They tell me that connectivity kicks serious butt down there so I will do my very best to post the occasional comment cleaner and an appraisal of the prior session before breakfast (Korea is 13 hours ahead of NYC). Obviously I don’t have all my charts and my entire setup down there so it’ll probably be quick and dirty. Of course now that I’m leaving the tape is probably going to make some major moves – it never fails – LOL

Quite frankly, I’m super excited as I always wanted to go to Korea. I’m a pretty serious tech nerd and the entire mobile and display industry down there puts the U.S. to shame. Plus I love the language, the food, as well as the people – so this is going to be a big treat for me. If there are any Korean steel rats in Seoul with tips on where to have a good time – you can reach me at admin at evilspeculator [and the dotcom stuff].

Alright – I have a little good news chart for my intrepid subs – here we go:

Charts and commentary below for anyone donning a secret decoder ring. The rest of you guys will have to wait until tomorrow – sorry. 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 it includes access to all Gold posts, so you actually get double the bang for your buck.

Please login or register for Zero Data Feed or Evil Speculator Gold or geronimo/ES or evil.rat/ES to view this content.

That’s right – you may be fooled by the eerie silence but the bears are fighting the battle of the bulge.

I am absolutely fascinated by the clarity and continued observance of this channel. Quite frankly – over the past few months I have come up with a number of indicators and charts that served us well but IMNSHO this rather primitive channel (which admittedly I discovered way too late) beats them all.

But there are implications of great consequence – if Von Rundstedt can mobilize his panzer divisions and produce a close outside 1100 on the SPX the bearish allied forces may yet be smashed into oblivion.

The daily Zero is currently painting a GTC fractal – though bear in mind that the day has not complete, thus we may see another spike up. If it resolves it may produce a quick reversal but it is in no way indicative of a P3 scenario – let’s be clear on that. Adding fuel to the 34th infantry divisions is the smoothed center panel which remains stubbornly bullish. Thus, my current assessment is that a quick and potentially deep reversal is possible but may just be an attempt to shake out some Johnny-Come-Latelies.

We are two steps into an equities sell signal – another close above today’s close will be needed. However, the problem here is that we pushed up quite a bit despite the fact that we are only about 10 handles below Friday’s highs. Although I personally still believe that risk and volatility is far from being properly priced in here I do think that this move is a bit suspicious. But if we get confirmation tomorrow then I will most certainly entertain a medium term downside potential. Until then I’m not going to fall for any traps.

That’s the original version of my SPX:VIX ratio chart. I post it here as it uniquely describes the ongoing trend as well as the transition periods. Where we are right now resembles the shift in sentiment observed in late 2008 into 2009. So, it’s possible that we are inside the early stages of a primary degree down wave. But it also could have been simply a big correction and as long as the blue line is above the golden one nothing long term bearish has been confirmed.

Bottom Line:

I’m currently taking a wait and see attitude. The potential VIX buy signal should not be ignored. Neither should the GTC fractal on the daily zero. However, that particular pattern on the Zero is usually a few days early and we could see another strong up day or two until it resolves. So, don’t bet the farm here, as tempting as it may appear. If we get confirmation on the VIX tomorrow then I may want to add a few more positions – thus far I am however extremely unimpressed with the signal on the hourly Zero and the Lite. Which is why I am playing it small – I caution you to do the same until the signals all fall into place.

Long term: The bears are on their last leg here. Much more upside and the bulls may just reach escape velocity and push all the way into Berlin. Another reason to keep your powder dry – you may need some to play the upside should this turn out nothing but the quiet before the storm. We’ll know in a day or two – right here and right now everything remains in play.

Courtesy reminder – today is a POMO day. Watch your six.

Cheers,

Mole

Now we may see a short term reversal here as this is where retail traders usually start chasing – but anything more sustained is a completely different story. And this is not a disgruntled or discouraged bear speaking – after all I have contrasted bullish evidence with my bearish charts for months now. No, I’m dealing with the facts only – any emotions have long gone by the wayside. Trading this tape is like making it through Combat Marine boot camp – you know it’s gonna suck, so you better smile and enjoy it.

