Welcome back my intrepid stainless steel rats – I hope everyone enjoyed a relaxing and joyous Labor Day weekend. I won’t dillydally around as there is a battle unfolding – one that will potentially decide the outcome of the war that has been fought for the past six months:
That’s right – you may be fooled by the eerie silence but the bears are fighting the battle of the bulge.
I am absolutely fascinated by the clarity and continued observance of this channel. Quite frankly – over the past few months I have come up with a number of indicators and charts that served us well but IMNSHO this rather primitive channel (which admittedly I discovered way too late) beats them all.
But there are implications of great consequence – if Von Rundstedt can mobilize his panzer divisions and produce a close outside 1100 on the SPX the bearish allied forces may yet be smashed into oblivion.
The daily Zero is currently painting a GTC fractal – though bear in mind that the day has not complete, thus we may see another spike up. If it resolves it may produce a quick reversal but it is in no way indicative of a P3 scenario – let’s be clear on that. Adding fuel to the 34th infantry divisions is the smoothed center panel which remains stubbornly bullish. Thus, my current assessment is that a quick and potentially deep reversal is possible but may just be an attempt to shake out some Johnny-Come-Latelies.
We are two steps into an equities sell signal – another close above today’s close will be needed. However, the problem here is that we pushed up quite a bit despite the fact that we are only about 10 handles below Friday’s highs. Although I personally still believe that risk and volatility is far from being properly priced in here I do think that this move is a bit suspicious. But if we get confirmation tomorrow then I will most certainly entertain a medium term downside potential. Until then I’m not going to fall for any traps.
That’s the original version of my SPX:VIX ratio chart. I post it here as it uniquely describes the ongoing trend as well as the transition periods. Where we are right now resembles the shift in sentiment observed in late 2008 into 2009. So, it’s possible that we are inside the early stages of a primary degree down wave. But it also could have been simply a big correction and as long as the blue line is above the golden one nothing long term bearish has been confirmed.
Bottom Line:
I’m currently taking a wait and see attitude. The potential VIX buy signal should not be ignored. Neither should the GTC fractal on the daily zero. However, that particular pattern on the Zero is usually a few days early and we could see another strong up day or two until it resolves. So, don’t bet the farm here, as tempting as it may appear. If we get confirmation on the VIX tomorrow then I may want to add a few more positions – thus far I am however extremely unimpressed with the signal on the hourly Zero and the Lite. Which is why I am playing it small – I caution you to do the same until the signals all fall into place.
Long term: The bears are on their last leg here. Much more upside and the bulls may just reach escape velocity and push all the way into Berlin. Another reason to keep your powder dry – you may need some to play the upside should this turn out nothing but the quiet before the storm. We’ll know in a day or two – right here and right now everything remains in play.
I think we should just feed some artifical A.I. with a bunch of Socrates quotes and then let it loose on the market. Looks like the old robe donning Greek nailed the support line he proposed yesterday spot on. I can tell you, Plato is in a bad mood right now as he was on the other side of that trade. But he should have known better as he himself said:
I have hardly ever known a mathematician who was capable of reasoning.
Someone should pass that quote on to the respective originators of various toxic assets that pushed our financial markets toward complete melt down – i.e. MBS, CDOs, CDSs, etc.) – most of which are still traded over the counter to this day I may add.
Plato pondering about Mousaka Baked Sedatives.
So, let’s revisit yesterday’s chart and then look at where we are in the ole’ wave count:
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.
