The Mole Smells A Rat

Let me cut right to the point: I don’t trust this tape further than I can throw the average NYSE market maker, and if you’ve been there then you know that most of those guys aren’t exactly underwear models. Whatever is the source of your paranoid suspicions, you ask? We barely have three down candles and you already getting antsy, you say? That’s right – once again the Mole is smelling a rat. Let’s observe:

Exhibit A: The tape has been dropping (thus far – we ain’t seen the close yet) but UVOL is clearly outrunning DVOL. Rather suspicious and that’s putting it mildly.

Exhibit B: NYUD clearly in ‘meh’ territory. There is no selling pressure and this is all for show. Perhaps it’ll change by the EOD, but for now I’m not seeing any angry bears taking advantage of a clear inflection point as the SPX is pinned below its 25-day SMA .

VIX:VXO – on the rise already and that divergence on Friday before the close looks rather iffy (especially given the late Friday drop). Perhaps EOM artifact – possible – but even then today’s ratio does not suggest MMs are overly worried here.

The only one that’s doing what one would expect is the VXV:VIX ratio. Provided here as the Mole believes in ‘fair and balanced’ charting practices ;-)

The Zero Lite isn’t exactly screaming bearish either here. But again, let’s not jump to conclusions and wait for the close.

In the absence of any daily/weekly/monthly resistance levels I would keep my eye on the 25-hour right now. It held up well this morning and I expect it’ll be the decider here.

Remember one of our prime directives – it’s not the first sell-off that counts, it’s the follow up. The Mole is watching in eager anticipation.

Bonus Chart!

I would be remiss in not sharing this prime rib AAA rated EUR/USD setup with my intrepid steel rats. It’s bumping against daily AND weekly resistance, of which the weekly is rather pronounced (i.e. 25-w and 100-w right above). Excellent inflection point for the Euro and if it hops the fence(s) it’s going to be one cold summer for the greenback.


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Diminishing Effervescence

The cork has popped and after a six month period of unparalleled bullish exuberance we are now on watch for signs of diminishing effervescence. That doesn’t necessary mean buying pressure has depleted completely, but when endeavoring to trade the markets and survive to tell the tale one has to develop a sense of timing as the game of musical chairs always comes to an end at some point.

As of right now I remain on the fence as price yet has to show signs of weakness. Various doors have opened over the past few months and equities have steadily marched in the opposite direction. I can practically see Old Turkey cock his head, lean over, give me a fatherly smile and say, “You know, it’s a bull market!”

Something that caught my eye whilst browsing through my collection of momentum charts was the CPCE  which sliced through an established support line and dropped quite a bit lower while price continued higher. In the past a touch of that support line has been a harbinger of a meaningful correction but at the same time they have been getting smaller and smaller. What’s technically puzzling is that we have barely moved after such a spike lower.

A similar phenomenon can be observed on the NYMO (here smoothed via a 5-day SMA). A pretty solid support line, a touch of which once again has in the past been followed by a correction. However they are getting smaller and smaller every time. Since the NYMO is a breadth indicator (advancing – declining issues) this means that more symbols are participating but at the same time they are dropping less. So we have depleting (shorter term) breadth in the face of shallower/shorter corrections?

Here’s the SPXA200R – as you can see we have over 90% of stocks trading above their 200-day SMA. The signal is tightly embedded and that can go on for quite a while (the same happened on the downside in 2008 but it’s more common to occur during market tops)

The ratio between the 50R and the 200R has us once again near a roll-over point. Will the ‘magic buyers’ once again flood in to pull this one out before a deeper correction can gain momentum? I’ve seen the inverse on the Dollar side as it has been stomped on every single time it has attempted to rise above its 84.5 inflection point.

The weekly stochastic – one of my simplest but most trusted charts. It’s has been denied a breach in April and we are back across the roll-over point. Similar thoughts apply here – another door has opened but given recent market conditions we cannot be sure that the bear will go through it.

Quite a bit more waiting below – please step into my trading lair:

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Fishing In The Dark

I must not neglect to point out that the timing on dropping the big shoe on equities was nothing less than exquisit. Let’s review: Wednesday after some very carefully crafted comments were released into the wild all hell breaks loose and market participants expecting another ‘shoo-in’ find themselves bend-over with their pants dangling below their ankles. Of course here’s the segway to one of my favorite subjects – that of market psychology. The bulls who just got royally reamed are now looking for the ‘obligatory’ bounce here while the bears (most of who missed yesterday’s wipeout – recall my point regarding capitulation) are looking for clues as to whether this thing may have legs.

Now, let’s take a look at the Zero Lite for some further insights on how this game was played. First up, for the uninitiated, take a look at the Zero Lite signal range (right panel). We’ve got a 2.0 before all the drama, which is respectable and we have a -1.5 during a concerted sell-off which is barely outside what I would consider a median range of participation.

Of course today we get (drum rolls) absolutely nothing – sideways churn designed to keep everyone guessing ahead of a three day weekend. Forget about tomorrow’s session – anyone who’s anyone made their money yesterday and are probably already heading for the Hamptons. And that’s how the game is played, folks – there was no panic selling – this was market theater at its very finest. I hope you didn’t play the part of the pawn.

Now what I’m seeing on the setup side does not really matter as I wouldn’t want to touch equities with a ten foot pole right now. Taking on positions before Tuesday is tantamount to fishing in the dark. You’ll be trapped during Memorial Day weekend and there’s no telling what may seep out Sunday or Monday night causing your positions to blow up in your face.

If you decide to test your luck right now then I suggest you keep an eye on that 25-hour SMA which was were the spoos ran into a wall. The fact that we’ll most likely be closing right near the 1648.25 inflection point leaves the gates open for all kinds of creative shenanigans.

Here’s the YM which managed to tickle its 100-hour SMA but didn’t find her very receptive to allow a jump over the fence. Similar situation on the daily panel – we are stuck in limbo and I would be rather surprised if we see clarification ahead of the long weekend. Call me cynical but that’s usually not how the game is played.

Crude is at an interesting stage across several timeframes right now. Short term still pinned below that 25-hour SMA and now also below its 25-day SMA and a NLSL. The weekly has it scraping some long term support – the 25-week and 100-week are colliding and prices are sitting right on top. This could be good!

Quick update on soybeans – I doubt many of you took that early morning entry the other day. But if you did and managed to hold all the way to here than I probably don’t have to tell you that now would be a fantabulous time to call it a trade and count your blessings ;-)


It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.


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