But Mole – isn’t this exactly what the boyz want you to do? Give up just before we drop? Sorry folks – but that argument is getting pretty stale at this point – I remember tons of folks throwing in the towel over a year ago. They are all gone – you may remember their names – and most of them have gone back to their ‘day jobs’ – if they were luck enough to have one. No, this is not about psychology anymore – this is all about time – and more specifically theta burn. I know this market is going down – eventually. When exactly? Sorry – my crystal ball is still in the shop. So let’s just stick with what we got right now.

Maybe we’ll drop from here – yes possible – but that’s not the point! You can’t trade your emotions – you can’t trade on a sense of vengeance or retribution. That’ll get you killed in thirdy seconds flat. Alright – I bite – let’s just assume for some reason we gap down from here next Tuesday. So now what? What will happen at 1040 or 1020? Are we suddenly going to see bulls running for the hills and bearish tape devoid of any counter spikes? Express elevator to 980? What are the odds of that happening at this stage?

Exactly.

So, let’s look at some charts and then assess the odds right here. With each chart I will also suggest the type of readings the bears *would have to see* in order to see some a meaningful drop. After all – you can’t become disgruntled either and turn into an anti-bear (or an anti-bull for that matter). For any mental predisposition will invariably lead you to interpret charts the way you want them to see.

For that very reason I will also show you what the bulls want to see in order to sustain the current short squeeze rally. For if we push much higher from here we are looking at some mighty upside scenarios, leading into October and possibly into the next year.

This chart has been among my favorites as of late. It’s a simple channel and it is crystal clear. Once we saw a triple bottom the odds for a snap back increased significantly. And the bulls played it masterfully – faking a bit of downside and then slammed the pedal to the metal. We smashed right through the center ‘equilibrium line’ and now find ourselves at the upper 25% mark. Back to the future.

Now, quite obviously this is a good spot for a little reversal. Maybe we’ll drop back towards the equilibrium line. But the ‘dynamics’ of the game have now changed from down to up. Meaning that prices will have to drop through the equilibrium line and lower for the bears to even have a smidgen of a chance to conquer 1040 or even 1020. And than now seems lightyears away. Beam me up Scotty!

The bulls most likely will consider 1075 a nice dip buying opportunity – assuming we drop that low. If we bust straight higher from here on Tuesday then it will lower the odds for the bears even further. And finally a breach of the upper channel boundary around 1130 changes the entire game as we are then talking about an inverse H&S formation. We would have to see some significant divergences in various of my indicators to even consider fading such a move.

My ratio divergence chart between the SPX and the VIX has been in bearish territory but flat. As long as we stay below the zero mark the bears have a fighting chance medium term. But the type of stalling momentum we have see in the past two months (see blue rectangles) usually does not lead to major downside. So this one is pretty easy: We need to see expanding downside momentum in order for P3 to have any medium term probability. I think I made this point a week or two ago: Just look at the trend degradation we saw in mid April – that was beautiful. And what followed was a major drop that severely upset the longs.

For the past eight weeks or so the bears have been dressed up but nowhere to go. And if that goes on for too long there is a growing threat of a major sideways correction – in that bearish sentiment pushes to extremes without any significant downside. My take remains that any continuation of major downside will be preceded or at least be accompanied by a growing divergence between the SPX and the VIX. And that should show up on this very chart.

Similarly the longs may want to look out for a weakening of bearish readings right here. If we start pushing into green then the jig is probably up for a while as that would represent an inflection point for a move higher.

I have not shown this chart for a while, which is a shame as it’s a pretty good one. Simple RSI_EMA on the ES futures. Observe how we again painted a divergence around 1040. That was followed by a triple bottom – not good – and the rest is history.