I know what you are thinking now: ‘Boy oh boy – am I glad Mole told me to not chase the tape yesterday.’ Just kidding – I’m sure anyone who’s left here was smart enough to not put his member into that wood chipper. So, we got our little bounce – and I collected my toll fee via the longs I grabbed last night. Which were AMSC, ATPG, CSTR, GMCR, LAMR, MYL, and NFLX. Berk shot me those in the morning (you rock mate!) and I picked those right where I wanted them – outside their beautiful 2.0 BB. Strangely enough Berk and I follow completely different systems but often arrive at the same POV – if we both agree on a symbol it’s usually a winner. But that’s history – you’re only as good as your next trade, so let’s move on:
As I indicated – everything is possible but as the wave count is progressing as planned I am tempted to load up on a few short term puts if we bounce towards 1062. It might not happen at all and we might go straight down from here. If it happens we’ll meander around throughout the day, retest VWAP a few times and then shoot up before the close. Remember, today is a POMO day:
And pop a bottle of bubbly today as this probably is the last one – unless Heli-Ben gets a reload from our corrupt congress. Either way – today they’ve got only fumes left and it should only be good for a little bounce EOD. The results are announced around 11:00am – we’re about 15 minutes away from that.
The ole’ buck has dropped into a little retracement, also just as expected. Either we drop towards the 38.2% or we’ll most likely go down and retest the 61.8% fib. Why not the 50%?
Well, according to 2sweeties’ DXY odds calculator we now have two high frequency retracement levels which just so happen to line up exactly with those two fibs. So, place your trades accordingly.
I enjoy times like this – when things line up with each other and you can actually assess your odds and pick your trades based on your analysis. Something I have dearly missed in the past eight months – probably the toughest period of my trading career.
And of course nothing is ever easy for us bears. We got one nice drop and of course it is followed by a retracement. Never mind that the bulltards had one green candle after the other for months now – we bears actually have to earn our living
This is where we are right now: Yesterday’s drop off the plate looks like a picturesque third wave to me and I expected a sluggish annoying fourth wave today – and we got it. There’s plenty of room for retracement as the first wave should be called Mr. Stumpy but I would not want to see it go much past the 38.2% fib line – 50% max which is around 1,088 on the SPX. But looking at all indicators right now the trend seems up and the remains in positive territory. NYSE A/D ratio is reading around 0.86 – but it’s still early.
Interesting news from the POMO front – seems the Fed is slowly draining the swamp – not that they have a choice with about $3 Billion left in their POMO arsenal. Remember that one single POMO auction usually accepted well over $6 Billion on average. Yes, it must suck when you’re used to free money and suddenly the well runs dry. Who moved my cheese??
The longer term chart gives you an idea of the insane amount of cash that has been pumped into equity markets since early March. And now we are in double digit territory compared with nearly $500 Billion seven months ago. That’s some real money folks – and it’s why we find ourselves 62% higher since the March lows.
I’m back ladies and leeches. Please forgive my complete silence over the past 10 days but I have been slaving to prepare for a very important trade show exhibition (not related to ‘trading’) and literally could not spare a minute. Anna and Berk did an excellent job here during my absence and I would like to thank them both for their tireless efforts in keeping the blog interesting and flowing along.
As I’m just getting back into the swing of things I’ll continue to tack on charts here throughout the day. Let’s start with the good ole S&P – as you can see we have been moving along just as proposed over ten days ago. However, we are now getting very close to my expected target zone and it’s time to start thinking puts again. Yes, we could easily bust a bit higher as a ‘blow off top’ would count just nicely at this point. But as bears we have two trading choices: Either we pick tops/bottoms based on our TA or we let the market prove a trend change to us based on important inflection points.
If you are the type of bear who prefers to ‘be late but right’ in determining a trend change then this is the chart you should be looking at. Forget about all the daily gyrations and look at two simple trend lines. The first one connects the Primary {1} March low with the July Intermediate (X) low and finally the October 2nd drop into B of (Y) – i.e. the long one
The second connects the lows of this Intermediate with important touch points in August and September and finally also the B of (Y) low. So, what the ‘late bears’ will need to see here is a three punch combination. The ‘jab’ will be the drop through 1070 followed by hook through 1015 and then of course the knock of upper cut to take out 1000. Once that psychological line falls you will see late some profit taking, followed by some dip buying, which should be a great chance for bears selling the rip to add short positions.
