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Bearish Bullish Candle
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Bearish Bullish Candle

by The MoleAugust 4, 2011

Yesterday strangely presented us with what I call a ‘bearish bullish candle’. Has Mole finally lost his marbles? Maybe, but there is method to my madness – let me explain:

After seven consecutive candles down the odds for an eighth was only 0.31% – rather low. And low and behold – we got our ‘up day’ – which certainly didn’t feel like one. But it gets worse – as Convict Scott would put it (if he was paying attention) – what should have happened was a violent snapback leading to a little short squeeze. If we were still in a bull market that is.

Instead the bears helped themselves to another serving of kick ass and we are now in technical territory not seen since 2009. After a last kiss goodbye to our lower channel support line we finally fell away today and are now back in the December 2010 range. And that means the odds for this being purely a major correction in an ongoing bull market are depleting rapidly. Much technical damage is accumulating here and the bears are smelling blood.

Nevertheless holding short here is probably not a good idea. Am I going to say that we couldn’t possibly see a push above the 30 mark on Mr. VIX? Of course not – but clearly this is not where you buy vega this is is where you may want to sell vega – or at least be vega neutral.

But wait – there’s more – a lot more…
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Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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If you have been a sub for more than a week you remember this chart. And it’s spelling BIG trouble as we are now scraping the 40% mark. Yes, bounce territory – but that’s not really what I’m focused on. Rather, what I want to see here in the coming week is a little short squeeze accompanied by a listless bounce in the SPXA200R. The money shot would be to get near recent heights in the SPX while remaining below the 60% mark on the SPXA200R – which of course would smell of distribution. Yes, one can dream – but we’ll keep watching this chart just the same.

Two things to focus on when looking at the NYSE advancing/declining volume ratio: First, we are dropping into a range not see since the 2007/2008 bear market. By the way, this is a moving average, not the raw signal – so again technically quite a lot of damage here. Secondly, we are most likely overdue for a bounce – happened every single time back back when. So, this confirms my outlook that holding short here is merely playing the lottery.

The last long term chart for today – ye ole’ bucky. Which has turned into the bitch boy of the currency market. Look at what’s happening in equities/bonds today and compare what is presented above with the tape of a few years ago. Now consider where the Dollar was during that time – yes, it accompanied equities down until April 2008 – but that was before the real crash happened. But then it finally caught a bid and from there things got really ugly. Until the Fed stepped in and and stomped on the short end of the treasury curve with their zero interest program.

Now I ask you this – what is the Fed to do this time around? After two unsuccessful quantitative easing rounds, which incidentally were politically rather inconvenient and widely unpopular? If the Dollar finds a bid here – in a month – three months – six months from now – in the midst of an economic double dip – things could unwind rather rapidly. Now, this might still play out in slowmo over the next few months but a crawl up to the 77 mark would be an early indicator that it may be time to batten down the hatches.

More short term copper is now heading into possible target territory. If it breaches below both MAs then it probably is going to drop into 4.00. That would be rather painful for equities – so I recommend you watch this chart.

Crude has reached out second target and although I don’t want to take a long position here it’s officially on ‘long watch’.

Gold – as you recall I was waiting for a sign from the dark Lord and it looks like she answered my call. That’s a rather bearish engulfing candle a small short position may be appropriate. I’m not taking out a major contract here as gold has not confirmed bearish yet and this trade would be highly speculative. Stop at today’s open if you must know – I’m not holding this to 1685.

Cocoa is now at our first target and it’s time to start taking profits.

Let’s mix in some sugar to sweeten up the deal. We never really got a solid signal on sugar but if you rode this one lower I would be taking profits at 27. NLBL is miles away – so unless I see some clear floor pattern long trades are off the table here for now.

Coffee however just dropped through yet another NLSL and it’s possible it’s going to do the double Bollinger slide like Napolean in Bill & Ted’s Excellent Adventure.

If you are looking for a sign to go long equities you may also look at the overnight action on the AUD/JPY. That next NLBL is still miles away though. What’s interesting however is that we are not painting a new daily low on what has in the past two years proven to be a tightly correlated FX pair to the S&P E-Mini futures, a.k.a. the spoos.

Speaking of the devil and finishing the post on an evil 13 – similar picture but more bearish – by all means more over extended. I do not want to be short or long here (yet). If I see signs of a floor I will report on that. But always remember that a big third wave like this is always followed by a fourth and then a fifth wave.