Right now I don’t see any divergence here – the signal looks healthy. Maybe that’ll change early next week but until that happens I caution everyone to not get too excited about the short side here. It’s much easier to be reactive than to to be anticipatory in this tape. You can’t trade on a hunch – let the charts give you reasons to take on short positions. Again, bear in mind that this is a long term chart – so it will not show any potential for a quick reversal here.

And here’s the daily Zero again. It may be tempting to associate fast spikes in the signal with topping formations. However, I have drawn some arrows on similar fractal patterns and they seem to be a lot less reliable than the spikes to the downside. So again – the potential for a snap back exists but it may be short lived and may lead to further upside.

When would we start looking toward the downside again on a more extended basis? Look no further than the smoothed version of the daily Zero (the center panel) – and at this point it remains solidly and stubbornly above the zero mark. And as long as this continues the odds belong to the longs.

Again – look at what happened in early April here – the signal deteriorated and prepared the way for some further downside. Which is exactly what we got. However, since early July we have been spending more time going up than going down – so the signal has been correct, despite the fact that we had a three week drop in between. After all – this is a longer term trend indicator and except for downside fractals on the bottom panel the medium term panel shows us the ‘path of least resistance’. Remember Jesse Livermore? He always kept going on about the path of least resistance and I’m convinced that he would have loved this chart and probably bought the heck out of the 1040 dip.

I will skip the wave count chart until I see levels that are of interest. Right now I believe that counting waves is counter productive as there are too many scenarios I can imagine and none of them give me high confidence. Showing you three or four different Soylents would be unproductive as I cannot identify a clear trend here – thus counting waves would be an exercise in futility. If we had a third wave to the downside I would use the wave count to identify targets and dip buying opportunities. And if we bust higher then I can propose upside targets. But right now we are a bit in limbo and thus fractals and momentum charts rule the day for me – I hope you all concur.

Public Service Announcement:

This will be my last post until Tuesday, thus consider this to be my weekly update. It’s been a long and vacationless year for me and the ole’ Mole needs some time off. Besides I don’t think many of you will be around during the long Labor Day weekend.

Truth be told – as I have tasted blood I will most likely continue coding and optimizing my black box strategies. Thus far I have mainly focused on systems running against the ES futures but recent trading volume reports strongly suggest that the FX side is something I should explore more deeply. I have done some preliminary testing of various base strategies against the AUD/JPY and the EUR/USD FX pairs and they fared very well, which is encouraging. So, there is much work to be done.

Let me wish all of you a wonderful late summer Labor Day weekend. I strongly recommend that you recharge your batteries by spending time with your loved ones. If you don’t have one – don’t worry – you have a few more hours left to find one. Just forget about the market for a few days – believe me, whether you think about it or not, it will be there next Tuesday in all its ignominious ambiguity.

Anyway, it’s all fixed now and I’m a happy camper again. Yes, they screwed up their last release but it is clear they are working hard to help everyone roll back to their previous setup. If you have any trouble at all – just email support@thinkorswim.com and they will help you out. Even with all the recent trouble I maintain that they are the best platform for retail traders, period.

Anyway, now back to the markets. I’m posting this chart in the clear as I think everyone should see it after what transpired yesterday while I was on the train South. And I’m not ashamed to admit to this being a plug as this chart continues to keep dominating all others. Some of you subs are familiar with it as it’s a recent edition to the team – the daily Zero.

For the past two months the daily has been pointing upward, much to the chagrin of any bearish subs who have learned to respect it. It’s almost become a daily routine now – after the closing bell I pull up the daily Zero and upload it to the server. And every time I do it I am on the look out for a more negative signal which would be an early harbinger of structural weakness and thus short to medium term downside.

But as you can see – the daily Zero has been stubbornly pointing up. And guess what – thus far it continues to be proven right. I’m not sure what’s making this market tick, and despite the fact that I wrote the damn thing I myself am surprised by the level of reslience that equities have been exhibiting in the face of a relatively firm Dollar, plunging treasury yields, horrible economic reports, etc.