Personally I’m prepared to keep playing the same game I played back in September – load up on puts at new market highs (not unlike this one) and let the tape prove to me that I’m right.
I checked my CBOE Put/Call Ratio chart last night and was very excited to see a dip down to the ‘danger zone’. This is code red for all bears and although we could see a drop below 0.5 here the risk is now on the upside. Maybe not for long but most definitely for the coming week or two.
Man, it’s good to be back – I couldn’t have picked a better time
12:08pm EDT: Insite alerts us to the new POMO schedule which was probably updated last Wednesday (but I didn’t look all week):
I’m always worried to hold positions ahead of these days but:
They are running out of funds – last time I checked there was about $5 Billion left.
We are still a few days out, so the schedule would permit a nice drop to the downside with plenty of opportunity to take profits and hedge ahead of those days.
12:20pm EDT: I had to catch up on sleep last night and thus missed out on a great opportunity to trade Anna’s AAPL call spread – I expect her to bank some nice coin on that one. I better get my butt back into NYSE hours – LOL
1:51pm EDT: Call me completely NUTS but I just backed up the truck here.
Yes, we probably push higher and yes I will have to endure more pain and insanity but options are cheap here, so whatever – what the heck do I know anyway but I’m insane, so don’t do what Mole does. It’s best to let the market prove to you that a trend change has occurred – the money I just threw in is money I expect to lose. And remember that Berk’s 13 indicators did not budge all last week, so be careful!
2:02pm EDT: Here’s a chart you should see before even thinking about buying any puts or getting into short positions here:
The Dollar seems destined to fall even further as every push higher gets instantly sold. Let’s however remember that I have a nice new gadget courtesy of 2sweeties over at retracementlevels.com:
So I see a lower probability that we turn around 75.15 but who are we kidding – 74.9 or perhaps even 74.45 is in the cards, which might get us to 1120 on the SPX. As you know I don’t trade correlations – but I do see the current correlation as an inverse ‘bias’ for equities. But since I don’t trade them I decided to load up on puts now – which again I don’t recommend any of you to attempt.
So, you’re long the Dollar (or short the Euro) and aren’t sure when to head for the hills? Let’s take a look at the tape first:
If you remember the last pertinent post – we were waiting to go long at around 75.9:
Well, actually we attempted to go long at 76.42 but it pushed all the way to 76.1 – the next RL would have been at 75.94ish. Of course the market doesn’t make it that easy for us, which is why 2sweeties averages up/down – more information on his style of trading is on his site – personally I don’t do this way but to each his/her own.
Now, since we already bounced we are now looking at where we would take profits if we are long or where to go short. The daily RL calculator is quite clear this time around as the highest frequency RLs are above the 77 mark.
I set my 100% chance of reversal at 77.42, which is the prior October 2nd high – not a back pick, especially since 77.9 is quite a ways away. So, if you are long right now and got a good entry around 76.10/76.20 then holding at least into 77 might be good medicine.
Of course this market is completely insane, so there are no guarantees. But unlike 99.999% of the FX traders out there you have reasonable odds on your side, which will help you define your entries, exits, and stops (if you choose to use those). More information on how various retracement level calculators is available at retracementlevels.com.
1:38pm EDT: Are you still holding long term puts – are they getting brutalized despite the fact that we’re painting a doji right now?
Nothing like a juicy drop in the VIX to make the life of the bears even more miserable. Whether or not this is a drop of volatility to shake out weak hands before a real drop in equities – or if it’s just plain old market maker nastiness remains unclear. FYI – in early September they did the same to my Jan/March puts (i.e. dropping the bid/ask spreads of the back months in particular) – I first thought that was indicative of a continuation of the bearish scenario but then was in for a bad surprise. I wanted to point this out just in case you are interpreting this merely as a shake out attempt.
The Euro meanwhile is busting higher and I expect equities to follow suit by the EOD. Yes, we keep reverting back to VWAP and am seeing a long red candle back to it right now – but we all know how those POMO days play out, don’t we?