Bottom Line:

I’m really not worried about the short term right now – I’m not worried about a continuation lower either, at some point it’ll bounce back. My entire focus right now is to gauge the tape as it recovers. What we want to see are divergences and signs of distribution – and that would be when I’ll back up the truck for a boat load of shorts. But that time has not come yet – let’s see what happens on the way up first and then we finally will be able to arrive at a more solid assessment and potentially the confirmation of a trend change.

A little caveat if you happen to be a noob – don’t buy calls here unless they are deep ITM. If volatility drops your premium will get killed, even if you are right on the direction. There is similar risk for put holders btw – we may see a continuation downward while volatility drops and your premiums would similarly be affected.

Cheers,

Mole

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About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • bshah

    i regret… why did i even had a thought of this. will it even go up to 1220 is a dream !!!

  • http://thebhbgroup.com TheBHBgroup

    great post and a lot to think about….too bad I am on vacation or I could have really made a small fortune here….loving this tape again….since we are in heavy heavy cash for now.

  • Anonymous

    Fucking fantastic post!

  • Anonymous

    Good stuff!!!  Again…. (and again, and again…..)

  • Anonymous

    Good stuff!!!  Again…. (and again, and again…..)

  • Anonymous

    3:12 PM  UVOL – DVOL is at worst levels of the Day  -11.12

  • http://pulse.yahoo.com/_N2BRXG3E35GXBXZTEBSXLUSDCM B

    Idea for the brave: going long before tomorrow’s NFP. I imagine that agency is under intense pressure to make the data, erm, more “accurate”, and “less prone to downside errors”. All they have to do is show basically no growth, because with this amount of fear anything less then a devastating report will be “better than expected”. Maybe just the catalyst for relief rally we’re expecting.

  • http://evilspeculator.com molecool

    NYSE D/A ratio (hope you are sitting down) is currently 15.2:1. That is not a typo.

  • http://evilspeculator.com molecool

    New hourly NLBL on spoos 1228.25.

  • bshah

     if this continues, where can it stop…? one after the other so called supports were taken out as if it did not even matter..yes, when going up was infinite limit, but here to the downside, there is only one.. 0… Can it go down to triple digit ..? How come we are not having any news conf/ PR from BEN/TIM? isn’t that surprising.. All of them , nowhere to be found !!!!

  • Anonymous

    Yep.

    It never ceases to amaze me that during every Stock Market Bubble how Pundits can say “It’s Different This Time”.

    I’ll bet that there were even Pundits in Holland during the Tulip Bubble of February 1637 saying “het is deze keer anders” which I think means it’s different this time in Dutch.   :)

    http://en.wikipedia.org/wiki/Tulip_mania

  • bshah

    am i seeing this right ? 450 pts..

  • Anonymous

    Do i need a math lesson – if the market falls 2% every day, then at day 50 it will be at zero (!)

  • http://evilspeculator.com molecool

    Don’t panic – are you in the market right now?

  • bshah

    yes.. but with some call options.. not big hit, but this’s just sending chills..

  • Anonymous

    im seeing -441
    Wht we need to see is is this just a correction, or a trend change to a new bottom (even if not make spx 666)

  • http://pulse.yahoo.com/_QNMYHL4YRBJHTMPXMHWSDNAYQA QTMedia

    if you have mutual funds, what do you recommend doing?

  • Anonymous

    Wow….anyone see any signs of capitulation?  Is it just that all the buyers disappeared or has everyone and their mother gone short?

  • http://evilspeculator.com molecool

    You should have cashed out a long time ago (if they let you out). Are you new here?

  • http://pulse.yahoo.com/_QNMYHL4YRBJHTMPXMHWSDNAYQA QTMedia

    yes, i am. ok, i should have. but now?

  • Schwerepunkt

    PPT, wherefore art thou?

  • Anonymous

    Yes, you need a math lesson….get your calculator out and try it

  • Anonymous

    OK, someone just mentioned CAPITULATION….can ANYONE measure how that will be determined?

  • Schwerepunkt

    extreme volume, extreme price drop, extreme internals.

  • Schwerepunkt

    Whoa! Picking up steam here

  • Kudos

    Ben Bernake walks up to the podium, with his left hand he raises three fingers to the audience, with his right hand he gives a thumbs up. 

  • Anonymous

    I normally look for a combination of things: volume, $CPCE, BB, RSI, MACD & a reversal candle.  Only 3 of those suggest that we should be bouncing.

  • Anonymous

    yes, i know :-)
    anyway, i agree capitulation determination next issue, but on what time frame

  • bshah

    was it fearless or someone who wanted 1180.. guess what , we will get it tomorrow after employment.. how’s that..