Listen guys – if you’re like me you have been reading hundreds of opinion pieces and studied thousands of charts trying to figure this market out. Yeah, you can do that and maybe you somehow manage to call the wiggles in this tape. Or – you can just follow the Zero

There are three of them now. The daily is the latest edition and it’s really growing on me. The hourly was the original Zero and it shows us nice divergence across daily sessions. If you’re a swing trader or even scalper the Zero Lite is where all the action is. I can’t tell you how often it has kept me and my subs out of trouble – in particular ahead of head fakes. Anyway, if you like what you see and are interested in becoming a Zero sub then don’t waste time and sign up here.

Alright, now after this shameless plug I want to respond to Tim Knight’s post from earlier this morning. I tried to get him on the phone but he seems in bad spirits, so I will address it in an open forum as I actually meant to encourage him. This is what Tim said:

Two important questions I’ve been posing to myself:

Why not just resort to day-trading? It’s tempting. When I read about nummy having something like 28 profitable days in a row, and Market Sniper having – what was it? – something like 50 – - not to mention day traders not having to worry about overnight gaps, it is horribly tempting to throw all the knowledge I’ve built over the past quarter-century into the shredder and just take that approach. But, simply stated, that just isn’t me, and it’s not my style. There’s a reason I approach the markets the way I do; sometimes it works brilliantly; sometimes it seems foolhardy. Lately, it seems to be more of the latter. But throwing my arms up and completely changing styles just because I’m frustrated doesn’t seem prudent to me, although I’m willing to hear other opinions.

Mole: You are worried about throwing away the knowledge you accumulated over the past few decades. That’s understandable. However, you ought to ask yourself what good ‘knowledge’ is when it ceases to serve you? I study martial arts and an aphorism in Aikido – which has only two belts, white and black – is that as you gain more proficiency and work hard you finally are being rewarded with a black belt. Then you keep training and as you do your belt starts to fade and after hundreds or thousands of washing cycles fades back to gray and then almost white again. This is representative of the fact that in martial art you have to learn all these techniques to master an art. And then you have to forget all of them – in a sense, you complete the circle. You have to make them your own – they have to become you. And at some point you don’t think about techniques anymore – you just move when necessary and your instincts will tell you what to do. But those ‘instincts’ is the accumulation of what you have learned and practiced for years and years.

Now, I’m not saying that you should trade via instincts, that is not what I tried to communicate. Rather, I suggest that you should not be afraid of throwing away anything you have learned and that may have served you in the past. I just recently switched from Aikido to Systema, which is a Russian system I am really starting to appreciate. But guess what – many of the things I learned in Aikido I now need to abandon and I again am training with the white belts. Of course I do have a bit of an advantage, but you can’t walk into class and think that you are a hot shot and that you think you know something. That’s a mental block and it will lead you to not learning anything new. Plus it’ll lead to getting your ass kicked – hehe

Maybe that’s why we are mortals to begin with. We accumulate too much baggage and knowledge that may not be applicable as times change. But even within our times we often find ourselves unwilling to embrace change – despite the fact that change is the only constant in the universe. Now, in terms of trading it is very clear that this market has changed considerably in the past few years. And I’m certain that it will never revert to what it used to be – traditional technical analysis simply is unable to offer the type of edge we were able to enjoy for the past few decades.

Phoenix From The Ashes:

But this is also an opportunity to excel to the next level. I have been spending a lot of time working on new automated trading systems lately and yes – they are all intra-day systems. And not just swing trading strategies – most of the ones that seem to be unaffected by the daily gyrations and gaps of the past two years are running on a 1 minute chart. So there – we can argue with what we think what’s ‘right’ or what we want this market to be – or we can just accept the market ‘as is’ and develop tools that offer an edge. I choose the latter.

What worries you more than anything? It isn’t pre-election shenanigans; it isn’t monthly OPEX silliness; it isn’t the Fed; it isn’t Geithner. What worries me above all is…….what if I’m wrong about the economy? What if all this government intervention, in the end, turns out to be a brilliant stroke, and it really does set the economy on the road to a robust economy complete with healthy, growing earnings, growing employment, and worldwide prosperity? What if my sense of “balance” and “natural” is just misguided, and the modern knowledge of economics has yielded a situation where things simply aren’t going to roll over again? I have no answer. That’s simply my question.

