Bollinger Squeeze

I must apologize for my complete absence all Friday. As some of you know I am running another (non-trading related) company and I needed to go down to take care of urgent business. But in the rush I completely forgot to let you guys know – my only excuse is that I’m a bit overwhelmed lately. Have only taken seven days of vacation this year and it’s starting to take its toll – of course this crappy market is not helping to relief the stress.

Anyway, I’m actually about to dash out of the door again but this place needs a comment cleaner – so here are a few quick charts that jumped out at me:

I think the point I’m making here is quite clear. We are looking for consolidation periods followed by a drop and a BB squeeze. Last year almost every squeeze heralded another drop lower. This year it’s been the other way around – every squeeze meant that the bulltards were getting ready for another push higher. As you can see we are getting squeezed quite a bit right now.

It’s even more pronounced on the VIX. So, the question is – are we going to drop or are we pushing higher? Personally I think the wave count permits for another push up, but then there’s this:

This is a simple 14 hour ATR slapped on my medium term wave count chart. As you can see the ATR fluctuates wildly lately and there is a distinct pick up when we drop – followed by a drop when we push up. I’m sure the tinfoil hats among you will interpret this in adventurous ways but to me it’s nothing but another tool to gauge the potential for a trend change.

According to the ATR drop the bulltards are attempting to push this thing higher but it’s not really working as they have run into a wall. Now, volatility has been pushing up again late last week and that could mean we drop from here. The wave count however would look very strange without a resolution, so even if we drop from here it would be better/cleaner to see a push higher before a big turn. That turn would most likely happen around the 1045 mark, so if we drop on Monday take at least partial profits there.

Please bear in mind that the odds for any resolution ahead of the new year are bad bad bad. So, do yourself a favor – play long term – play very short term – or don’t play at all. We are at the cusp of a trend change IMNSHO but it’s taking its merry time – and as option traders that is when we should step away and wait for some type of resolution. Long term however – and I need to throw that in – bear in mind how low Mr. VIX is right now – and if we ever get a hard drop the spike in vega will do wonders for any put holders – enough said but trade at your own peril – these are crazy times. Surviving as a trader is all about probabilities and the odds right now are not in your favor unless you are holding a crystal ball as all inflection points (bearish or bullish) are miles away.

Cheers,

Mole

This entry was posted on Saturday, December 5th, 2009 at 6:42 pm and is filed under Elliott Wave Theory, Market Outlook. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

  • gmak
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  • CorporalCarrot
    As postulated earlier, EURUSD briefly stuck its head above the 1.4820 former support (now resistance?) area, before resuming its slide. Stuck here at 1.4790 for some time, and descent is more orderly than a few hours ago, but a breach of 1.4790 would surely see us retest the LOD at 1.4755. Can we re-capture 1.4800?
  • hi carrot, hi jane, hi catracho

    nice having early posters
  • Niktus
    Feliz aniversario!
  • obrigado
  • tradejane
    Hi there and happy belated birthday. Good call on gold the other day.

    >brace yourself for another $20 drop on gold

    I think you also mentioned a green opening for equities today which seems to be playing out so far. TecDAX green already and banks not as weak as one would expect after FDIC Friday.

    It will be interesting to see if the green gets sold off again.
  • Thanks, I think .98 would look good on spx:gold


    BUT there is a scenario that worries me... disjointed gold

    so... 1110 on spx and 1130 on gold would be just dandy before further spx:gold drop

    then gold could climb to 1175 as equities linger in the 1000 range and drop again, this time to 1030 as equities still range bound.

    this could prepare things for a final gold rise to 1500 still with equities in the same 1k range

    double lower low on spx:gold BUT bears win nothng
    (in fact we are doubly screwed)

    THIS HAPPENED IN 2006
  • Late poster over here! How you doing SSH?
  • Fine, thanks

    how do you see the day and week?
  • CorporalCarrot
    Greetings from sunny Ireland folks.

    Perhaps somone could enlighten me on the currency side here folks.

