Now Reading
And Now For Something Completely Different
87

And Now For Something Completely Different

by ScottApril 28, 2011

Before I do a wrap up of where I think we are price-wise with the $spx I just took a little yen trade, and its a concept I havent shown before, so I may as well school you up.

Concept: The daily highs and lows are, as a general proposition, where a lot of stops are clustered. It stands to reason that these levels act like pivots, and are extraordinarily well-defended.

Take a look at the USDJPY today

We have both bullish and bearish potential here. Quite obviously recent momentum is DOWN, and its waaaay oversold, but the trend is showing signs of weakening. This could either be working off oversold momo, before another plunge downwards, or it could be a retest of the lows before a SHORT SQUEEZE, and potentially a chenge of trend.

We DONT WANT TO BE BIASED HERE, just stay alive to all the possibilities

My point is that you want to be long on a break of the high, and short on a break of the low (its the other way round with USDJPY, but lets keep it simple eh)

When we have a situation like today, where we have a down close thats a LONG WAY from a long trigger point, with a clear place to place our stops, we have an opportunity to get in ahead of time, not on any other basis than the risk is small and the payoff is huge.

That is, we arent even THINKING ABOUT WHAT PRICE WILL DO, simply that its a good bet. Imagine you are at the roulette wheel, and the casino all of a sudden announces that single numbers pay off at 50:1 instead of 35:1. The odds are in your favor.

Looking at the small timeframe chart, its clear that there is evidence it is finding support ahead of the daily low

I get long (I know its really short, but for simplicity’s sake I’m calling a bet that USDJPY goes up on the chart a long) at the open with a stop at the daily low.

I have a small position, with an order to take partial profits at the daily high, and leave me some of the position running, with a breakeven stop in that event.

Its a good tactic that I examine when the daily close is very close to a low which should be defended.

Moving along.

$SPX… exhibit A – PRICE

By any measure price is bullish as FUCK. The IHS is complete, we have bullish price patterns working, price is embedded in the upper bollinger. We *should* be taking every long setup from now. Smells like a blow off top to me.

The only fly in the ointment is this, market internals have not confirmed the upmove. What this means is that the rally is on shaky ground, and VULNERABLE TO A BLACK SWAN TYPE EVENT.

What this means kids, is that stops on longs should by very tight right now, the market is capable of a big one day fall at any time UNTIL the market confirms the new highs with new market internal highs.

Gut call – dont get short yet, but be cautious with longs. Frustrating, I know

Scott


About The Author
Scott
  • Southern

    Wow Scott… Thanks for the excellent post! You, Mole, and Volar bring huge value to subs… thanks! BTW, Mole, I took that ERIC trade at $15.27 … Good trades to us all!

  • amokta

    Thanks again Mole/Scott/Volar (Three Amigos!)

  • convictscott

    BTW Silver is a retest variation sell on break of the daily low today

  • amokta

    Dont mention the 'sell' word and silver together :-)
    Anyway, must be open to all possibilities, so will watch price and take caution with longs if it breaks lows

  • convictscott

    Thats what I suggest. Silver moves with spx, so if spx falls off the plate, silver is vulnerable. If silver triggers the setup, but spx keeps going up – well its going to get stopped out. Correct way IMO is as you suggest, having the stop for longs extra tight at the daily low.

  • amokta

    Thanks CS

    Ok, time for sleep, working tomorrow, despite Royal wedding!

  • bisq

    Good stuff.
    I'll stick with my bearish position on fins – esp King Rat Goldman -and bull on gold. i halved my silver today. i concede there could be a violent pull back soon – but it wont be without weakness in the broader market. If and when silver gets caned you'll see high beta large caps that everyones long of (Apple , Netflix etc) get smoked. I will be buying into any PM weakness. And i will be pressing my financial shorts into any weakness – they look ripe to crap out when this market wobbles (might not be until >1400 but i guarnatee you if we go above 1400 , gold and silver will vastly outperform that move)

  • volar

    Scott.. outside of price and breadth, what does confirm the breakout?

    Hell after looking at the data- its not that people are not buying calls, but they are buying puts… I was expecting a 250+ISEE today

    http://content.screencast.com/

    So I wonder if short interest is actually rising on the rally.

    I entirely agree there is a huge potential for a blow off- little participation – if any.

  • volar

    Captain boom… from a previous post. We have to call you captain bad ass.

    Here is what captain boom does for those that did not catch the last post.