Mole: What we ‘believe’ does not matter. The market is smarter than you, I, Prechter, or anyone else out there touting that they have seen the future. Quite frankly, I can show you some probabilities via my wave counts and many times I nail it spot on. And then there’s that sudden move that nobody anticipated – maybe I was suspicious about what preceded it (i.e. my comments to the Zero subs last Thursday) but did I anticipate a spike like we saw yesterday? Hell no – and neither should anyone for nobody has a crystal ball (except Goldman Sachs). Your sense of balance and natural wave form is very honorable and probably spot on, Tim. But you may be limited by your human perception in that you want it to happen now when you feel a redemption is overdue.

Well, sorry to disappoint you, my friend – but there is no ‘fairness’ in war, love, or the financial markets. If I have learned one thing in my life is that the big dogs get away with pretty much anything while the poor minority group schmuck who’s trying to feed his family via some desperate and act like robbing a gas station for fifty bucks gets thrown in the slammer for over a decade. That’s life – and although you have experienced success in your personal life do not make the mistake to think that any of us are excempt. Life is a bitch and then you die.

The market will do what it wants to do. All we can do is to follow the signs and then do what we have to do to survive and fight another day. Another lesson I have learned is that half of winning the war is to surviving and being able to fight another battle. Thus, instead of complaining I am spending my energy focusing on new tools and systems that are impervious to news, manipulation attempts, FOMC statements, etc. I think I am making great progress and to me it is clear that the future is in automated trading.

Bottom Line:

In the coming months Evil Speculator will slowly shift its focus from traditional technical analysis to automated trading and selected tools that provide a clear edge. The Zero is one of them. Geronimo is another. But there are more to come and I’m just getting started.

Cheers,

Mole

I swear – it wasn’t my fault – I slipped on a banana peel and fell on the ’steam forward’ lever. Ahem…

Charts and commentary below for anyone donning a secret decoder ring. The rest of you guys will have to wait until tomorrow – sorry. 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 it includes access to all Gold posts, so you actually get double the bang for your buck.

Please login or register for Zero Data Feed or Evil Speculator Gold or geronimo/ES or evil.rat/ES to view this content.

Public Service Announcement:

There probably won’t be an update tomorrow night – I will catch up with you all on Thursday morning, for sure.

Cheers,

Mole

Except that there was none today and the bulls found themselves in a sand trap. Which puts the odds back in the camp of the bears – thus far

Charts and commentary below for anyone donning a secret decoder ring. The rest of you guys will have to wait until tomorrow – sorry. 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 it includes access to all Gold posts, so you actually get double the bang for your buck.

Please login or register for Zero Data Feed or Evil Speculator Gold or geronimo/ES or evil.rat/ES to view this content.

The financial establishment is fighting for its survival – with tooth and nails – as it has been for the past two years. They have used every trick in the book and some unprecedented ones that hadn’t been written yet. They’ve gotten every break and get out of jail pass one can possibly imagine – but despite having the wind in their backs the upside momentum has stalled for about one year now. But don’t underestimate them for a second – until the fat lady sings the incumbents will continue to do exactly what they have been doing and they will never ever give up.

For their survival depends on it.

We now find ourselves at a major inflection point and the big question that remains now is whether the deflationists or the inflationists will win the war. Robert Prechter and friends insist the Fed can’t possible stem the bursting of the credit bubble through continued quantitative easing initiatives. I used to be convinced of that – but having seen what I have seen for the past two years I’m not so sure anymore. I’m also now mindful of various and concerted currency games which seem to provide almost infinite support and thus a permanent floor to equities.