    I wondered on Friday whether the dollar move was done or when Asia/Europe got in whether there would be a knock on round of short covering, and so far this certainly seems to be the case.

    This is surprising to me, as I would imagine that global players would have desks manned 24/7, but the pace at which the EurUSD is unwinding is quite staggering. We have moved "4 big figures" as my currency traders are wont to say, which is big in fxland.

    Its surprising however, as fundamentally, I don't think much has changed. Mish did a good analysis of the payroll numbers, and to say they are shaky is to understate matters. The Birth/Death model and temporary holiday staff are almost certainly the reason, yet we seem to have blindly accepted that a turning point in the labour market has been reached and the yield curve is steepening.

    The bizarre aspect of the whole thing is watching the MSM trying to explain whats happened here; on the one hand they are trying to pump the "fundamentals", on the other are almost subconsciously acknowledging this entire bear market rally move has been an interest rates play. Cognitive dissonance majorly on display.
  • Cognitive dissonance indeed - nice one.
  • tradejane
    Good morning.

    The DAX opened below today's pivot of 5800 after failing, yet again, to make a new high on Friday. First support is seen at 5741 area. First resistance at 5876.

    Banks are in the red. Chemical/Pharmaceutical companies in the green, as well as Volkswagen who seems to have stabilized for now. (Apparently their stockholders agreed to a secondary offering last week.)

    http://www.youtube.com/watch?v=OdD2Spp26vs&translated=1
  • DAX range getting narrower and narrower..triangle? When it breaks should be violent...but which way??? If dollar correlation has broken then can't rely on that for direction any more!
  • tradejane
    Well, this is not my chart but I agree with the assessment:

    http://www.screencast.com/t/MDYwNzgyNzg

    We really need to lose 5640 before we declare ourselves out of bullish territory.

    The breakdown in the correlation often means the market is about to take a new direction. Forex traders can sniff out changes a lot earlier than equity traders. That's why I don't rely on currencies as an indicator for short term trades anymore.

    Btw, two weeks ago gmak said:

    "The level to watch is EUR = 1.475, which is the long run dotted white trend line. The serious “USD bears get crucified” level, is at 1.4576"

    So I'll be watching those areas for a confirmation of a third deflationary wave.
  • CorporalCarrot
    This morning EURUSD was repelled from 1.4755 with violence. Now encountering resistance at 1.4795/1.4800. I believe 1.4820 was a major support level over the last number of weeks, with it bouncing off that level 6-7 times so thats an interesting point to look at.

    Tonight could be a game changer though. I understand someone from the Fed is speaking, and if history is any guide, they will go out of their way to say something to the effect of "Notwithstanding the strong non-farm payroll numbers on friday we expect monetary policy to remain accomodative".....and EURUSD could be back to 1.51 before we know it.
  • crush1618
  • Nice charts!
  • Chart of Charts 120409
    Is the lack of information actually useful information?

    This Chart of Charts is getting downright boring. We are perhaps leaning a little to the bullish side, but overall the small number of chart patterns actually breaking out weights the heat map to a neutral condition.

    There is not that much going on, and the amount of charts ready to do something is also down quite a bit. This would indicate less potential voltatility. Slow frog boil into Christmas?

    I am interpreting the Chart of Charts as keep your bets pretty small for now.

    CHECK OUT MY "MODERN" comment system, just implemented Discus today. Please stop by and drop a comment. They are trackable and indentable, as is proper for a real comment system.

    http://oahutrading.blogspot.com/2009/12/chart-of-charts-120409.html
  • Joe8888
  • Turned on me but got out with minor profits.
  • Recap of Friday's session, we continue to hold the range. New weekly closing high on NASDAQ, internals are improving http://bit.ly/8dcQVQ
  • well, goodnight ladies and rats

    and BEHAVE... don't wake the sleeping hamster to another scenary of mayhem

    (yes YOU know what I'm talking about)

    and one final reflextion for next week, there will probaly be range action (at least my count seems to indicate that)don't shit your pants nor get overexcited and be careful about GS waves.

