Time To Close The Deal!

The 40-year old virgin is running out of time. Tomorrow will be the last chance to ‘close the deal’ so to say, otherwise we’ll be most likely talking about a 50-year old virgin a month from now.

Let’s run through some medium and long term charts to make sure everyone is on point for this coming trading week:

Really long term outlook here. I have shown this chart in the past and what is now an established trend is that of diminishing volume during rallies and increasing volume during drops. Is that a new bull market? One could make the ‘wall of worry’ argument here but if that was the case we wouldn’t have almost doubled in one year, right?

As many of you are Zero subscribers (memberships have tripled in the past month) I am happy to revive a welcome addition to the team – the daily Zero. We were watching the daily until late December, but starting January TOS somehow reset their servers and the daily somehow went blank overnight. Although new data has now accumulated since that big reset I finally had enough and recoded the Zero for my NinjaTrader platform which runs on DTN – a more professional data service. And I’m glad that I did as the bullish divergences precisely at the bottom of lows (marked with green arrows on the chart) alone are worth your monthly subscription. I’m pretty excited about this – although the bearish divergences seem to be a lot less reliable this indicator will be invaluable for any bear intending to play the big swings.

Anyway, the daily Zero has now pushed into positive territory in the past week but then dropped slightly below the mark on Friday. Tomorrow will either be the day where we snap back and confirm a new bullish pattern or we yet again push negative and most likely make new lows for year. For the bears is deal closing time – no more time to waste – 1125 is where the rubber meets the road, for the bulls that is.

I’m sure you want to know what the HotFusion panel is. No, it’s not a stochastic ;-)

This is my JNK:TLT spread chart. Basically, how tasty is junk in relation to treasuries. Now compare this one with my copper chart:

Which seems to tell the same story: Both charts appear to precede equities when it comes to rolling over after a new high. Eventual snap back rallies appear to be supported. We will keep an eye on both.

Mr. VIX was stomped on after some pretty intense readings which pushed outside an already overstretched Bollinger. Can’t keep going straight up folks – we need a little rest. Right now we reverted back to base camp at the center line. Again, a breach of this line will spell higher prices in equities – if we hold and bounce it’s possible that the 40-year old virgin gets to first base (i.e. SPX 980).

Momentum/Sentiment Indicators

On the NYSE Adv/Dec Volume chart we did get lower close accompanies by a higher reading. The ensuing snap back was pretty intense, just like the one before – which for the record made acting on it a bit difficult. Now we have plenty of momentum to the downside, which favors upside for equities.

Then there’s my CPCE chart. Nothing really has changed on the 10-day moving average – there’s plenty of air below now, which again will be a head wind for the bears. Yes, markets do fall off the plate in oversold conditions, but it would have to happen quite rapidly – we are talking Tuesday/Wednesday.

Same story on my TRIN chart. We have come a long way and to go higher we need a non-statistical event.

Wave Count:

Which brings me to the wave count. We are running out of time and the wave formation now puts the pressure on the bears to make a move. If we breach last week’s high at 1103.52 it will be one strike against the bears – if we push beyond the 1120 mark it will be a second strike leading most likely to Soylent Green. And that one could actually stretch out for quite some time – as we could indeed push higher than 1175. Which brings me to my final chart for today:

Exotics:

Before I explain this one please make sure you read up on my little intro on the Chris Carolan’s spiral calendar work, which I greatly admire. So much actually that there is also an entire category dedicated to Chris’ work.

Anyway, a while back I realized that U.S. equities were lagging the Dow Jones Shanghai Index – China goes first and the U.S. follows, it seems – eventually. I tried to nail down the approximate amount of delay for obvious reasons and the numbers I got started to sound familiar. So at a hunch I began to correlate the delays via spiral calendar time cycles. What I got was quite fascinating. Back in 2008 we were right on the Chinese’ heels, but now there seems to be a longer delay minus 6-10 days. The chart explains it pretty well – and maybe the 10 day delay is a bit hefty to be taken seriously – not if it continues to line up however. So, it’s quite possible that the current retracement up (which may turn into Soylent Green) could take us close to 6/21. I don’t think 8/18 is a possibility for Soylent Green – perhaps that is where Intermediate (2) would take us – either that or a completely different scenario that puts us into new annual highs.

Bottom Line:

The bears got to get their groove on starting Tuesday morning. There is simply too much bullish evidence on the table, and the bulls will not hesitate to give the bears a run for the money, and at this point they have the odds on their side. As I said all week – I am keeping my long term puts as this is the only way to not miss out on a sudden drop, which I am still confident will happen – most likely in mid to late June. Unless of course the bears can close the deal tomorrow. Also watch the EUR/JPY (not shown here) – it was a bit overbought on my 30 minute chart on Friday, so there is a chance it could lead equities lower.