  • http://pulse.yahoo.com/_QNMYHL4YRBJHTMPXMHWSDNAYQA QTMedia

    should i wait for a bounce?

  • http://evilspeculator.com molecool

    S&P E-Mini futures just breached the 1200 mark.

  • http://evilspeculator.com molecool

    I can’t legally offer personal trading advice. If it was my money I would probably wait for a bounce. However from our perspective here (I am sure I speak for many frequenting this blog) it’s very difficult to advice you in this situation as we would have never waited this long had we been exposed to the long side as the slide began.

  • http://evilspeculator.com molecool

    SPX just breached below 1200.

  • http://evilspeculator.com molecool

    SPX just breached below 1200.

  • http://pulse.yahoo.com/_QNMYHL4YRBJHTMPXMHWSDNAYQA QTMedia

    ok, thanks

  • http://evilspeculator.com molecool

    Fade emotions folks – stay frosty!

  • Anonymous

    Seeing this, it is my belief that we have entered into the bear

  • Anonymous

    This is just a “cub”, I want to see “Big Nasty” momma bear . . .

  • http://evilspeculator.com molecool

    Wish I could be more helpful. Don’t give in to emotions – most likely you are deep in the red already. If you want to cash out and walk away – fine – your choice. There are never any guarantees when fear sets in – but statistically the odds support a bounce at some point.

    In general – if you were long for the past two years and you are walking away now – BFD! You made your coin – on the relative side you are still in the green. However, if you decided to chase the tape in the past year – boy – I do not envy you. Drop by here more often. I’ll throw in a free 2-week Zero subscription to ease your pain – send me an email to admin@.

  • http://evilspeculator.com molecool

    NYSE D/A ratio (make sure you are laying down) – 19.5:1. And as the bell just rang this reading is going to stick.

  • Anonymous

    Just covered 1/2 of this mornings Short SPY.  I held on and waited till I saw the whites of their eyes this time.  :)

    Back close to Neutral with only a slight Negative Bias.  

  • http://evilspeculator.com molecool

    SPX closing at 1199.54.

  • volar

    lol still not long…

  • http://evilspeculator.com molecool

    You’re killing it lately… :-)

  • Anonymous

    I think the absolute worst thing to do at this point would be to sell your longs or take up a short position….but that’s just my opinion.  Can’t go down in a straight line forever without a pullback or a retest….especially with everything so oversold…..again, just my opinion.

  • http://evilspeculator.com molecool

    Seems like you’ll meet her soon enough!

  • http://evilspeculator.com molecool

    I think an NYSE closing ratio of 19.5:1 would be good start.

  • nyse

    Cleaned the fuk up today, boys. 
    Mole, Volar, Scott, GG, Badger, BobbyLowski, RBW, Joe (Im sure Im forgetting someone – sorry) – Thank you all so much for your continued contributions here. Your insights are invaluable to me, a budding flower of a trader. Its really a great site you’ve made here, Mole; not only because of the analyses and the attitude that is promoted, but because of the people who are part of this community. Drinks on me tonight 😉

  • http://evilspeculator.com molecool

    How did your secret strategy do today? :-)

  • http://evilspeculator.com molecool

    I might take you up on that, mate :-)

  • Schwerepunkt

    Did I say we couldn’t hit the 1180 mark today? Nearly did. Whoosh. NFP numbers tomorrow. Overnight Asia and Europe should be . . . uh . . . interesting, to say the least. This kind of market requires balls of steel. Mine become a bit, er, mushy, when the trading range is like this. 

  • Anonymous

    Dude, in FAZ 43.30 on july 21, sold 45.50 on the 25th, in 44.20 on the 26th, sold AH for 45.11 missed the next day (hits 48) and had a limit buy on monday for 46.01 (was busy in morning could not do it by hand) missed it (shit). Then last night was thinking to go AH at around 51.25, but thought it has a long way to fall (already at top of BB) so I thought give it another day …. and now this.

    Perhaps my sad tale of woe will make you feel better. And to top it off I don’t even see any FAZ weeklys (Aug 5) that freaking go up that high!

    This really sucks, but such is life in the big city. Congrats to those that caught it!

    I don’t dare chase here… but that could be the play … give me the 20 sma …please!

  • Anonymous

    whoops ment to reply to bshah … ment to reply to myself w/ that one. something is off w/ discus

  • nyse

    This is a good point.

  • Anonymous

    Thanks NYSE.

    I feel honored to be included in that group.   

    The funny part is that I too have learned an awful lot from the same people you mentioned among others including yourself who participate here in the Evil Speculator.   