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

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

  • convictscott

    Volar, the character of a move that stays embedded in the upper bollinger is that its an overbought move that refuses to die, it just keeps being fuelled by top picking shorts. If you look at the move to the feb highs, and the move to the april highs last year, the later stages of the endgame looked shaky, ready to fall over at any time, but kept going for a few weeks.

  • skynard

    Something that I've noticed is treasuries have been rallying with the market. Does anyone else find this unusual?

  • volar

    i like your reasoning

  • http://practicalt.blogspot.com/ Gold_Gerb

    hey, which one is Mole!?
    http://www.dogbreedinfo.com/im

  • volar

    is china buying our debt ? Used to do 30+%, not anymore

    Is pimco buying our debt? No- maybe trading, but not buying.

    Are investors buying debt? ISH… old debt they own.. not new supply

    Who is buying the new supply? … the FED of course

    http://www.zerohedge.com/sites

    http://macromon.files.wordpres

    http://content.screencast.com/

    http://www.zerohedge.com/sites

    **** So Skynard, great observation. Stocks up bonds up… only 1 explanation… people must think FED will buy more.

    If treasuries started eating crap while the stock market ate crap- i would be thinking endgame- cant wait. And yes this would be unusual IMHO.

  • http://practicalt.blogspot.com/ Gold_Gerb

    I will not be watching the wedding.
    good luck Prince.
    (maybe he's a really swell guy)
    http://roissy.wordpress.com/20

    oh, UUP, volume increasing.
    http://stockcharts.com/h-sc/ui

  • Smiddywesson

    “Concept: The daily highs and lows are, as a general proposition, where a lot of stops are clustered. It stands to reason that these levels act like pivots, and are extraordinarily well-defended”

    Deep silence, sound of crickets, somewhere off in the distance a dog barks…huge hit on the bong, deep dude, really deep.

    That was an attempt at humor, not a cut down. I appreciate your observations and I agree completely.

    In my opinion, anything between support and resistance is the noise zone. Support and resistance can be found at recent highs and lows, opening range, round numbers, and especially ANYTHING ANYONE ON A HIGHER TIME FRAME FINDS SIGNIFICANT because their stops will add power to the move you are watching on a lower time frame. Proper risk to reward trading is entering at the proper ratio between the lower level and the higher level. For example, If I wait to enterlong one point above support, but three points below resistance, I know absolutely nothing about where price will go, but I do know that I have a 3:1 risk to reward for this position, a potential 3 point winner and a potential one point loser, because price doesn't care about any other levels, it is in divorce court with these two price levels, support and resistance.

    After risk to reward, your edge comes second. In entering a 3:1 trade, your edge has something to say about the noise between these two support and resistance levels. To clarify, you always enter with the risk to reward on your side, but the edge tells you which side of the trade to take, and you never listen to your edge when it tells you to take the 1 side over the three. Get it? Let those trades go. Why? Edges fail, but risk to reward doesn't fail over the long run.

    All trading is support and resistance. As you move higher up in time frames, chart patterns become more reliable, but support and resistance is dominates because everyone involved views reality vis a vis their entry and exit point. Proof in point: If you make 125% and then lose 20% are you happy, or do you view reality vis a vis the highest balance of your account?

    LOL, this is all a game.

  • Smiddywesson

    If the Fed is writing those puts, and the Fed has unlimited financial resources (until they don't) then the game is to watch the bond market and the dollar until the Fed runs out of room to operate. All lesser metrics fall by the wayside when the Fed takes the field. I learned a hard lesson last year because I thought this was a market. It's not. I was astounded when they let the dollar fall below 75 this week. I always thought that the market abhored a vacuum, and they would ramp the dollar, collect those shorts, and then continue to impoverish me. I was wrong, again.

    I am dangerously close to the reasoning expressed in The Princess Bride, when they guy reasons why there isn't poison in the cup, and I go long this rotten teetering market. I am trapped in a government retirement fund where I can go long munis in a bond fund, long stocks, or shift to government bonds. With the dollar dropping like a stone and the market reeling even with unprecedented help, it's a choice of poison (whine, cry, complain)

  • Joe_Jones

    Yeah! He's back!

  • Joe_Jones

    reminds me of the 2007 move
    http://stockcharts.com/h-sc/ui

  • Joe_Jones

    PIMCO getting positioned
    😛

  • http://evilspeculator.com molecool

    “Gut call – dont get short yet, but be cautious with longs.”

