Thirty Handles Of Pain

I don’t want to be premature in assessing the situation over in equities but one thing appears to be clear at this point – despite a lack of resolution we are painting lower lows and lower highs. You don’t have to be a market wizard to figure out that this has to change soon as any support below will at some point cave in like a Malibu beach mansion during the rainy season.

At this moment I’m seeing two setups here – on the downside we have the 1627.75 NLSL which incidentally is below the 100-day SMA currently tickling ES 1638 (we are trading below it at this point). For me the now expired NLSL at 1631.5 continues to be a line in the sand – below it I am short and above it I’m tentatively long now but with very little exposure as the bullish case is losing its luster quickly.

On the weekly panel we continue to enjoy weekly support at the 25-week SMA near 1623. A drop below that most likely opens the flood gates and also yields a medium term sell signal.

Until we see some sort of resolution here we remain within 30 handles of pain which show a high concentration of active volume on the profile chart. Make no mistake – we are in the midst of a tug-of-war and to repeat last week’s statement: the losing side is going to get punished in a big way. Do not acquire an opinion down here and simply stick with the charts which show us sufficient context to structure our exposure.

When stuck in a honeypot or limbo period I usually play it small with wide stops and pyramid my positions as things move my way. But be warned – you’ll have to be nimble here as when things take off they most likely will make it impossible for late comers to jump on board. The long side would have to muster up a lot of mojo to pull the cart out of the mud again – on a breach above 1650 there is another volume hole that is expected to give bears another shot at the price. The downside looks good to go past 1620 – but we are not there just yet.

FWIW – the problem with option plays here is the risk of a vega squeeze. Should things suddenly resolve to the upside (and perhaps overnight) even call premiums will suffer greatly. A sudden drop from 17 down to 14 or lower can not be ruled out and market makers will adhere to a strict take-no-prisoners policy.

Actually very very nice setups on the table today – please join me in my lair:

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Cheers,