So perhaps the combined forces of banksters worldwide may somehow get the job done and simply socialize those losses to the rest of us – thus in the process finally destroying what ever remains of our teetering middle class. We shall see – either way we’ll probably see some fireworks before it’s all said and done – and I’m not talking about hypothetical ones.

Whatever we’ll get – I’m dressed for the occasion (yes, I’m almost that handsome – well, almost). Now, that I’ve set the stage for you guys (and have the attention of the girls), let’s look at some charts:

The least important chart today is our wave count. Quite frankly – it’s quite clear at this stage that we are in a downtrend that either resolves itself or may paint a bottom and turn into something else.

Clockwork Orange keeps us locked in that current down channel. Which means we may pop a little on Monday morning but then reverse and paint new lows later in the week.

Soylent Green territory begins after 1070 – if we push much above that we will see many funds throw their weight behind a wonderful short squeeze opportunity. Either bears or the bulls are getting squeezed next week. The bears most likely early in the week and if we push higher quite possibly the bulls. I may however point out that if we don’t turn around at the 1100 mark then we’re talking about something completely different. But we’re not there – so let’s not worry about that yet.

But those are just the current high probability scenarios going out for a week or two – what’s a lot more important here is that the current count does not leave much more room for further sub divisions – at some point this bitch has to drop like a rock. After all this is what should be happening around here. In 2008 we had a similar situation and it was driving everyone nuts. I was telling Berk how the slide was overdue and that it simply wasn’t happening. Then it happened – suddenly – without warning – fast and hard. By the time everyone realized what was happening it was pretty much over.

So, when I say that it needs to happen now then it doesn’t mean that I can’t happen. What I’m saying is that it needs to happen by early October – and by that time it should be almost over. So, that leaves us with a very narrow window for a big slide. It has happened before – and there is no doubt that it can happen. But the important message to take away here is that the whole ‘waiting for Godot game’ we had to put up with will come to an end in early fall.

Now that I have shown you the least important chart let’s look at the most important chart for next week. I posted this one last week while we were hovering around that equilibrium center line of that one year channel I suggested. And sure enough we reversed right at the 25% mark – which coincides with that magic 1040 level the funds have been having fun with for the past few months now. Buying the dip here has been a literal gold mine and like Pavlov’s dogs they will continue to do it until they get their ass spanked in a serious way.

The higher we climb in this chart the less credible the short/medium bearish scenario. At the center point the odds are about 50/50. If we push to 1100 the bears have one last opportunity to squeeze the bulls and turn this market to the downside. At the top line around 1130 the odds for the bulls will have increased significantly compared with the odds around 1140.

We need to clear this channel – one way or the other. If we push above it the bears will be in a world of hurt as the ensuing feedback loop will bring buyers back to the table. I’m not sure that’s what the Fed wants – after all a climb in equities supports rising yields in treasuries. But their game may be something completely different and I’m not putting any of my coin on anyone’s interpretation of the Fed’s game. If we breach 1130 I will anticipate further upside and will trade accordingly. Unless of course my momos scream sell sell sell at me. If that happens – well, I will be here to tell you all about it.

If we finally breach 1040 and then 1020 it will be a starting signal for what Primary {3} – there is very little doubt about that. The majority of the longs will draw their line in the sand right there and should we breach it will most likely head for cover. Maybe politics and the November election make this scenario questionable – at least that’s what some claim. Then again – it happened in 2008, didn’t it?

The daily Zero has been pretty lackluster as of late. Just compare the magnitude of spikes we saw early in the year with the snooze fest we had to put up with since mid of July. Yes, that may have been merely seasonal, and if that’s true then it gives additional credence to my perspective that September will be the make or break point for the bears. The big boys are returning now and we should see considerable increase in volume and participation.

The last buy signal we got (see dotted line) was pretty weak and it was only good for a moderate bounce. Thus far we did not see a new low accompanied by a major divergence. But then again, we did not see a big spike down either that would signal that bearish momentum was on the rise. So, I’m split here and thus the odds are split in my mind as well.

