Major Technical Damage

Wednesday near the close of the U.S. session I really thought the ole’ Yeller had us all by the balls. If there has ever been an opportunity to squeeze the bears into oblivion then this had to be it. In yesterday’s musings Scott confirmed my notion that the series of lower lows and lower highs was still intact (barely) and that the bearish case was on the edge of extinction but still had a small chance of resuming. The odds were pretty minuscule IMO and early yesterday I kept checking the tape waiting for the invariable second shoe to drop.

But then suddenly something very curious happened:

In the last 20 minutes, someone has placed/canceled a 666 contract order in eMini 26 times $ES_F

— Eric Scott Hunsader (@nanexllc) October 9, 2014

Someone at Nanex reported a surge of selling orders (yes, I did find it on ZeroEdge – bite me) and the tape suddenly caved in as all of the other bots followed suit. And the world for the bulls will not be the same again – at least for a while, most likely not for the remainder of this quarter.

2014-10-10_spoos_volume_profile

Unless – yes unless we see an immediate surge right here TODAY the bulls will be toast for a while. I’m not saying we drop like a rock from here – there will be bounces. But in order to wipe a major stain off the bullish case immediate action is needed.

2014-10-10_spoos_overview

For we are about to paint an official double sell signal on the weekly E-Mini (and the SPX cash as well). We have a breach of the 25-week SMA as well as a breach of a weekly Net-Line Sell Level. That is bad medicine for the bears and today is the day to somehow make it all go away. In order to accomplish that feat a push above 1950 will be needed – 1960 would be better as that’s where we find the 100-day SMA right now. Bear in mind that both the 25-day and 100-day SMA held up for the fourth time now – that in itself is enough to cast some serious doubt as to whether the bulls are still in charge here.

2014-10-10_VXV_VIX

Not to count out any last minute Fed-sponsored Hail Mary’s but market makers seem to be agreeing with me that trouble looms ahead. Here’s the VXV:VIX ratio and it’s pointing straight down. I would keep an eye on this one today for early signs of divergences – also mind the VIX:VXO chart on the short term side.

2014-10-10_spoos_correlation

Our GBP/JPY equities correlation (based on carry trade activity) is also pointing in the same direction.

2011-06-05_AVG_seasonality

Now someone in the comment section pointed toward the final quarter as being a traditionally bullish period. And yes, he was absolutely spot on about that – that’s usually where the bulls rule the day.

S&P_percent_positive_monthly

And we may still see that happen but let’s look at October specifically. Contrary to common believe it’s actually a very bullish month – the numbers do not lie. But that’s not the whole picture – because it just so happens to have a little SKEW problem…


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You have been briefed – now have fun but keep it frosty. See you guys later this afternoon.

Cheers,

¡Ave, Mercatus, Morituri Te Salutant!

In principle all financial market operate in two alternating operational modes, both of which are aimed at evoking a reaction among active participants. It’s basic human psychology 101 exploiting the fact that the reptilian brain of us mere mortals responds to these two basic stimuli in a same fashion:

  1. If you chase something it will elude you. Also, evasion instinctively triggers a hunting response of varying degree (depending on personality type).
  2. Intellectualization is used as a defense mechanism for avoidance of pain. Self preservation is the mother of all rationalization.

The first one is a lesson especially men (mostly) learn the hard way during their teenage years and into young adulthood. And yes, I am talking about meeting and attracting the other sex - we all know how it works. The second one is a bit more complicated but a similarly basic human response. It all boils down to removing one’s self, emotionally, from stressful or painful events. Intellectualization comes in many many ways and it’s an extensive topic – in regards to the behavior of market participants we are specifically talking about evoking irrational/fearful acts in response to either an unfavorable/unexpected event or a lack of information/context which lures people into inventing reasons to resolve their emotional stress/pain by acting against their system rules or contrary to objective system goals.