    Kinda what I have been saying – despite the inverted H&S. Yes, very frustrating but that's how she blows.

  • http://evilspeculator.com molecool

    I see another post on the horizon :-)

  • http://evilspeculator.com molecool

    Awesome!

  • http://evilspeculator.com molecool

    “I learned a hard lesson last year because I thought this was a market. It's not.”

    Very nicely put.

  • http://evilspeculator.com molecool

    The handsome one.

  • http://evilspeculator.com molecool

    Let's hope it doesn't fuck around and goes our way.

  • OldChicago

    There is also another danger – if it drops hard too fast, it will create margin calls, causing more weakness, like Wheat sometime ago.

  • http://evilspeculator.com molecool

    That may be their game. Look – ZH keeps boasting that three successive margin raises in silver had zero impact. Duh – silver longs have been in the plus for months now. What I see happen is a major drop at which many weak hands head for the hills – that in turn will cascade to the piggies who don't have as much of a profit cushion. When she breaks it'll get ugly.

  • convictscott

    Its always reassuring when what pure price analysis gives the same opinion as your stuff

  • Biowolf

    What is the matter with thedates on these charts ?

  • convictscott

    Im in Australia, its a different day down here.

  • tradem4alpha

    This kind of divergence in market internals was also present at the start of the rally in September: ADD shoot up to 2000 on the 1st of september and went down (and then sideways for the remainder of the month); the next reading around 2000 (but still BELOW) the one registered on the 1st was around 23-24 september. Same story with TICK, UVOL. IMO this move is too explosive to just stop around here. Plus there is no divergence with SPXA50R or SPXA200R. If this is a top (and I say around these levels, not higher), then we should see massive divergence in these things. But now SPXA50R is 80.4 and climbing and SPXA200R is 93.2 and this shows momentum, not exhaustion. Plus, the percent of stocks above the 5 day EMA is around 60%. Real exhaustion comes when this is around 85-90 (February top, April 2010 top etc). This doesn't mean we can't go down 20 points, but I don't think more. All in all, I think this goes to 1420, maybe 1450 fast and then reassess.

  • convictscott

    Interesting ideas, but I have to disagree :-) The chart is overwhelmingly bullish at this point, and as you say we SHOULD see 1400+ in very short order.

    However if something which *should* happen does not, it will give a larger result in the opposite direction.

    So IMO either it shakes out rather hard here, which is clearly the lowest probability outcome…. or we continue just as we are straight up.

    A lot depends on whether bucky can catch a bid

  • convictscott

    And you are right, the same exact thing happened with internals in the run up to the old highs

  • tradem4alpha

    Yes Scott I totally agree with this concept ( “if something which *should* happen does not, it will give a larger result in the opposite direction”). So, if it doesn't remain embedded in the bollinger band and we see 2-3 dojis on the daily and then a big red bar, then clearly the opposite will happen (down hard).

  • convictscott

    100% agree on all points :)

  • volar

    u and me both Joe- well more 06. that is where the summation broke out too,and then that was the last move

  • skynard

    Definately a receipe for disaster. Thanks for the charts.

  • DarthTrader

    A Little reading for the weekend or perhaps a slow Friday

    http://www.martinarmstrong.org

    Martin has been out of prison now for a couple of months and is putting out some good stuff.
    Love his broad breath of history tied to the now via cycle work.

  • DarthTrader

    Favor Granted as per email

    Thanks for all you do Mole

    It's the least I could do

  • Smiddywesson

    LOL, disregard any rantings last night, I was in my cups and had to reread everything this morning to remember what I wrote.

    Ow, my aching head

  • bisq

    HUZZAH! GLD and GS are now the same price. Its not too late folks to get on the double your money pairs trade of the next 2 years.

  • gsavli

    vapor rally. low volume + we have massive divergences (MACD, RSI) on hourly NQ charts.

  • ronebadger

    Waiting for Zero divergence, right?

  • http://pulse.yahoo.com/_VSVXKYHCX5MPKIR6C2MRTTL42U Celtic33

    RMZ index is breaking down hard today. More importantly, LNG looks like it could get squeezed very soon. 14mm shorts now

  • amokta

    Just noticed LNG, altough im out of it!