Copper started to point up last week and – to no surprise – equities followed suit. Note however, how equities have lagged in comparison with similar levels in copper. This suggests that bullish moves in equities are lagging those we see in copper – a bearish indication. Nevertheless, we are also at a pretty important level for copper – which I have tried to highlight via a blue rectangle on the lower panel. But it’s actually a lot more clear on the point and figure chart:

See, isn’t that so much nicer? I love P&Fs for support/resistance lines. And copper just touched the 340 mark which should pose quite some resistance. If it breaks above then the bearish price objective of 296 may have been revised. Maybe some P&F aficionados can chime in here as well. I have the rules somewhere but don’t have the time to dig them up tonight.

The message to take away here is to watch copper like an eagle. A breach higher would be another ace in the sleeves of the bulls.

My gold:silver ratio chart plotted against the SPX also has touched my one year sell line. Usually bearish things happen at this lower diagonal and this time should not be any exception. Again, a breach here may greatly weaken the short to medium term bearish scenario in equities – so I will be keeping an eye on it.

Currencies is really where the game is being played these days. The AUD/JPY has seemingly been set up with a turbo charger running on high explosive mix of nitro, fuel and oxygen. Seems that the BOJ has had it with lagging exports and is putting the squeeze on the Yen longs by buying the Australian Dollar. Maybe some FX traders could shed a bit more light on this for the benefit of us all.

We are close to the breaching the upper line on my stochastic but that doesn’t mean much. We may push above and become embedded after all – so who knows how high this thing may climb. And that is probably the most worrisome chart for the bears – if equities follow suit here then we’ll see 1100 on the SPX in a very short order. But if it lags then it will give the bears additional ammunition for a long squeeze once the AUD/JPY rolls over.

The DXY is clinging to 82.87 – and not seeing the Dollar getting killed is a plus for the bears. After all, the 18 month climb in equities has been greatly fueld by stomping on the Dollar in the process. You may remember the chart I posted last week which showed the SPX valued in Gold.

Bottom Line:

It’s now or at least not for quite a while for the bears. I won’t say never of course. But the wave count does not give us too many wiggles to postpone the grand finale here. If this is a Minor 3 of Intermediate (1) then it needs to start showing its colors. And the A/D ratio of 5.0+ we saw on Friday should be an anomaly that cannot be followed up – otherwise we have to concede that something else is going on. That simple.

Public Service Announcement:

In the past month I have again put additional emphasis on refining some of my automated trading strategies, with quite some success if I may say. A major reason for my revived focus is a growing realization that the retail trader is slowly going the way of the dodo. I love you guys but just don’t think there will be many of you left in one or two years from now. The market simply has become to complex, narrow, and brutal. And as the old saying goes:

If you can’t beat them – join them.

Now, I have been blessed with some pretty considerable programming experience – after all I used to be a software engineer for 15 years until I decided to retire and focus exclusively on my trading. That however doesn’t mean that I stopped hacking code – quite on the contrary: I merely had become tired of working on other people’s projects and quickly found that my skills were a lot better used working on trading strategies. I seem to have a knack for seeing patterns and putting my observations into code and thus working strategies is a very rewarding endeavor for me – mentally as well as monetary.

Incidentally, the strategies I am testing and continue to optimize until I am ready all have been back tested starting January 2007 to the present. The reason for that is that I believe that any strategy which was able to survive the past four years should at least have a fighting chance moving forward. After all, we are talking about some very dynamic and contrasting market conditions here.

There will be several announcements in the next few weeks – and I believe you will appreciate the kind of stuff I have been cooking up. And over the next few months you may see a slow shift towards automated trading. Some of it in the same fashion as Geronimo or evil.rat – which means via email or SMS notifications. But I may also finally hook into Collective2 or a similar service and thus give you guys the opportunity to trade various strategies through an automated framework.

What concerns me a bit is that Collective2 takes a big chunk out of my profits and being the greedy market megalomaniac that I am it would be preferable to find a different solution. So, if you are reading this and know of a better framework please let me know – I’m open to anything as long as it represents a viable and secure solution.