    I still see a drop to .80's and then a final (double) thrust by the bulls up before a double bottom (maybe april), but check YOUR charts, your indicators, your wallett and you heart, balls AND brain

    good luck everybody
  • elliott_surfs
    happy birthday SS Hammy =)
  • thanks, here you missed by an hour, but I'm accepting local time as well ;-)
  • bananaben
    I don't know too much about this guys credibility but it's worth a listen:

    http://www.youtube.com/watch?v=bPkmP8Utirs

    Some of the data like the 2000+ number of banks that will fail squares with what I have seen from other sources. All I know is that this shit is going to end in complete disaster. It has always been my plan to get out of the dollar once I cash in on the stock market crash. Unfortunately things are not going according to plan so far - P3 are you out there?
  • would w5 of P3 be enough? same problem here
  • The_Grim_Reaper
    I did a study on the correlation of the fed funds rate to the markets. I didn't spend a lot of time one it, but the charts are fairly clear. I think the more interesting thing, if you want to skip the rest of it, is to look at the rate hike lag effect chart. I'll just post it here. I'm not sure about it but maybe it can be used.

    article
    http://ethicalcheating.blogspot.com/2009/12/fed-funds-rate-hikes-bullish-or-bearish.html

    lag effect predictive market model
    http://4.bp.blogspot.com/_HI9vMxcgcpQ/Sxw_i4Fy0QI/AAAAAAAAAGg/Utjr--4vuEk/s1600-h/RateCutLagEffect.bmp
  • Macrawn
    Nice charts. I think your info can be used but I am hesitant this time around because the Fed might get trapped in a corner having to raise rates when they still need a lot of liquidity. Everything has been A-typical so to speak in this market.
  • Tough market to trade aggressively but there is definitely money to be made intraday as shown the last three days. Very little economic data this week and next week is OPEX, for some reason I don't think we will have a quiet week though...
    http://tinyurl.com/yfho4qb
  • I'll need the general market to head lower to get into this trade.
    YUM, might dip to 32.87, chart
    I also posted my 26 wins and 1 loss, past 3 weeks, trading documentation.
  • I was looking at your VIX chart and I thought Oh my god It has a lower bollinger band fish hook signal, then I noticed you use default (20,0) setting, phew--I double checked on the proper BB band setting of (13,2) and there is no fish hook signal, so the market won't be going 200-600 points higher in 1 to 5 days, as had the fish hook on your bb band had suggested to me--
  • You also a BB with MA13 man (or girl)?

    Ever tried using it as 13, 1.618 or 13, 2.618
    AND 104,1.618 AND 104, 2.618

    been playing with MA13 since august
  • So thinking in the spirit of Christmas, I was worried about all those Investment Advisors out there who might not get enough of a bonus. After all, their cheerleading has helped this unbelievable recovery. Then I thought...hmmm....they stole the taxpayers money, and then after continuing on a path of systemic risk, they are going to reward themselves with record bonuses, while many go hungry, homeless, live in fear of the future.


    So, consider the following letter which you can use to send to the investor representative and CEO of your favorite bankster.


    Gentlemen and Ladies,


    In light of the fact that excessive leverage and speculation has again been under taken by those who do know better, and has again put our country and it's citizens under a strong threat of systemic risk.



    In light of the fact that 14% of all homeowners are missing their mortgage payments or are truly already in default, directly related to predatory lending practices.


    In light of the fact that irresponsible "investing" advice has led to a massive transference of wealth which is nothing short of outright thievery.


    In light of the fact that the monetary policies of the Fed, as enabled by vested interest financial institutions, and furthered by hundreds of millions of dollars of lobbying with the clear goal of corrupting the system, has resulted in a massive loss of purchasing power of our US dollar, thus penalizing those who have worked and saved responsibly, and rewarding those who engage in overly risky behavior.


