So Far So Good

Apologies for my relative absence today – for one until now there was little to add to yesterday’s perspectives, and second I’m running a bit thin on time today. So let’s cover the basics:

2014-08-28_spoos_upate

If you recall – I pointed at the 100-hour SMA as our inflection point for a drop toward the lower Bollinger. That very scenario played out overnight and since then we’ve bounced back and are in the process of recovering the SMA.

2014-08-28_uvol_dvol

It’s possible that this was simply a little stop run to shake out some weak hands. The UVOL/DVOL ratio seems to suggest just that. If you look closely the previous sessions ran pretty much on remote control but last night’s sell off took a few folks by surprise (strangely) – at minimum it triggered a series of stops. Now we need to hold the 1996 mark in order for the party to continue – if we drop back below and the cash closes in the red then we probably are looking at a more extended correction. In which case I may consider closing out some of my NQ longs – thus far they’ve barely broken a sweat.

2014-08-28_copper_setup

Nothing of substance on the setup side today – except copper which is looking like a pretty good long here. Now don’t read this the wrong way – I’m not saying that copper has high odds¬†of jumping higher. Actually, it’s more of a 50/50 scenario¬†- however we are sitting on double support and that puts the odds in our favor IF (and only if):

  • We close above the NLSL and SMA today.
  • We hold that mark into tomorrow.

So I am taking a calculated risk here near a potential inflection point – 50/50 odds right now but it’ll increase rapidly the more time we spent here. All that translates into a potentially high payout for a small risk (i.e. my stop is but a few ticks away). Ergo I’m attributing 1/2R here and then will add 1/2R if not stopped out by tomorrow after the NYSE open. If she holds here then a jump higher in the coming week would have very good odds.

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Cheers,

Inflection Points

Equities are now beginning to accumulate sufficient context, allowing us to consider various inflection points where the odds either support continuation lower or a reversal toward the recent highs. Let’s review the daily context first:

In order to simplify it for you guys I’m hereby resurrecting an old tradition of mine – the Soylent line up. The volume profile chart show a pretty shallow volume hole near yesterday’s highs, just below ES 1940. The bounce didn’t have much meat in it but it may just have been a first foray into lost territory, perhaps leading to continuation either today or tomorrow.

Below us we of course have a bit of bearish wiggle room until about 1917, after which you can see a gradual drop off in the volume profile terminating in a textbook volume hole around 1900. That’s obviously a psychological line in the sand the bulls will want to hold. If it fails we’re going toward 1850ish – our current point and figure price objective on the P&F.

  • Soylent Green: At this point being long above 1940 is a pretty decent play if the GBP/JPY correlation shown below holds up. If breached a ride toward 1960 is in the cards and based on velocity/momentum/participation we’ll have to evaluate once/if we get there.
  • Soylent Orange: The highest odds right now are continuation lower toward 1900 unless we breach 1940. It does not have to be a black & white approach – watch the Zero indicator after the open for signs of increasing buying interest (or lack thereof). I think today is an excellent day to follow the Zero Lite for clues.
  • Soylent Red: Only applicable if we drop straight through 1900 without much of a bounce. If panic selling ensues a drop through that mark leads us toward 1850. The odds for that to happen are very slim right now. Recall what I showed you on the LT VIX chart on Friday.

The spoos to GBP/JPY correlation is pointing upward right now. That’s positive for the bulls and why I wouldn’t count the bulls out just yet. But equities need to follow higher now – the onus is once again on the bulls to draw the line here before major damage is incurred which may threaten the medium term and perhaps even the long term trend.

On the price side here’s a bit more detail. You can of course trade the E-Mini or the Spiders, or your favorite ETF, what have you. The 100-hour SMA is near our 1940 inflection point, so I think we have a pretty solid ST guide here.

I would however play the short side via the Russell futures – at least 50% of my exposure. After all it does make sense to short the weakest index and buy the strongest.

Which brings me to the NQ which still looks weak but should we see a reversal today then here are your long triggers and the stop. This may change as the day unfolds – so watch this chart as it may paint a nice diagonal higher under which you can place a stop.

Once again I found a ton of juicy ST setups this morning. Here’s gold which I want to buy on a push above that diagonal I painted on the chart. A short position is definitely possible here until that happens – in that case put your stop above 1295.

Quite a few more goodies are looming below – please meet me in the lair:


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Anyone? Damn it, I don’t get no respect… (you have to be a sub to get the reference)

 

Scott’s Weekend Setups

As far as the stock market goes, we are in bounce territory, but whether we bounce from here or a little further down is unknown. We have a long setup, a gap open buy, but to my eyes this does not have enough risk/reward to be a compelling proposition. If we hit the trigger point I do advise banking profit on your shorts though.

In any case there are a few other setups I’m taking myself. Make sure you wait for the triggers though, no jumping in early ;-)

Here’s copper – shooting star short in down trend.


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Enjoy,

Scott Phillips





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