  • http://pulse.yahoo.com/_VSVXKYHCX5MPKIR6C2MRTTL42U Celtic33

    Rally is just getting started. 14mm shares need to cover. I imagine most are down

  • amokta

    Indeed

    Also, whats up with DRN (rmz equiv?) – was up huge, just as well i dont hold on to these pieces of 8 – the triple etfs seriously dangerous (now if only there was a triple etf for silver!)

  • skynard

    Copper approaching that 4.2 mark, a substantial move below this would seem bearish.

  • OllyVaradi

    Ok – just got back from the Abbey, then did the fly past but back at laptop now, hope you all liked our little show.

    Thoughts: We are now in territory where “something can happen.” However, if we do go down, I don't think we've seen the top yet. If we go higher then there's a lot better chance that that will be the indication that the top is relatively close. Snagging 12,900 on the DJ is the best longs should hope for this week IMO. There's a fair few warning signs that Mole, Scott & Volar have put more eloquently than me, but I'm packing some of my own signals that say, “watch out.” Some bears are seeing these signals and creaming their pants that the biggy is just about to pass – it might be, but probably not just yet. Other bears' only hope is a black swan event and it's their short covering if it doesn't happen that'll give us higher numbers.

    Either way it would be unusual not to have more than 1% upside in May after a sequence of piercing the upper Bolly's so if we close green (or modest red) today, then there's a good chance that opens up May to piercing the upper Bolly and that then opens up the door for June to do it. The latter will probably be somewhere like 13,200.

    A troubling stat for the bears is that the weekly price has just snagged the upper Bolly and they don't normally appear as an orphan. They can, but they normally appear as a sequence of late so that suggests 12,850-12,900 will be seen next week.

    All the above to be taken with the notion that my data, although the monthlies go back to 1968, most of it is bull market territory, and even the bears weren't like this one (if it is a bear :-o).

  • Rightside_ot_trade

    /SI not confirming /GC new high
    most miners also not confirming
    I think that is an RTV sell on the hourly
    with a breach of last hours low of 48.51 the trigger

  • captainboom

    Thank you. It's fun when everything pulls together well, as it did for these displays. Indoor pyro is fun, interesting, and outrageously expensive. I've got about 3 weeks prep time into each of those shows. Right now, I'm ass deep in alligators getting ready for the July 4 weekend. That will last until mid-July, then it's off to a fireworks convention in August.

    For anyone interested, it's the Pyrotechnics Guild International, and anyone can join.

    http://pgi.org/

  • ronebadger

    Is that 48.51 spot, or nearby future? I dont follow the future, just the present…

  • Rightside_ot_trade

    Futures, that grey rectangle shows the range of the bar that I'm speculating is the trigger bar
    http://screencast.com/t/F9fk9i

  • http://evilspeculator.com molecool

    It's been bucking the trend for a while and usually it leads the pack.

  • http://evilspeculator.com molecool

    Martin was in prison?

  • BobbyLow

    Well that sucks.

    After all my talk about BTU yesterday. 2 other Coal Producers report this morning and beat earnings (1 from China as they continue to build uninhabited cities) So it was time for the Boyz run stops and to rotate back into coal so BTU goes up 3% and I get hit with a 1R Loss.

    So there ya go. Mr. Market says “How do I fuck thee, let me count the ways.”

    Now I need SPY to go up a little more to offset that one. And that will probably happen because the overall market is in the Land of Oz where it never goes down.

  • bshah

    Bobby,
    I was just thinking of you in ref to your y'day post.. “Do they need any other spin?”..
    And surely they had one y'day evening, “Market is off to BEST APRIL SINCE 2008..”, so that was their motive now.. Everyday there will be some twist to pump and eject…
    BTW, another 50 pts… and look this way, it will be 13000 on DOW by next week..

  • BobbyLow

    “Market is off to BEST APRIL SINCE 2008..”

    Well that's a good one considering how well 2008 turned out. LOL

    I like to read a lot of Financial Headlines just to see how many contradictions are in the body of the articles.

    During times like these, I have to think of old sayings that have survived the task of time and in particular, “markets can remain irrational far longer than you or I can remain solvent”.

  • Southern

    Mole, any chance you could draw a line on the divergence on the 5min ZL or is there not enough to matter?

  • Clint

    Climbing the wall of worry in a slow motion melt-up. Makes it difficult for bull and bear traders. Just how they like it.

  • bshah
  • mothwhoflysbackwards

    Are you talking of the down slope made from yesterdays near .75 reading and today's .5? I don't think you are supposed to count those … but I could be wrong. We will just have to wait from the pronouncement from on high!