    In light of these facts, I believe it would be innapropriate for any US financial institutions to issue any large bonuses to their employees. The greed and arrogance that would be represented by such a handout will be met with the following action:


    If any employee of your company receives more than $30,000 bonus this year, I will be closing my accounts with your institution on January 10, 2010. I will transfer all assets to financial institutions that did not exceed the $30,000 bonus price cap.


    Please respond as to your intentions.
  • gmak
    Looking at EUR - it's walking a pretty tight line. This suggests that there aren't any stops near by or some enterprising dealer would already have pushed through them for a scalp.
  • gmak
    Found this little piece if you're interested in analysis of global manufacturing growth region by region over the last 2 years.

    http://eurowatch.blogspot.com/2009/12/global-manufacturing-loses-momentum-in.html
  • Good post mole, excellent observations. And I completely agree about the very short term/long term view. Its incredibly difficult to trade this market.
  • labdude
    Saw some comments regarding the unemployment numbers a couple of days ago.

    Here is an interesting view on the latest numbers:

    Friday, December 04, 2009
    If the Economy lost Jobs, why did the Unemployment Rate decline?
    http://www.calculatedriskblog.com/2009/12/if-economy-lost-jobs-why-did.html
  • Hi Mole,
    My last update SPX500
    Enjoy and Cheers!!
    Possible bullish flat but I still don`t believe target around 1200,
    but I`ll stay alert with this pattern.
    I believe that the top will be made between false breakput numbers,
    Today test 1119.33 one of the numbers of false breakout and
    close again below 1113.69.
    Suport 1085, 1090 and 1072 short-term.
    Resistance 1113.69, 1119.33, 1127.80, 1137.
    Bears need to break 1090 and 1084.90 to alert reversal trend last months,
    confirmation with close daily below 1072.
    http://followmarketrend.blogspot.com/2009/12/spx-daily-update-04122009.html

  • bananaben
    For what it's worth here are my 2 cents: I always felt that they would make us shit blood before they start letting this market down. Well that happened last week for any and all short IYR. There are no more bears left in there except for Prechter and a few stainless steel idiots like myself. For that reason, I do expect a drop next week but it might go up again at the open just like each and every of the last 15 of 17 Mondays. That said I don't expect anything big - just a rolling over unless the dollar continues to ramp up. If the dollar crosses 7750, the whole thing could become unhinged. There must be some truth to the storeis about the Japanese - I think they told the Fed to stop pushing the dollar down or they will start selling their bonds.
  • Jan
    rut-roh....

    http://tinyurl.com/yjybr9u

    rally on.
  • Jan
    I'm still too much of a novice to understand how CRE works. It's like a world of alternative realty IMO. If you told me a year ago that stocks like SPG or VNO would ramp up like they have, I would have said to get your head checked.

    Crooks, all of them.
  • Morning Mole, here is what I came up with.
    http://ewtrendsandcharts.blogspot.com/
  • centerline
    Funny timing for the post on BB's. I had noticed on Friday while filtering through charts that that SPX is squeezed to the extreme. Really spooked me when I saw it (intuitive after the fact though). It does appear that a decent move is coming in short order. However, this is sort of atypical for December, statistically. Then again, most of this market has been atypical for a long time now.

    IMHO, whatever is going to happen is almost certainly going to happen this coming week. After that, we roll through the holidays - with bots keeping the artificial liquidity flowing - chop, chop, chop through the new year.
  • Mole wanted you to look at this and see what you think. http://tonysmarketanalysis.blogspot.com/2009/12/spx-update-12-05-09_05.html
  • a look at the retail sector with some charts:

    http://yovia.com/blogs/cumbucotrader/

    AMZN BBY GPS M GME ATVI TTWO AAPL
  • goldpackers
    Retest 1117 then 1060 to 1080 into 12-10/11.
  • Joe8888
  • do we back test? of course we do, but maybe not right now
  • Spectacular and concise post Mole.

    I also have that "other business" thing that competes for my time. End of year tax credits are making solar way more profitable than trading this horrendous tape!

    March and June Puts....enough to be scary.
  • your march and june puts look sexy...