2014-10-08_NYUD_lure_evade

I know – all that is quite a mouthful. But you’re in luck as this week has been a great opportunity to drill into this topic, so let me demonstrate this via the NYUD chart shown above. We see both modi operandi in action right there:

  1. Evasion.
  2. Luring the prey.

Very simply put – the market either runs away from you or attempts to lure you into taking (unfavorable) positions. It will pretend, it will lie – it will fake you out. There are exceptions of course and there are times when the odds are in our favor. The rite of passage for any trader is to identify those rare moments and act upon them.

Nevertheless without understanding how the game is played many fledgling traders may often find themselves unable to take action due to a recent thrashing, inverse exposure combined with wishful thinking, a strong personal opinion, the list is long. But the fact remains that the market very rarely give you perfect opportunities to get positioned. Yesterday was such an exceptional day and although a good entry does not guarantee success you must be ready to take action when it presents itself.

The vast remainder of market activity however falls into the two categories above – luring and evasion. In both cases it is aimed at evoking a reaction. For instance Monday and early Tuesday being short was a very scary thing and the tape was intentionally attempting to lure participants into abandoning short positions and acquiring long positions. Today however the opposite holds true – if you took a short position earlier this week then you are most likely feeling doubts and a host of other unpleasant emotions right now. To which of course there is only one answer:

2014-10-08_seven_of_nine

Exactly – emotions are irrelevant. If you yield to them as a trader you will constantly face emotional pain and self doubt. NOT a way to pass one’s short existence on this mortal coil. You should NOT care whether or not this campaign is going to succeed or what you could have done earlier this morning to avoid giving up your ill gained paper profits. The only thing that does matter is that you snagged a good entry and that your stop has been set. You didn’t seriously expect a setup in equities (the most manipulated market of all) to move unidirectionally? If you want clean trends then please forget about equities and visit us in the Forex or futures lair.

2014-10-08_SPX_LT

The realities on the equities side are as such: The bulls are in trouble and will remain to be until SPX 1960 at minimum and they’re not back in control until about 1970. Today’s jump higher is an attempt to regain the weekly NLSL which must by all means be recovered before Friday. Maybe they’ll succeed and maybe they will not. What matters is that you took the entry when it represented itself. The ES campaign on Thor already has its stop at break-even – nothing else left to talk about.

2014-10-08_spoos_update

Here’s the daily ES chart – all I’m seeing are lower lows and lower highs. Yes, we could be done here – I don’t have a crystal ball and there is no context nearby to suggest that a major low has been produced. Now if we push back above 1970 then the dynamics start shifting but until that happens we stick with what we have – which is short positions in equities and their respective stops.

2014-10-08_NQ_update

The NQ is the big exception – that 100-day SMA touch could signal that we it’s done here and it’s the perfect chance for the bulls to stage a counter rally. However I do caution you from chasing the market here – remember that’s modus operandi numero uno and it never ends well (for us). So if you want to be long – wait for a better opportunity.

Now let’s talk setups – we have a few juicy goodies waiting below the fold:


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Cheers,

Knocking On Heaven’s Door (Again)

Welcome to our morning briefing. Here we are reviewing short term setups ahead of the NYSE opening bell. If you are a scalper or swing trader then these setups may be of interest to you. As usual keep in mind that these are short term setups although they could be used as early entries for more longer term positions.

2014-09-18_spoos_hourly_briefing

The spoos are back from whence they came a bit over a week ago – the upper 100-hour BB line beckons and the bulls are happy to oblige. The BB is still expanding and if momentum can be maintained than a break above the 2010 mark may be in the cards before the Friday close. However, be warned – we are back in whipsaw territory – the smart play right here and right now is to be short with a stop above about 2007. Little risk for potential easy gain – if stopped out flip for long positions, unless it happens late Friday at which time we may be a bit late to enjoy a ride higher (you don’t want to sit on open futures positions over the weekend).

2014-09-18_silver_briefing

Not much going on this morning – we have a potential short here on silver. Frankly I’m not too excited about it but am playing it with 1/4 R just for the record. Stop above the SMA.

One more goodie below the fold – please step into my lair:


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 have been briefed – now have fun but keep it frosty. See you guys later this afternoon.

Cheers,





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