Post FOMC Musings

As widely expected the Fed decided to taper by another $10 Billion per month. Worthwhile noting however is that it also delivered on some earlier rumors that it would hint at a more hawkish stance going forward (i.e. interest rate hikes). The response on the equities side thus far has been pretty muted but predictable.  As in draw in all the hobby bears ahead of the announcement just to smack them with a two-by-four post announcement.

Where we wind up closing today is anyone’s guess and to some extent it’s academic and really doesn’t matter. As both Scott and I have been telling you over the past two weeks – entering anywhere inside our current trading range borders on ritual suicide. The chart above shows nothing but the price action of the current month – we’ve got one more session to go. What does this tape tell you? Does anything jump out at you?

Frankly speaking I’m seeing a cigar smoking dragon in a clown suit riding a Harley. Yes, it’s  a complete and utter mess – the only take a way message is that the current trend is either inside a sideways correction or that we are painting a medium or long term top. Given Scott’s posts earlier today and yesterday I would not rule out the latter. Which is why I suggested some cheap insurance – it’s still available but volatility continues to climb. You have been warned.

On the SPX however today’s session was extremely productive as it bestowed us with additional context. See -experienced traders focus on controlling risk while retail chases gains [quote I saw on the ThinkingAlpha feed today]. I really don’t care about the gyrations we’ve been suffering through in the past month. But I care a LOT about price context in combination with various technical evidence.

I’m seeing various momo indicators suggesting a correction is overdue – see above my updated NYA50:NYA200 chart which expresses breadth across the NYSE. It shows as at a possible inflection point but it also does a pretty good job of visualizing the buying exhaustion that may have permeated equity traders. As you can see bullish momentum is oscillating in smaller and smaller signals and over the long term this is unsustainable.

but in the end price will have to follow suit. And for that we need context on the price front. Well, the SPX just produced a technically valid support zone which is rising – and that means the onus now is on the bulls to keep price above 1965 and pushing higher. This may appear of limited meaning to you but for me it carries significant implications.

Quick update on the Dollar campaign I posted about last week. Well, it’s been going pretty well and today’s little pull back was expected. I currently do not see any cause for concern – I’ve been long since 81 and after a three week advance a correction will shake out some of the weak hands. We may even see a retest of the 100-week SMA and I’m leaving my stop in place (< 80.5).

Not surprisingly this has produced a more favorable exchange rate for this lowly expat. I like what I see thus far but the EUR has now approached its 100-week SMA and I expect longs to stage a significant defense down here. Today’s FOMC response has produced a very convenient push higher and some of the strong players who traded this one down may now try their luck flipping for longs here.

Bonds also have responded as well post FOMC – here’s the ZB futures contract which was near its own 100-week SMA just ahead of the announcement. I always get suspicious when I see major symbols approach long term resistance/support ahead of the Fed or ECB. Again shorts now have a good excuse to launch a bit of a squeeze lower but they are facing a weekly NLSL near 136 below. Let’s see how that plays out.

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,

Campaign Updates

Apparently Scott’s early morning paranoia seems to have been justified as we’ve seen quite a turn around in equities today. Which by the way clearly began ahead of reports of a plane crash near the Russian/Ukrainian border. What a royal mess and sincerely I hope this doesn’t turn into a larger conflict. As you can imagine both Russia and Ukraine will be in the hot-seat until investigators are able to figure out what exactly happened.

But let’s talk about the market. I often point at the GBP/JPY as one of the major carry trade pairs however some traders prefer the watch the EUR/JPY. Well, it’s been pointing down since yesterday and today it turned into a veritable cascade.

Which was mirrored by the GBP/JPY as well. I am keeping my eye on this one but thus far I don’t see any signs of a bounce. Not good for the bulls and it could mean we head lower.

Suffice to say that my long campaign was stopped out near the NLSL on the ES. Here’s the SPX cash which offers possible support near its own NLSL at 1969.56 followed by its 25-day SMA at 1962.39. Prices are currently re-testing the former but if it gives we’ll most likely visit the latter.

A lot more luck on the gold campaign which almost banked us 2R today as it literally exploded higher. That was actually unexpected as we just came out of a big move. I think by now you know the rules – if we close above the 1R mark we’ll keep the campaign open, if we do not then we close out near the EOD.

30-year bond futures also above the 1R profit mark at this point. Same idea here – we need to close the session above the 138’04 mark or it’s time to take profits and end this campaign.

I wanted to offer few more thoughts given the developing situation in the Ukraine. Over the next few days I’m sure we will see a lot of news drivel rife with accusations, rumors, misinformation, human tragedy stories, you name it. I strongly suggest you stick with a strict information diet which means ignoring all of it until we get unequivocal confirmation of the culprit responsible. Suffice to say that it should not affect your trading in any way – whatever price swings would have happened have already happened. Don’t let the drama queens, conspiracy theorists, and tabloids affect your mental equilibrium. As much as I regret what happened to the passengers on this ill-fated flight – this is not an opportunity to satisfy your lust for sensationalism.

Make no mistake – none of the sources spreading rumors or theories about what may have happened today should be trusted as they couldn’t give a rat’s rectum about the truth or the people who so horribly died. Eventually I am certain the truth will be revealed – until then the minimum we owe to the victims and their families is a speck of respect, which means not participating in a sensationalistic media frenzy. Just consider for a second it was the charred remains of one of your loved ones laying there on the ground – that ought to give you a bit of perspective.

I hate rubber-necking and refuse to engage into such egocentric activities – and the same attitude extends to any type of catastrophe – be it man-made or acts of nature. Let’s act like adults and maintain a sense of decorum. My thoughts tonight are with the victims as well as their families.

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,





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