    I would say bottom in april....
  • Euro tanking....could be sweet Monday....
  • bpspx seemed to point to equity drop... but spx:gold seemed to want a 1% pop before pooping... maybe stronger gold drop would do the trick

    thanks for the info, see you tomorrow
  • are we there yet?

    crazy russian

    speaking of which... there is one thing I miss from the times of the ussr, the perfection in gimnastics and then the anthem (the portuguese anthem is also very good, but the russian anthem was probably the best ever... ideologies apart revolutionary anthems usualy rock)
  • Agree - the Soviet anthem is the best ever - gives me goosebumps every time.
  • Well, it gives me goosebumps too, more now than ever - I heard they might use it here.

    On a serious note - words of former USSR anthem have meaning and huge "penetrating power" - have you ever listened to th ewords of American anthem? What the heck is that? Someone did not quite wake up when he wrote it?

    Oh YEAH - I forgot - someone REALLY did not quite wake up according to history...
  • but yes... http://www.youtube.com/watch?v=0yDrtNEr_5M

    now

    I WILL BE KILLED

    couldn't find a version of english lyrics but...

    http://www.youtube.com/watch?v=BZuokfaRcR8
  • and the "lyrics" in the portuguese anthem as well (BTW it was the republican anthem as monarchy was overthrown so same zeitgeist)

  • meh, today is Sunday, so you mixed it up again - it is Mad russian

    BTW - that is a LINK above
  • crazy jews do the best films (mell brooks at his best)

    BTW, saw woody allen's vicky barcelona a couple of days ago
  • is that your birthday yet? Happy Birthday crazy Hamster!
  • just barely ;-) 15 m to go

    Thanks
  • momac
    Excellent post and outlook Mole.
    Who all thinks we will have a gap up Monday again. The problem is, for the past several days, there has been a gap up to new highs and then it falls right away. They don't like to keep doing the same things too often, so something will have to be different. Or will they think that we will think that and then do the same thing again. Damn, they are evil. :-)
  • lmfao!!!!
  • The_Grim_Reaper
    Well said.
  • Diablos
    Could this be accurate? I don't think it breaks any EW rules.

    http://screencast.com/t/YjU4NmI3NW

    Thanks in advance...
  • that's one hell of a one extension for the size of 3 and 5
  • Diablos
    One would be (1113.69 - 1029.38) = 84.31
    Three would be (1119.13 - 1083.74) = 35.39

    One would be 2.382 times three or three would be 42% of one.

    Book says "Wave-3 should not be much more than 61.8% of wave-1, but at least 38.2% of wave-1"

    To finish the count, if four is set, five would end between 1114.61 (five > 80% four) and 1131.91 (five <= three).

    Happy Birthday!
  • much more than 61.8% BEYOND wave 1
  • Good to have a Mole post on Bollingers, did you see my sugestion on that?
  • How about a SSH post on Bollingers?
  • hey, I'm no berk ;-)

    I posted a small sketch for mole, take a look and play with it (BTW in each case use 104,1.618 AND 104,2.618, but see for each stock if it's a 13,1.618 or a 13,2.618 .... in comodities or gold related always look at 13,2.618)

    best of luck
  • No actually - when/what/where?
  • honest I started using the MA13 some time ago and only lately have taken the MA104 and seen how the BB with channels at 1.618 and 2.618 fit well


    104=4X 13

    and guess what 13 is? .618 of a typical trading month


    think of it as inflexion/continuation points and I try to mix it with EWT counts (though some are completly heretic as I count GS influenced waves and try to get a compass out of stock/index:$gold and from BPPX)


    http://stockcharts.com/h-sc/ui?s=%24SPX:%24GOLD&p=D&yr=3&mn=0&dy=0&id=p08246302563