    I think it’s great that we can learn from each other.    

  • nyse

    Correct. They are a scam, like 401k’s, et. al.

  • bshah

    what can i say.. i m dumb ass.. let’s see how many more stars do i see tomorrow..

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

    me me! (GG jumping up and down)

    I’ll have a Jack & Coke, lotsa ice

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

    wow.  I missed the real excitement.  500 pts down.

    it’s gonna make a helluva T.
    i’ll be back with the BP update.

    Ciao.

  • http://practicalt.blogspot.com/ Gold_Gerb
  • http://pulse.yahoo.com/_N2BRXG3E35GXBXZTEBSXLUSDCM B

    To be clear it sure as hell ain’t me going long! But…for my long term investing (IRA’s) I am getting close. Everything is lining up as far as sentiment, market indicators, etc., but the valuations are still too rich for me. When sentiment finally decides $96 EPS for the S&P500 is about double the historical norm, and that they are about to get much worse (maybe negative) people will freak and drive stocks down to something more reasonable. Then I’ll buy. Early 2009 all over again (I hope). My only fear is that nut Bernanke will pull the trigger as soon as Tuesday on more QE.  

  • Anonymous

    I think Bernanke will go down as helping to add voluminous amounts of gasoline to the worst worldwide financial disaster fire in history.   His actions are proof that sometimes Phd’s aren’t worth the paper they’re printed on.  

    This song is dedicated to Benny and the Gang.

    http://www.youtube.com/watch?v=Wik2uc69WbU

  • Anonymous

    Thant sounds good, Boy do I need one after today!

  • Anonymous

    I’m drinking, but where the heck in “NYSE” are you?!?

  • Anonymous

    Wanna make some real money on an ETF?

    TVIX   went UP 40% today

  • http://pulse.yahoo.com/_N2BRXG3E35GXBXZTEBSXLUSDCM B

    QTMedia I’ve been using a counter cyclical rebalancing of stocks versus bonds/MM in my IRA’s for the last two years that has done real well. Up over 7% over “buy and hold”, and with less volatility. You might be interested since it agrees with what Mole just said, but with simple rules for dolts like me. Basically every first Wednesday of the month if the DOW (or S&P500) has gone up over the last first Wed of the month, I move 2% of my account balance from stock funds to bond/MM funds. I continue this until the DOW drops at least 5% from the previous month or two’s first Wed. Then I hold one month for confirmation of the inflection. If the market continues down, or stays steady, I move 6% of my account balance into stock funds. I do this until it reverses by at least 5%. You get the idea. The idea is that you want to incrementally go more conservative at the top of the market, not wait until it crashes 15%. Then you have all that money that you didn’t lose to put to work buying back in when it does crash.
    A couple of nuances I use from backtesting and the experience since using it: if the market doesn’t change much over a streak of 6 months (say 5%) I stop moving money until it sends a signal one way or another. If you get whipsawed going aggressive (like I did last summer) where you get the buy stocks signal, wait a month and buy, then get the opposite signal (go conservative) and hold, then go the other way and get the aggressive signal again (follow that!?) don’t wait the month for confirmation. Make the move because you already got the confirmation 2 months prior. Also when going from aggressive to conservative I don’t do it right away, wait 6-12 months after the signal is given. Going from conservative to aggressive you just do what I said above: get signal, wait a month, make move on confirmation. The reason being drops tend to be abrupt, short, and steep, while recoveries are often long and relatively shallower. This time around I picked 6 months wait due to the incredible rally and start getting conservative in April. Only moved 8% from stocks to bonds before getting the aggressive signal this week, so not as much as I would have liked. But like the turtle it pays off over the years and is fairly conservative until I feel more comfortable with short term trading that I’m doing in my small trading account.

  • Anonymous

    Not TOO horrible today…

    At least it wasn’t a 20% down day, like Oct 1987

    I remember that….made me physically sick

  • http://pulse.yahoo.com/_QNMYHL4YRBJHTMPXMHWSDNAYQA QTMedia

    thanks a lot! I have some catching up to do as a lot of your terms I am not so familiar with, so if you don’t mind I might bug you with some newbie questions. Also, I don’t know if I will be playing futures or even shorts. Yes, I have been in the market for over 2 years, I am sending you an email now, thanks again.

  • Anonymous

    Mole could you please explain what this means? Thanks

  • Anonymous

    I think it might have been worse than that in 1987 because I remember taking a 30% hit in my IRA.

