Tuesday Morning Briefing

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.

As Ivan pointed out overnight we have a potential fake-out sell setup on the daily spoos today. However the trigger is quite a few handles away at 1829.25 and that candle is pretty large thus affording us only few contracts given the stop above 1856.75. So all in all this would not be my favorite setup to get positioned should we indeed have painted an exhaustion candle. There is a decent change we’ll produce an inside candle today which would be much more preferable.

But alas – let’s not put the cart in front of the horse – after losing much of my ill-gotten gains late in the session my longs from yesterday are still in the running. Given that we almost reached 1.2R yesterday, and this being a discretionary trade allowing me to consider the overall context, I have cheated by a tick or two and advanced my stop to the old Net-Line Buy Level (two ticks below my actual entry) which still sits at 1840.25. Prices almost grazed it overnight but thus far it is still holding.

Besides there is some encouraging development as the GBP/JPY appears to be producing higher lows and higher highs – as evidenced by the diagonal I painted. Let’s see if that was merely a shake-out attempt or if we are indeed gearing up for a more pronounced correction. As of this writing the bulls still have a chance to get their act together and bounce back higher. Below the 1840.25 NLBL things get a bit more difficult.

Still thin on the setup side – many futures contracts just rolled over and Forex is a bit of a mess right now. As I said yesterday, I caution everyone to limit their exposure to 1/2R at most. The one interesting chart this morning is cotton which is retesting its 25-hour after a valiant push higher. I am pretty familiar with this type of configuration – usually they resolve in a volatile manner, meaning a large move to either side of the inflection point. In this case that’s the SMA – which is why I am currently long with a stop below 88.85 (the current low of that hammer).

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Scaring The Children

Scanning across the financial blogosphere I’m seeing the usual suspects pimping spurious predictions based on their respective preferred market directions. The Mole will be the first to admit out that it is impossible to know which way this puppy will swing. Market makers are having fun jamming both sides today which accounts for some of the fake out moves we’ve seen earlier in the session. If I was still wave-wanking I’d say that a fifth down may be in the cards but it’s equally possible the tape is catching ground here. Fortunately I have long given up the prediction business and have in the years since instead focused on technical inflection points. Retail however expects directional predictions and if possible for free – which is why the first floor of the woodshed usually dons longer lines than that of a Las Vegas night club. Moving on.

The subs remember this chart which I posted a few days ago – this is the zoomed out version as I wanted to provide a bit more context. The other day I pointed to the 1.0 mark of the VXV:VIX ratio indicating that anything below it suggests that a bounce is in the making. If you take a step back however you realize that we actually have been in a slowly falling channel which suggests that the pricing of three-month volatility vs. 30-days IV (i.e. the VIX) has become more sensitive on the upside and less so on the downside. In other words – it takes a lesser ratio of the VXV versus the VIX on the upside before we see a reversal. The same applies on the downside apparently however there the signal spikes produce a more uneven distribution pattern. What does that mean? The market has become more sensitive to volatility deltas since that big spike up in early 2012.

Where we are now IMNSHO delineates the zone between shallow and deep medium term corrections. Although that does not help us pick a direction right now today it does convey one important point however: IF we continue downward from here or if an ensuing bounce is weak then it’s possible that we will see a deep correction as we’ve seen in 2010 and 2011. Technically speaking this would be a healthy event and I would welcome it – if nothing else it would offer a lot of new technical context for all of us.

Alright – on to equities – the spoos are bumbling around inside their compressed 25-hour BB. As I pointed out above – very tough to pick a direction here. Bears will look at this and expect continuation lower (per the comments I have seen already), bulls will expect a bounce higher. Which is the tape MMs love and take full advantage of. I am ambivalent and technically speaking the inside day on the SPX triggered this morning and may be stopped out today. It’s a tough ride down here and it may take a few attempts to get a seat on the right bus.

The TF futures went deep today – obvious attempt to scare the children. All of it has been recovered since which does suggest that there is a buyer down here attempting to stave off more damage.

The NQ more bullish and attempting to push above an hourly Net-Line Buy Level a few ticks above the 25-hour SMA. Very notable here is the 100-day SMA which held up just famously. So that should be a support level we may be able to enjoy on the NQ while the previous two are pinned somewhere in limbo on the daily panels.

May I remind you that our P&F on the SPX is still pointing downward and based on the current formation I think that 1740 is our new inflection point on the cash. If that one goes we are visiting 1680. Of course a small bounce in between cannot be ruled out and would not disqualify this scenario. The bears are not in trouble until about 1765 after which this chart would produce a low pole reversal warning.

Gold also triggered an IP-L this morning and has since fallen back. Good news however is that the 100-day SMA has finally been touched. You may recall that I was a bit bemused by that invisible resistance line hanging just below it. At this point I will hold this position with my stop in place.

Natgas – talking about scaring the children – this is why Scott and I call it the widow maker. You recall that I advanced my stop to the 1R point last night and that’s where it got touched. Which is just fine with me – I’ll bank one unit and am happy to be alive to tell the story. You don’t mess about when trading natgas – she can be quite a bitch.

A few more futures goodies below the fold – please join me in the 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!

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Cheers,

The Session After

I have been cruising the comment section and am elated to actually see folks show up for work and exchange productive discourse. That’s the type of collaboration I had in mind when I hatched the evil lair in the first place. So keep it coming folks and if you’re a noob don’t be shy and jump right into the fray. We’ve got a solid crew here doing their thing each and every day and you may just learn a thing or two. Knowledge is power – well, at least it can’t hurt ;-)

Let me get you guys on track with the equities side. Depending on your entries I trust you’ve moved your stops down to the 1R or 2R point. I’d be surprised if it triggered already and per the rules I wouldn’t touch it. However after yesterday’s wipeout it’s no surprise to see us in a sideways range-bound session today and that’ll probably complete as an inside day candle. Which moves our stop to 1,785.73 on the SPX – that also would be our long entry for tomorrow.

Most likely you played the spoos so here are those as well for your convenience. Each side has good odds in my mind – at this point I have no directional bias. Medium term this can easily continue lower and short term a little bounce wouldn’t be much of a stretch here.

If you played the YM then you’ll be enjoying a very teeny weeny IP starting tomorrow’s session (i.e. post 4:15pm EST tonight). I actually may dip into a few longs if we trigger 15,417 later tonight or tomorrow morning.

Natgas – boy, that one really took off like a rocket. Already printed 1.5R and that means you’ll advance your stop to 5,223. Congrats if you jumped into this one. The futures have treated us well lately and I have got a few more waiting below today.

GBP/JPY – not sure where/if you got your entry yesterday but if you’re in this one then advance your stop to the SMA or your b/e point today. Good show – I really like this one but be prepared for a last kiss goodbye move.

A ton of goodies below the fold – please grab your secret decoder rings:


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.

Cheers,





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