Speaking of which – today’s POMO put $1.3 Billion into the bulging pockets of primary dealers itching to deploy them where it hurts the most. It’s not much but enough to keep the tape at bay right now.
2:10pm EDT: Still harping on the same subject – here’s the POMO schedule for the next two weeks:
As you can see the next one is next Wednesday – which might actually be the last one or at least one of the last ones. There is only $5.6 billion left – the well of eternal liquidity is slowly running dry…
12:36pm EDT: Before I turn into a pumpkin I’ve got three charts I’d like you guys to see tomorrow’s morning. The first one was sent to me by a little mouse going by the name of Keirsten, who actually swiped it from a friend – so this is one of those ‘friend of a friend’s charts’
It’s basically a response to that daily Zero fractal chart (see previous post) I have been freaking everyone out with over the weekend (I love to do that). As you can see supposedly the difference to August and September is that this time around the three MAs are painting a ‘bow tie’ (don’t ask). Personally, I’m not big on MAs but hey – after seven months of Chinese water torture I’m willing to embrace astrology and hedonism if it makes the market drop. Wait – too late for hedonism…
The second chart is one I have been posting occasionally for the past few months. The Feds continue to drain the liquidity swamp, which might also be the underlying reason why this rally is slowly running out of steam – at least if there is a drop of credibility left in my sentiment/momentum indicators.
But the draining didn’t just begin a month ago – this is a longer term perspective of the slosh chart starting at the beginning of 2009. As you can gather, we’ve gone from close to $500 Billion in circulation to less than $200 Billion. Also note how the peak coincides with the beginning of Primary wave {2} in equities. Coincidence? I think not.
The last one for tonight. Yes, it finally happened – after some hemming and hawing the weekly stochastic punched through the 75% mark. Usually when it does it continues downward to at least touch the 25% mark – but note that sometimes it turns around right about now and busts higher. What we want to see is for the 50% mark to be breached, which would be a good indication that the 25% mark might follow.
But wait Mole – that was four charts – you said you’d post only three! That’s right – I lied – I’m evil after all.
10:06am EDT: And I’m not talking about equities – although I did enjoy that little gap this morning. No, I’m looking at my Dollar chart and it’s not looking pretty:
I can literally hear Heli-Ben on the phone this morning:
Kill it – kill it now!
30-year treasuries are nearing interesting short trade opportunities which I have taken the liberty to highlight. ‘But Mole, why would you bet on treasuries dropping if you expect to do the same in the coming weeks/months?’. Good question – and strike that one up to the eternal mysteries of ephemeral market correlations.
Equities are in the process of retracing the ‘oops-unemployment-at-25-year-record-plunge’. I cashed out my October puts and might add a few more if we push higher today to fill the 1025 gap on the ES.
Take note that we did bust through that lower channel border of mine at the open but then promptly retraced. So, was this the beginning of the end or is it yet another fake out followed by a repeat performance of what happened early September? I wouldn’t put it past Ben to do something nasty lobby Congress to recharge his POMO cash cow. We shall see – but obviously at this point we should all expect a little snap back, even if the drop continues.
Finally, IMNSHO we need to keep pushing a little lower here either today or Monday morning as for the blue wave count to gain credibility it would be nice to see a long and solid third wave. Right now we barely exceeded wave one, so this is a bit meager.
10:50pm EDT: I reloaded my Oct puts around ES 1023 – a tad early as it was based on 2sweeties’ hourly RLs. But the tape continued a little further up for a complete gap fill. We’re dropping again right now, so let’s see if we can push back below VWAP or if this was the beginning of a turn around.
Economic reality continues to be steadfastly ignored – bullish exuberance appears to be ubiquitous. Even better – a ‘worse than expected’ (snort) Chicago PMI report is nothing but yet another dip buying opportunity to cash flush POMO infused primary dealers:
The wave count and our inflection point have not changed – we remain in the whipsaw from hell zone we have been bouncing around in for the past three weeks. Our uncle point remains at 1069.62.