  • Anonymous

    Look on the bright side…at least gas will be cheap 😉

  • Anonymous

    Where it should be if it was priced at current supply and demand levels instead of constantly being bid up by the Boyz in the Pits for no reason except that they can.  

  • http://evilspeculator.com molecool

    You sound like some guy in a trench coat – LOL :-)

  • http://evilspeculator.com molecool

    You sound like some guy in a trench coat – LOL :-)

  • Anonymous

    Supply/demand has nothing to do with price at least for a long long time. Maybe when we have have some real free markets….

  • Anonymous

    Nice work mole! You have been bang on for quite some time!

  • Anonymous

    ROTF!

    :’-)

  • Anonymous

    looking forward

  • Anonymous

    Not the best of days, Got a computer virus at 3:30  ( cleaned it up with 360) had a  torn retina scare and ran of to the eye doctors and  to boot was stopped out of my small longs in TYH.  Oh and the market was down,  but I’m 99.999% out of it any way since july 19th when i took the volatility position but Sold my   VIXY and Aug VXX calls waaaay toooooo early on July 26th… using the proceeds to scalp, but ready to reload shorts on the next bounce.

  • Anonymous

    Not the best of days, Got a computer virus at 3:30  ( cleaned it up with 360) had a  torn retina scare and ran of to the eye doctors and  to boot was stopped out of my small longs in TYH.  Oh and the market was down,  but I’m 99.999% out of it any way since july 19th when i took the volatility position but Sold my   VIXY and Aug VXX calls waaaay toooooo early on July 26th… using the proceeds to scalp, but ready to reload shorts on the next bounce.

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

    ok, the BPSPX chart is in, hot off the recalculator press.
    and no surprise. RISK Off.

    http://stockcharts.com/h-sc/ui?s=$BPSPX&p=D&yr=0&mn=6&dy=0&id=p84652413203

    [GG confessional]
    The farther down we go this rabbit hole, the more I think of this Bullish Percent stuff as lagging and stupid.  But, once again if you had followed yesterday’s signal ..today, you would have saved a ton of grief.  yes yes, I know – “the probability of a move down is submicro percent.  I can feel the reversal, it’s screaming at me.  I’m a day trader, I can profit from the swings faster than…”
    nuff said.  

    This indicator has saved twice.  yes, the downdraft is nearly (?) unprecedented.  it’s worthy of watching for capital preservation.
    -my 2 grams

  • Anonymous

     Look, the move down is running on fumes now. If you missed this one, you’ll catch the next elevator next time. Keep some powder. The only event that can stop this ride is QE3, until then we are in a downtrend.

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

    I swore back in Summer of 09 I should have backed up the truck during March.
    well, almost there.
    and now the mind-F.
    can it happen again?
    or LOWER?

    http://stockcharts.com/h-sc/ui?s=$SPX:$GOLD&p=D&yr=3&mn=0&dy=0&id=p67891215698

    -GG

  • Anonymous

    LMAO!

  • Anonymous

    I have been following (i.e. subscribing) to the ES (Evil
    Speculator.. ES hmmm what a coincidence) for about a year and it is great to
    see long lost -but familiar names coming back  to blog (and contributing)  (is this a seasonal thing???)  I’m on Vacation for a few days   …    trading. 
    Since I have a full time job I’m more of a voyeur and day trading is a
    treat.  I must say I thank all the
    contributors especially Mole, Volar and the Convict for helping me through such
    a volatile market and also for well thought-out observations and honest (humble)
    disclosures of human vulnerability.   This blog is about  much more than just making money.   Thanks
    all.

  • Anonymous

    ‘Nuff’ respect to you NYSE. I certainly do not deserve to be in this group of experienced traders. I feel much honored.
    Made some mighty coins today  too . To be honest, I wasn’t expecting the breach of 1220, but still kept my shorts not seeing a positive divergence on ZL at that time. I sold most of my put at about 3.45 pm. Certainly would  have sold earlier without the Zero. I still have some lottery tickets for tomorrow a.m., you know, just in case we venture  towards 1188.

  • Anonymous

    Johnny Black for me with a splash of soda water.

  • Anonymous

    DOW:Gold ratio will drop below 2 before this bear market is over. But that will take years.

  • raised_by_wolves

    Seeing that $SPXA200R is at 22 . . .

    http://content.screencast.com/users/raised_by_wolves/folders/Jing/media/5cdef086-0af2-45e1-b060-677f997a6c86/00003582.png

    . . . are you readying a buy list for when BPSPX tells you RISK ON?

  • Anonymous

    boom!

  • http://evilspeculator.com molecool

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  • http://evilspeculator.com molecool

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