall from a few weeks ago – I was getting quite nervous about the discrepancy between the JNK:TLT ratio and what we were seeing on the equities side. We did get our correction but what’s remarkable is that this chart hasn’t moved an inch while equities were driving higher.

2014-08-26_JNK_LQD

So what gives? Well, it’s a complicated story and quite frankly I’m not a bond expert. But part of the answer may lead back to this chart – a cross between JNK and LQD (investment grade corporate bonds). Seems like bond investors are piling back into corporate bonds and unless we see a significant divergence on this chart there is little standing in the way of this raging bull market. Which unfortunately most retail traders have completely missed out on.

More LT perspectives below the fold – please step into my lair:


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Cheers,

Alien Versus Predator

My money is on the aliens every time. And when it comes to finding analogs in the financial markets the Alien is the bond market and Predator is played by equities. Simply speaking – bonds (and forex) are the dog that wags the equities tail. So it makes sense to correlate the two and find out who’s lying. We play this game every once in a while and it’s particular useful when price data on the equities side keeps us guessing.

Let’s look at some ETF correlations first. Why? Because they’re easier to get in/out of for the average retail trader. So they have meaning given the overall message the bonds are telling us, however they may show us short term trends as well. Here’s JNK (guess what it represents) vs. the TLT which has 20-year treasury bonds as its underlying. That was a beautiful divergence near the top – took a while to break equities. As I said above – it’s a dog/tail relationship and bond traders are usually smarter than their equities slinging cousins.

I see a tiny bounce there at the bottom but we’ll have to give it another day or so.

Let’s zoom in a little but this time compare it with corporate bonds, which have been very very popular in the past few years. Better timing on this one on a short term basis – not if you are a fund manager who needs to flip a few Million shares. But to us this one offers better clues regarding direction on the equities side. What’s it doing right now? Bouncing a bit – which confirms our general view that we should see a re-test of the highs. Well, at least an attempt to do so. IF this really is at least a medium term correction then it has to happen anyway. Trends to just fall off the plate – they form a top first.

Now let’s mix it up with a few managed mutual funds – with more long term implications:


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Please login or subscribe here to see the remainder of this post.

Cheers,





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