Stick with the levels shown on my wave count to scale out of short positions if you are playing things short term. Otherwise, my own approach will be to give this the time second waves usually need to shake out the weak hands.

Stay frosty!

Mole

Friday Road Map

I don’t have much time tonight as I’ve got to work on another project but wanted to put up a road map for Friday for you guys. So, without further ado here we go:

After today’s rip from hell I would be very surprised if there was no follow through sometime tomorrow – even if the boyz fake some weak tape in the morning. ES futures right now are hovering at 1100 – I’m sure the bulls will fight like hell to hold on to that level.

Soylent Red gives the monster Minor 3 wave scenario a bit more leeway. However at 1125 it’s time to say goodbye to that one.

Soylent Green maintains that we are at the onset of Minor 2 of intermediate (1). I would like to see that one conclude at the 61.8% fib mark around 1155, but who knows it could run all the way to 1175. Could get pretty nerve wrecking for the bears for a few weeks, so bring an extra supply of Prozac.

Looking at all the evidence I am putting the odds for Green at 65% and Red at 35%. There’s just too much bullish potential out there to not get exploited – let me repost several I have presented throughout the week:

My 30-day SMA TRIN chart – we are at extremely high levels now. Yes, could have gone higher in a market-falls-off-the-plate situation but now that we painted a bottom that potentiality has suffered greatly.

Then there’s my NYMO-BPNYA ratio chart. Also at levels we have not seen in a long time and where usually snap backs occur.

My CPCE chart – again at a cross zone where meaningful retracements happen.

My genetically enhanced gold:silver ratio chart in the context of the SPX. I expected a turn at that center line and we got it right where I thought we would. Initially I thought we push down and then go to the top line. But that does not appear to be the second favorite scenario. Rather we most likely push toward 64 again.

Finally, the NYSE A/D ratio chart – yes again but there is new evidence. One of my faithful ratlings named Scott wrote me today with some musings on the topic. One of his comments gave me the idea to look at the D/A ratio as well and when I saw it I immediately realized that it solved a problem I had sought to solve with the superAD (the normalized version of the A/D ratio). See the problem with the A/D ratio is that it’s very hard to see bearish patterns as the values go from 0 – 1 whereas the bullish signals go from 1 to who knows where – we recently saw a 17 reading and today’s bullquake presented us with a 12.4 on the Richter scale.

The superAD fixed that problem but it was not a viable solution as I had a hard time recognizing patterns. The solution was to look a both – the A/D and the D/A ratio. This way it’s much easier to determine bullish as well as bearish patterns. As a matter of fact – many of them resemble each other and I’m going to have a fine time parsing for more in the future.

Anyway, what’s immediately salient on the D/A ratio is the monster divergence between the 5/20 drop and the actual final low on 5/25. On the A/D ratio it’s very hard to make out but it’s crystal clear on the D/A. And of course you all can guess the possible implications here. Rest assured that in the future we won’t miss these things – unfortunately it’s a bit late this time around. My bad and I’m being punished along with the rest of you.

Call me masochistic but I’m a fervent proponent of the idea that pain and suffering is very productive and should be embraced. Had it not been for this little whipsaw I would have not tried the above. So, my puts suffered a bit but I gained a lot of very valuable knowledge.

Finally, there is another piece to the puzzle and it’s the daily Zero. But I cannot post that here – it’s in the prior post and it’s also extremely interesting – Zero subs know.

Alright – that’s a lot more than I wanted to post, so I’m off. See you on the other side.

Cheers,

Mole

Zero Revelations

I just figured out a something I believe is quite exciting (if you can call it that) on the daily Zero. Something I should have seen a long time ago, sorry. My only excuse is that my Zero charts mostly run on my 2nd TOS account and for some reason there has been daily data missing (thanks again TOS!). I just pulled it up on my other account and what I saw is surprising in terms of clarity. As in – we may now know how to recognize major market lows:

I don’t think this needs much explanation. I am seeing very distinct divergences at major market lows. We got one at the this year’s low, which was quickly reversed. Based on that chances for Minor 2 being in the works are increasing. Let’s however not jump at conclusion – we are looking at a long weekend and if there is no follow up next week we may still be in Soylent Red.

Freebie Alert: There’s only one week left to download Robert Prechter’s free 10-page market letter. Our friends at Elliott Wave International are featuring the free download through June 7.

Salve,

Mole





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