    Also have some puts on ERIC, just hanging around at 15.25.

  • gsavli

    More like waiting for Godot.

  • BobbyLow

    Unfortunately the saddest part of this article is:

    When talking about giving Confidence to Investors he said,

    “While Speiss is generally upbeat about the economic outlook, he is concerned about the 5.2 percent drop in government spending in the first quarter. “When that starts to slow down, you can see a deceleration in (economic) forecasts,” he said. “We'll keep an eye on that.”

    So what he is saying is that if the Government doesn't spend business will decline.

    I guess this is the “New” Capitalism.

  • Southern

    Thanks, I wasn't sure if it counted or not, but we have melted higher while the zero has melted lower. But that signal is small. I have some of those puts as well… Monday could be a good day for those… we shall see.

  • http://pulse.yahoo.com/_VSVXKYHCX5MPKIR6C2MRTTL42U Celtic33

    The market is giving us another opportunity to short RMZ via DRV calls.

  • x5x5x5x5x5

    Seems like it. I nibbled on drv a bit yesterday and sold (a bit too early) this morning. Looking to possibly re-enter. Maybe EOD, or early next week. The triples can be evil though (and not in a good way).

  • BobbyLow

    I realize that a big wedding has occurred across the pond, but is today some kind of world wide holiday again?

    We have as of 1:41 PM, less than 58 Million Shares Volume on SPY. It now looks like we are going to have a difficult time reaching 50% of an already low average daily volume.

    It also looks like what Scott said about the S&P becoming embedded in the upper BB staying there on very low volume until the last Short is dead is coming true.

  • bshah

    well, i was dead long time ago.. i threw my only towel in the garbage..

  • http://evilspeculator.com molecool

    Signal is too weak to draw any lines.

  • raised_by_wolves

    Gold is kicking silver and equity ass today. Further, the spread between gold and copper is over 3%. That's pretty fucking significant in my mind.

  • BobbyLow

    Yep. The market believes that a 14.66 VIX and almost $1,600 Gold is perfectly logical.

    In the mean time Oil is back up over $114.00 again just in time for gas to shoot up even more over the weekend.

  • BobbyLow

    DX near LOD and the beat down goes on.

  • OllyVaradi

    Royal family been otherwise engaged today hence low volume. Couldn't trade on their iPhone from the Abbey.

  • raised_by_wolves

    “A [SPX to gold breakdown] is usually a glitch in the Matrix. It happens when they change something.”

    http://content.screencast.com/

  • raised_by_wolves

    If I can just get fucking filled . . . I've figured out how to double by money by December assuming that gold only modestly outperforms SPX.

  • raised_by_wolves

    If I can just get fucking filled . . . I've figured out how to double by money by December assuming that gold only modestly outperforms SPX.

  • BobbyLow

    LOL

    I spent almost a month in London many, many years ago and absolutely loved it. I didn't care too much for the warm beer though (I suppose it's an acquired taste) and I don't know if it's the same today, but the Pubs always seemed to close during the late afternoon and early evening and then re-open.

    I guess you can see where I spent most of my time. :)

  • raised_by_wolves

    Which one doesn't belong in this series: JJC -1.5%, SPX +0.22%, GLD +1.80%?

  • BobbyLow

    Well doesn't JJC have something to do with the REAL ECONOMY?

    We don't trade the real economy. We trade dreams and magic. As a matter of fact we need a new ETF to trade Bull Shit and it can replace the entire Stock Market. It can trade under the Ticker – BS. :)

  • OllyVaradi

    If a bartender served me warm beer, they'd be wearing it in short order.

    Local pubs sometimes still close after lunch you can get leathered 24 hrs in

    the big smoke these days. Fun times in London.

  • ronebadger

    Slight downsloping channel on the zero graphs? ….meaningful?, keep a close eye…

  • volar

    lol that is in my new post (on its way).

  • http://evilspeculator.com molecool

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨
    ¨°º¤ø„¸ N E W „ø¤º°¨
    ¸„ø¤º°¨ P O S T “°º¤ø„¸
    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • raised_by_wolves

    Putting aside the fact that it is a leveraged 2x ETF, which means decay if the underlying not only moves down but also moves just sideways, there is a less-BS ETF called FSG.

  • raised_by_wolves

    I bet you to the punch, and great minds think alike. :-)