Time To Wield The Iron

I’ll be quick as we may be dealing with a small window of opportunity here. The S&P E-Mini has painted new all time highs and that means we’re pressing our noses against that volume abyss I haven’t tired pointing out to you guys for the past few weeks. Given the various Soylent scenarios Scott and I have been pimping over the past few days this leaves us with a prime entry opportunity:

Let me paint the picture. A bit over an hour ago I pointed out a glaring bearish signal divergence on the Zero Lite (right panel) to all my subs. Some of you are already short and it was a good entry – however given the fact that price has not responded at all, despite rapidly diminishing participation (i.e. flatline signal on the Zero) we will have to follow price and price only!

However if nothing else today’s ramp & camp candle thus far suggests that we are kissing an important inflection point, which obviously lines up with the upper limit of the current trading range.

Let me throw this one into the soup as well – our GBP/JPY carry trade correlation which has kept us out of a lot of traps over the past few months. Now for anyone long this should be quite concerning, nevertheless given where we are and the increasing possibility of a short squeeze I’m going to propose to distinct setups – one with a high probability good return ratio and one with a low probability but high return ratio.

It’s quite elementary Holmes – we are short right here with a stop at 1982 which is a number I basically pulled out of my rectum. Well to be honest there is that sideways 100-hour BB that’s blocking the way and I felt that it’s as good a line in the sand as any.

Now one of two things are going to happen – we drop from here and I smile all the way to the next turning point which is probably an R or two away. OR I will get stopped out in which case I’m already set up to be long with a stop very nearby below 1979 (where we pretty much are right now, plus minus a few ticks).

Caveat – do NOT play this setup on the Spiders or any other equities based ETF – that includes SPX/SPY options and any of the 2x and 3x symbols you like to trade. You will only and I repeat ONLY take this setup on the ES futures as this will require you to monitor ¬†and manage the situation rather closely. If we get a big spike (or drop) overnight then you don’t want to find yourself 10-15 handles in the minus because you had to wait until the NYSE opening bell.

Also, don’t get overexposed – use our futures risk calculator if in doubt and only attribute between 1/2R – 1R to this campaign. Actually 1/2 ought to suffice on the long side as it’ll probably take off like gangbusters if we reach the inflection point of no return (which we hope is 1982 and above).

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.

Cheers,

Whipsaw Galore

In the past two weeks the S&P has been riding the express elevator several time between the penthouse (i.e. the volume abyss above 1980) and the attic (i.e. the volume hole below 1940) and then back again. There is no telling how far this trading range is going to extend (see Scott’s weekend update) but what’s rather clear is that getting positioned anywhere in between is tantamount to committing ritual seppuku – it’s not going to be fun and you can be sure there will be blood left on the carpet.

Which means if you insist on playing the S&P futures then being short near 1980 reduces your risk significantly. Yes, one of those days it’ll break higher but it doesn’t make sense worrying about that – simply put your stop above the volume abyss and if she breaches you can always flip sides with little lost on the short side. Same applies if you feel an insatiable appetite for long positions here – choose a salad instead and then wait until at least 1945.

Meanwhile at the VIX cave all those gyrations have been lifting us off the record low IV readings we’ve been enjoying as of late. As you can see by the ATR(14) panel – volatility of volatility is rising. And per Mandelbrot that big spike higher last week suggests that we might be seeing more. VIN/VIF is also creeping higher which means some folks are getting nervous.

In case this means nothing to you: It is a little known fact that the CBOE actually maintains separate indices for the near-term month VIX (VIN) and the far-term month VIX (VIF). Just pop those tickers into your streaming quotes and you too can watch not just the VIX, but the two components used in the VIX constant maturity blend.

And frankly speaking a meaningful correction is way overdue at this point. After all we have have not seen one since 2011!! Since we tested SPX 1100 it’s been but one directional crawl higher. Get this – counting all monthly green candles since we marked that low gets me to 27 compared with mere 7 months lower. Quite mind boggling – had you simply bought on the first of each month you would have won 74% of the time! Heck, I’d kill for these odds and so would you.

Of course – until that green trendline is broken the bears will most likely have to endure more of the daily pain they have learned to live with in the past five years. Calling tops is for losers (apparently) and until important LT trend lines are broken the trend remains intact.

Now having said all that let me present a short setup on the equities side ;-)

Well actually it’s a bi-directional one. Obviously the Russell has been clearly lagging all other indices and as you can see has not been participating in the sideways churn we’ve been seeing on the equities side. And if I am going to short ANYTHING in that sector then it’s going to be the weakest bitch boy I can get my claws on. The long side doesn’t look shabby but quite frankly I would be more excited about a failed failed hammer short here – plus it’s also an inside day. Pick your poison.

Gold – very juicy RTV-L plus IP-S today and I wouldn’t be feeding this one to you leeches if I didn’t have a lot more waiting below the fold. So grab your secret decoder key and meet me in the lair (we have air-conditioning):


More charts and 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 subscriber you get free access to all Gold posts, which gives you double the bang for your buck!

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You have been briefed – now have fun but keep it frosty. See you guys tomorrow.

Cheers,

Fridays Stunning Reversal and What it Means

I sincerely hope you heeded our advice to not chase the market down and trade with a long side bias on Friday. Admit it, it looked pretty good for the bears for a minute, right?

If you review the three previous options from the last post. We are either in a trading range, bear heaven, or the Bulls are about to win again. Nothing much has changed, and the highest probability is that we are in a trading range.

Why do I say a trading range is a higher probability than upside trend continuation? Primarily because we have an uptick in volatility over the last few days and historically an uptick in volatility from a historically low base is a sign that market type is changing. This is a highly reliable phenomenon across all timeframes.

Have a look at the Volstat Indicator, which measures 14 period ATR normalized for price (expressed as a percentage of price) and measured against a 100 period, 1 standard deviation bollinger. We can objectively say that volatility is low when it is below its lower bollinger. In this case after an extended period of low volatility we now have an uptick. For this reason trend continuation remains a minor probability.

Throwing away the indicators it is clear that there is a disturbance in the force. The market “feels different”, and even though dip buyers will be attracted now this is a bad time to JBTFD

The probability of trading range went through the roof on Friday, this is roughly a 70% probability. Therefore we have some highly reliable short setups about to happen from just a little higher up.

Two more setups below for the subs:


More charts and 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 subscriber you get free access to all Gold posts, which gives you double the bang for your buck!

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

You heard it here first, now have at it!

Scott Phillips

 





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