The bull will not be denied as various exotic Fed cash windows continue to hand out tax payer coin to primary dealers happy to burn the bears just one more time.
Inversely the Dollar has turned into the Fed’s favorite pinata – the more they hit this thing the more candy drops out to the delight of various gnomes driving the new USD carry trade.
Finally, NYSE A/D ratio currently at around 1.0 – not much of a change since yesterday’s reading at the close.
2:26pm EDT: So, you want to be a big bad swing trader, do you? Well, do I have a little gem for you:
I think this chart is pretty much self explanatory.
2:41pm EDT: Okay, I apologize in advance for the unrelated post but prepare yourself for the cheesiest infomercial I have ever seen (and that is quite an accomplishment in itself). You guys just have to see this:
Now, I actually do run Windows 7 right here at the evil lair and am loving it. It’s hosting geronimo and various other charting apps – no problems at all and I have to admit, even as an avid OS X user, I really enjoy Microsoft’s newest creation. However, how this turd of a promo clip could ever make it beyond the crack stained quivering fingers of the mental retard who wrote it is simply beyond me.
BTW, where is the obligatory Asian guy/gal? I feel racially insulted! However, I have to concede that the hot MILF (second from the right if you need to ask) makes up for it a little – yummie….
Enjoy!
2:53pm EDT: OMG – it even gets better!
I’m speechless – rarely happens – but this just blew my mind.
In typical megalomaniac fashion I fully appreciate the value of a good entry (in life as well as in trading), thus I thought it best to burst back onto the scene with an announcement of bearish news – and that of course in my inimical personal style:
Here is me spreading the bear gospel right on Wall Street – maybe I should have worn pants instead of that glue-on beard that day as the NYPD did not care much about my eatable strawberry flavor underwear. Fortunately I had a local bail bondsman on speed dial. BTW, does someone happen to know how to remove superglue from skin?
Just before I left for my mini vacation (by European standards) my charts were pointing towards 1080 or 1100 as the top candidates for completion of Primary {2} of Cycle wave c. In the past week since I scaled back my participation on the blog not much has really changed regarding that original assessment. On Wednesday we indeed touched 1080.15 – okay, so I was off by 15 cents – please accept my deepest apologies for the slip up – I won’t let it happen again.
As you can see on the chart above we’ve got two main scenarios:
Soylent Blue: Primary {2} ended last Wednesday and we are in the first throws of Primary {3}. The initial small leg down looks very motive and that’s encouraging. But a bounce could come any day/minute – so be mentally prepared for more pain and thus for Soylent Orange. However if we keep dropping here the bears need to first conquer Hamburger Hill (noted on the chart) and finally 978.51 before we can more confidently declare Primary {2} as behind us. Short term we might bounce a little here before we continue downward.
Soylent Orange: We completed (or are near completion of) Minute {iv} of Minor C of Intermediate (Y) of Primary {2} – yes, I haven’t lost my touch during my vacation Which means we should bounce here and push towards 1100. Be advised that we’ve got a cluster of various fibs between 1090 and 1100 (marked on the chart) – so a turn could occur somewhere in between there. If we breach wave {i} of Minor C at 1039.47 this scenario should be toast and more downside (hence Soylent Blue) would be expected. Unless of course the count is completely different and I would have to back-paddle sometime next week.
Now the big question on everyone’s mind right now is whether or not the top is in or if the bulltards will make a final push towards 1100. Frankly – currently the odds are 50/50 on this one. When I look at various sentiment indicators it’s clear that we have more than satisfied the main criteria for an anticipated turning point of a Primary degree bear market rally – which is that bullish optimism should rival or even exceed that of the previous bull market peak. That of course happened over a week ago – right at the 38.2% time cycle turning point I had projected.