See you on the other side, folks.

Cheers,

Mole

The most meaningful chart for me is one I presented a few days ago:

You don’t have to be a master chartist to imagine how this may be a bad situation for the bears. Not only did we bounce at that 25% channel line again – we did so in short succession, thus painting a very ominous double bottom. Not good!

NYSE A/D ratio is at 5.27 right now – and that’s quite bullish, possibly supporting a move higher.

The wave count is getting a bit gritty at this point. I’m not going to sugar coat it – we should not see such a wave formation at this stage. Fast retracements – yes. Opening gaps – yes. Fake out moves – yes. But a double bottom right here in a third wave? Very strange…

Now, I’m not going to throw in the towel right away. It is possible that we are painting some complex sideways pattern, which after bending a rule or two will lead to a count that satisfies Clockwork Orange. However, it would be foolish to not consider a more insidious scenario – one in which we just completed a very shallow Minor 1 down and are now pushing into a Minor degree retracement which could take many shapes (and burn more theta).

The game here seems to be quite simple – and it’s the one you’re all feeling: This is all about theta burn – delaying the down move as to further discourage the bears. Unfortunately it’s working as I may have to yet again add more theta to my long term positions.

Of course what’s driving all this is the AUD/JPY – and I don’t see this thing turning any time soon. There are some huge currency interventions taking place here and if equities (and the ES futures) catch up it’ll be one hot late summer for the grizzlies.

I am increasingly starting to feel like Michael Burry who a few years ago bought credit default swaps to bet against the sub-prime mortgage market. It’s a long story - but one you may appreciate. The banks selling him the swaps fucked with him all the way to the end – until they finally had no choice but to shut up and pay up. Suffice to say – all through his ordeal he didn’t have many friends. This is no consolation and no – I don’t want to be a Michael Burry. If I see any indications that we are pushing above the center line on my first chart I’m going to head for the hills.

Anyway, we are at Defcon 2 here at the Evil Lair – I don’t like this tape and we better reverse here righ away or bad things may happen next week. Thus far I’m sorry to say that it’s not looking good at all.

Cheers,

Mole

Well possibly – but I have an inkling we may have to endure a bit more of this. Let’s look at our map:

Clockwork Orange has us push us lower straight away as we nailed my initial 1060 target. Soylent Green has us screw around a bit more to complete a b-wave and then pull up hard into a gap fill at 1067. From there we’ll drop even harder, so the difference between those two scenarios is almost academic for long term traders. You ADHD suffering swing traders however should take note.

Both scenarios have a fair chance right now, especially since we just breached a pretty persistent 1051 support line on the ES futures. The Zero readings on the way up have been flat as a flounder, thus supporting a mere corrective move.

The long term trend continues to look solid. However, I would enjoy seeing longer red candles at this point – we are dangerously close to the zero mark on this histogram. But as long as we don’t push into green and expand we should be okay. If anything changes on this chart I will let you guys know immediately.

Don’t over think this – there is not much to do. You are not smarter than the market – no matter how much information you collect and how many charts you look at. We can only do so much in order to determine the odds. After that it’s up to the market to point us in the right way. So far it continues to point down.

UPDATE 12:00pm EDT:

Zero subs probably understand the meaning of this – we just played a very nice H&S formation on the ES futures.

Prost!

Mole

Boy, whoever hit that one is a lousy shot – especially with such a small caliber. My trusted CZ P01 (9mm) clears the center at 50 feet – amazing semi-auto. Any rats resident in L.A. up for a shooting match?

We painted another clean motive to the downside and are right now halting after at a 38.3% fib retracement. Could go higher tomorrow – I like the 1060 cluster but we may just close that gap and push into 1067. However, if we push above 1081.58 then the wave count changes considerably. Thus this is the level where I would recommend to start scaling getting hedged a little on your long term positions.

That’s pretty much it for now – there’s more but I wanted to get this posted during the session.

Cheers,

Mole