Equilibrium

What we have been experiencing in the past week is a raging battle between the same hardcore bulls who’s been driving this thing higher for the past few months and a newly (re-)emerged pack of bears with seemingly deep pockets. I also see distinct indications of institutional profit taking. Could it be that the big bears are slowly coming out of their seasonal hibernation?

With the finale of the month of August we are happy to announce that bull hunting season is now officially in session. Thus Evil Speculator recommends that you start picking your victims and also encourages you to blatantly ignore general regulations for rifle, gun, bow, and crossbow hunting as well as bulltart trapping in North America. In other words – payback will be a bitch and then some.

In the near term, and based on the flatline observed on the Zero Lite today, it seems that we’ve got ourselves a Mexican stand off going – his tape needs to pick a direction and it will most likely do so in short order. Tomorrow is September 1st – which (stupidly) is traditionally a bullish day – prepare yourself for a possible cash infusion courtesy of brain dead mutual fund managers. If we pop higher you know what to – treat it as manna from heaven.

As you know medium and long term my money is on the bears – we might not close down this week but most definitely will do so this month. We are extremely overbought and if tomorrow’s POMO auction will be the catalyst of yet another push higher (scenario blue) then it will only postpone the inevitable, which is a large correction to the downside. If my recent observations are correct then large sellers will most likely increase their selling pressure at the 1070 mark should primary dealers use Fed cash to force higher prices and postpone a much needed correction.

This is a chart showing the SPX vs. the NYSE A/D ratio. As you can see the Friday high was followed by a closing A/D ratio of 0.9929 – which in my book supports the definition of a ‘blow off top’. I’m not saying that we cannot see higher prices here in the short term but this rally is running on borrowed time at this point.

I have kept pointing out that the recent gyrations in equities appear to be indicative of large block sells unwinding activity. Now here’s a nice clip that backs up my observations (hat tip to ZeroHedge)- enjoy:

I have posted a Dollar chart earlier today and there’s really not much to add tonight – we are a bit in limbo here and a pop in a Dollar will most likely coincide with a drop in equities. And of course the inverse: should we see some currency games pushing the Dollar below it’s August 5th low (77.43) then we’ll most likely form a new bottom around the 77 – 76 range. Again, upside risk at this point far outweighs downside risk.

We are getting close rats – remain patient and keep your arteries at zero Kelvin (i.e. absolute zero). As I keep repeating over and over again – ignore the intra-day gyrations and use bull raids to increase your short exposure (i.e. short sales of stock, buying of puts, selling of calls, etc.). Your trading horizon at this point is a minimum of 4 months and preferably 6 months plus.

Cheers,

Mole

Manic Monday Rub Down

It’s good to be back, especially on a sell off day when any meaningful counter rally attempt was met with aggressive selling.

What was interesting today was the lack in participation – we got that early morning gap and then pretty much nothing for the remainder of the session. I was watching several overlapping entry signals on the geronimo side – which was indicative of various attempts to bang the tape higher but it seemed the bulltarts didn’t have the mojo necessary to close the gap – for now.

As a general observation – the spikes up appear to be met with large sell block orders – someone apparently keeps unwinding positions. Perhaps someone closer to the pulse perhaps is able to confirm this?

Program Trading Update:

evil.rat/ES: -1.75
evil.rat/NQ: +0.25
geronimo/ES: +1.25

That’s all for now – I’ll be in touch later this evening for a quick update.

Boy, am I looking forward to that one :-)

Cheers,

Mole

Slowly Catching Up

1:36pm EDT: I’m slowly starting to catch up with my reading and my charts – trying to get back into the groove. Meanwhile equities seem to be in the process of picking a direction at this point:

We are basically in the middle of nowhere right now. The channel I drew is more or less hypothetical – not a lot of touch points. Participation on the Zero Lite is basically non-existent. This is the kind of tape that is either getting ready for a sell off – or the boys are slowly building positions for yet another rally up. Really tough to say right now and we are not anywhere close to picking a direction. Which is fine – as I keep drilling into your tiny rodent brains – the short term gyrations do not matter at this point and there will be plenty of head fakes before we fall off the cliff. Whatever the bulltarts throw your way – use it.

My game plan at this point remains the same – I am using every spike up as another ‘sell the rip’ opportunity. Volatility is low right now – Mr. VIX is hovering around the 26 mark and thus bestowing us with low option premiums. You will not see low volatility like that again for at least a year – perhaps even two – mark my words.

In my mind the risk here is not lower but higher volatility and remember that the premium on your puts (and calls) can increase significantly without the underlying moving even one single tick when vega starts popping higher.

In short – this is shopping season for the bears.

2:04pm EDT: Seems like equities are not the only ones locked in a trading range:

Annamall keeps reporting on the ole’ buck and she’s right that the Dollar ‘should’ move inverse to equities and that a rally here would favor the bears. However, as I pointed out on several occasions – do not take correlations for granted – they do have a tendency to detach or at least suspend for periods of time.

Right now the action in currencies are comparatively muted – I really need to see the buck break out here in a pretty short order (i.e. in the next few days) otherwise we could see one last slide to the downside, similarly to what we got beginning of July.

3:08pm EDT: As you know I have been following the NYSE New Highs New Lows chart intently:

I wanted to figure out when we registered such high readings the very last time. And – yes, you guessed it – the last time we did was at the very height of the market in early October 2007. So, you need to ask yourself – after a six month 58% rally in equities – what are the odds we are going to exceed October 2007 readings on this chart (for an extended amount of time)?

3:13pm EDT: Tyler over at ZH just commented on the stilfed break out attempt at the beginning of the hour – check it out.

3:45pm EDT: I just updated my BAA-TYX spread chart:

We actually dropped in the last week by a little again – which worries me. As I said – we might have to sit through some pain before this thing breaks for good.

Many thanks again to Hui, Kevin, and Graham for keeping me updated on the latest BAA feed.





    Zero Indicator


    Darth Mole Alerts

  1. poll

    • What is your average spread on the EUR/USD?



      view results

      Loading ... Loading ...


  2. search warrant


  3. recent misdeeds

    1. A couple of long term setups
    2. Creative Criticism
    3. Introducing Thor
    4. Tuesday Morning Briefing
    5. Spot On
    6. Monday Morning Briefing
    7. No Follow Up
    8. Which Way Do You Bend Sir?
    9. Thursday Morning Briefing
    10. Working On Thor




  4. yes we can!



    NinjaTrader
    Kinetick