However, as intrepid (and often impatient) bears we are often faced with an inherent dilemma – we underestimate how long market sentiment (i.e. the investing/trading public) takes to catch up with reality. A many bears have been crushed by unwavered exuberance and public consent that a new bull market was in the making. Sometimes it takes weeks and often it takes months – eventually the tape swings our way as it must but at that moment many weak hands have given up or even gone as far as to drink the Kool-Aid and switch over to the bullish camp. I have seen some of that happen right here on Evil Speculator throughout the past two weeks – and although I do feel for the poor souls who will later have to concede having missed one of the shorting opportunities of a lifetime, it is just the moment I have been waiting for. When I saw even the staunchest bears around me throw in the towel, that’s when I added even more short candidates to my increasingly delta negative trading account.
During my absence I have seen the most complicated perspectives being posted in various comments (not by my girls) and frankly some of it was way too complex and esoteric for my simple mind. I personally prefer simplicity and this is probably one of the few times you see me plaster a moving average on a chart. However, the 88 week MA seems to have meaning for the Dow, and perhaps it was coincidence that we turned right there – or perhaps it was not. Fact is that I did not trade against that one – I prefer my good ole’ weekly stochastic – which I never tire to tell anyone who bothers to listen has rarely let me down.
And what is it telling us right now? If you listen carefully and concentrate really hard you can hear it whisper: “Not so fast, buster – don’t have confirmation yet!” Either it’s that or I need to increase my medication. And completely right it is – every Intermediate and Primary degree turn in the tape has been accompanied by a breach through the 75% mark on the slow 5,3 stochastic. Unless that happens we are on very thin ice, rats – so, let’s not go crazy here okay?
Dow theory aficionados are closely looking at the bearish non-confirmation in the trannies right now, which incidentally also happened right at the 88 week MA. First we got a doji and then a fast drop, ahead of the SPX or the INDU – imagine that…
This chart is a bit more complicated but it’s worthwhile digging through it. EWI mentioned the fact that Shanghai Composite has been leading U.S. equities in their latest Financial Forecast. So, I decided to compare the two time cycles and ran into some interesting observations. Not only does the DJSH lead the SPX for example – but it does it based on various Spiral Calendar time cycles – if you want to learn more about what that means click here for a quick intro. Or take a look at this post in which I used the SC to predict the June 25 turn date. I give and I give and I give… Anway, I also created a new SC category, so you can get to all pertinent postings.
In any case – it seems to me that unfortunately the exact time cycle seems to vary – but as it seems to loosely follow SC time cycles it’s worthwhile projecting those turn dates forward, as I have done on the chart above. The 51 day F4 cycle is where our current 1080.15 top was touched and if that one gets blown out of the water then I’m looking at various future SC cycle dates which are marked on the chart.
The old buck has thus far held the 76 mark (barely – it breached it once but bounced back). We all know the implications of this by now – a strengthening Dollar means weakening equities. Whether or not the Feds will let that happen is another issue but I refuse to trade the news or the machinations of the Ministry for Coporate Welfare. I do anticipate some of their actions (e.g. POMO auctions) for my short term trading but long term I need to stick with my charts. Either way the buck needs to hold the 76 line otherwise SPX 1100 or perhaps SPX 1200 is in the cards. Inversely I anticipate the Euro to start weakening and drop significantly in the next few weeks/months – so if you sit on a lot of Euros now might be a good time to bulk up on some greenbacks.
That’s all I have time for this evening – have a lot more chores on my plate before tomorrow morning. See you on the other side, rats – right now the futures look promising
Cheers,
Mole
P.S.: If you wonder about my new avatar you might want to take a look at my late Friday post. Yes, there is method to my madness and the ’smiley’ is not as friendly as you might think. If you’re lazy (98% of you rats – LOL) then just google ‘Ghost In The Shell Laughing Man’ and you will be enlightened. Excellent fodder for you anime fans btw – which I am myself I must admit.
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