    In this particular case 50% is too much for a zigzag and too little for a flat or a wave 2

    beside, count the waves, looks like 1, 2, i, ii, iii, iv, v

    that's why I wanted .94 (or .98) before a final drop to .84 (m0sy probable) or a double bottom at .91 or .88, ,82 , whatever (

    then a 1.0 and down again

    my final target if drop confirmed is a nominal double bottom but real below 10% i.e. 0.64 for 666 and gold at 1030)

    adittionaly test it also on stocks but do one thing

    begin by stock:$gold

    do a fork with a 2007 top and use rsi to find the highs and lows of mid 2008

    then do the fork on the nominal using the nominal values but the real dates

    have fun (and tell me about it) (e.g. i see aapl probably having topped and wanting 130)




    I'll try setting up some rules, guidelines and examples mid-week (today's my birthday and it's sunday morning)

    best regards

  • to me, it appears we open slightly higher Monday the 1st 30min, possibly backtest 1110-1113, then turn on a dime and fall the rest of the week, filling some gaps along the way.
  • the vix is 21.25 and has a 20.51 gap it needs 2 fill.
    once we fill that, its game time
  • centerline
    I am pretty sure we closed that gap intraday already. Good reminder here though for me to go back and check it out. I know that at least we came really close.
  • Delta Airlines is a very compelling short at this juncture. Not only has it run 30% in a week, but the dollar is looking a bit stretched. A rebound in oil prices could put pressure on DAL. The airline index is at a 20-40-60 day triple linear regression high. This setup has consistently been a strong reversal clue.

    DAL is at a 60 day high after filling the gap (yellow line) from earlier in the year. That's a two sigma move in a week, which is the top blue channel.

    http://www.gamingthemarket.com/wp-content/gallery/charts/dal60d2009-12-05.png

    For a longer trade, there are some fundamentals putting pressure on DAL. The biggest is their acquisition of NWA, a very expensive and time consuming merger. Now they're talking about funding JAL with $1B. How many airlines can they buy in a year without going bankrupt?

    It's also the winter flying season which is full of delays and expense--not revenue. A bad week in SLC with ice and grounded planes can wipe out ~25% of the year's revenue. If it's a particularly harsh winter that's major cost pressure. And there's the lawsuits from their recent major screw ups, like landing a on a taxiway and missing the airport and not landing at all!

    Then there's some recent news:
    Boeing (BA) is urging airlines to overhaul a key jet part, following several potentially dangerous overheating incidents and other structural damage on some engine parts. The company is urging a retrofit program on over 220 of its 777 jets around the world after the design of a critical safety system on the jetliner fleet was found to be inadequate, the Wall Street Journal reports. Officials believe it could take years before all the suspected parts are replaced. The carriers most affected by this are Delta Air Lines (DAL) and AMR Corp's (AMR) American Airlines .

    ATLANTA, Dec 2 (Reuters) - Delta Air Lines Inc <dal.n> said on Wednesday that revenue was showing month-to-month improvement despite a persistent reduction in premium class demand.
    Chief Financial Officer Hank Halter said while the carrier still expects unit revenue to be down in the fourth quarter, the magnitude of the decline was softening from earlier this year.
    Delta's unit revenue was off about 23 percent in June, he told a Morgan Stanley transportation conference.

    The risk to this trade is more oil weakness, more buyout news rumors, upgrades, phantom revenue, Northwest pilots hearts growing two sizes on Xmas day, etc. Hope this is useful.</dal.n>
  • i think it still has at least 4% in it for further climbs....

    can you take that kind of pain?
  • vision_invisible
    airlines are just horrible stocks to own, great to short i like ALK
  • centerline
    no doubt. great to play, but bad to own in the long term. crappy business models, debt driven, history of bankruptcies everywhere, too easily driven by oil prices / fears, etc. UAL looking really top heavy as well - but I would give it just a little longer before jumping on it. It might have a little more to run.
  • Gold_Gerb
    just in case..merry christmas!!!
  • too early for Xmas

    even early by some minutes for my birthday

    is the gerbil going somewhere?
  • Gold_Gerb
    the thinking was that mole after one excuse, would just pile more on.
    kinda like Tiger Woodie.
    and we wouldn't see from him again till post Xmas.

    ;-D

    happy Birthday Hammie!
  • thanks gerb :-)
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