Bounce It

The magic pendulum swung back the other way and Friday’s decision to take partial profits (according to system rules) managed to lock in at least 50% of the profits accumulated on the way down. Of course the question rattling around in your retail rodent brain right now is whether or not this is just a temporary bounce to shake out a few weak hands (i.e. you) or if this thing manages to squeeze higher.

If you want my advice – just bounce it all. You should always always know what your campaign will do at each step of the way – ahead of taking entries. Remember that the game always has and always will revolve around pressing your emotional buttons – and there’s a wide range of keys available – take a look:

2015-03-16_brain

You think of yourself as a rational person? Well, think again – 90% of what we do is steered by habits and emotions. Just look at how much of your brain is actually devoted to emotional interpretations and responses in comparison with rational analysis and the exercise of judgment. So if you are still exposed to the downside all these sections of your brain are most likely feeding you a party mix comprised of disappointment, fear of losing more of your prior paper profits, temptation to double down and sell the rip, doubts about your prior analysis, anger at not taking full profits last Friday, etc.

Mind you this is NOT the time to second guess your system (if you have one) or to react as opposed to simply act. I think this is an essential maxim every trader should be print, frame, and hang on the wall facing you during your trading activities:

ACT – NEVER REACT.

2015-03-16_ES_update

The hourly and daily price panels are looking pretty bullish at this point. However we are at a short term threshold which will determine if this leads higher. Notice how the BBs and SMAs on the hourly are starting to slightly swing higher – if this continues into the close then the bulls take this one home and probably squeeze things higher. So watch the next two hours – the bears need to act now in order to prevent a massive squeeze to the upside. Accordingly I have put my final stop near the 25-day SMA which is probably more than generous.

2015-03-16_spoos_weekly

Weekly – the bulls definitely won the first important battle. That NLSL and the 25-week SMA held up like bosses and unless challenged early this week it will henceforth act as additional support.

2015-03-16_VIX_ratio

Let’s take a look at market internals – the SPX:VIX ratio is looking a bit suspicious as it’s trailing price. This may be nothing but I am sharing additional considerations below the fold.

2015-03-16_zero

The Zero super flat today – no participation. Which leads into two charts that grabbed my attention – please get your secret decoder ring and join me in the lair:


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RainbowPamPortVila

UPDATE on Ivan Krastins – I am happy to report that I just received notice from someone in contact with Ivan. Apparently the old buzzard managed to survive a category 5 cyclone wearing his Chinese wok as a helmet and by chaining himself to a boat anchor. He has no electricity or internet and his computers have been damaged. But he does have phone access and I wouldn’t be surprised if he’s calling in futures orders as we speak. Well done old chap – if you need anything please don’t hesitate to ask – we’re here for you. Unfortunately Scott is in Bali right now otherwise I’m sure he’d be on a boat by now. I have an old MBP I could ship him or perhaps someone closer to Ivan could help him out? Getting things over there will be difficult for the next few weeks and any Aussies or Kiwis please steps up – he needs our help.

PUBLIC COURTESY ANNOUNCEMENT: I am heading to San Diego for a day and am scheduled to return to Los Angeles tomorrow early afternoon. I won’t be bringing my lappy as I’ll be on my feet most of the time down there. This means that tomorrow’s post will most likely be after the market closes. Thank you for your understanding – I am doing my best to keep the blog flowing during my time on the beautiful West Coast. By the way the weather here has been fantastic – super sunny with dry heat – just like the Mole likes it :-)

Cheers,

Long Term Equities Update

It’s been a while since we’ve covered equities exclusively and as the month is coming to an end this is as good an opportunity to catch up. As you all know I have been dangling the ‘late stage bull market’ carrot for a few weeks now and quite frankly I don’t see any reason to change that outlook. I have been very adamant about expecting a final exhaustion spike higher and believe that is already in the works. Now before you start piling into puts be aware that we may be weeks, perhaps even months away from a downside event. So hold your horses and for now just enjoy the charts in preparation for where we heading most likely later this year. Enough weasel talk and disclaimers? Great – let’s get to the charts.

2015-02-27_zero

Actually it was the Zero chart that reminded me that a LT update may be in order. Over the past few sessions some of my subs and myself have been noticing strange signal patterns suggesting distribution. It’s very much possible but quite frankly I don’t see anything on the momo side that would suggest urgency. In short – nobody can predict when things will take a turn but we are a bit early in the game here still. So let’s review the evidence:

2015-02-27_SPX_LT

 

First the long term SPX with my trusted weekly stochastic. I almost never use this indicator – except on the weekly chart where it actually works pretty well! Right now we’re scraping 100 but in this bull market this means nothing. Most likely we’ll see an embedded signal (above the 80 mark) for a while before we head lower here. So no reason to be in a hurry – again we may be weeks or perhaps even months away.

2015-02-27_SPX_SPXA200R

SPX vs SPXA200R – the latter is the percentage of stocks in the SPX trading above their 200-day SMA. Now that one is looking bloody well divergent and eventually there will be a price to pay. But I don’t think that we’re due just yet (watch how the market will drop instantly after Mole’s statement).


More 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 you get free access to all Gold posts, which gives you double the bang for your buck!

Please login or subscribe here to see the remainder of this post.

Bonus Chart!

022615pump

This one is courtesy of Chris Carolan over at spiralcalendar.com – one of the few other analysts I follow. Chris graciously permitted me to post this chart which I not only find absolutely compelling but also appears to be in line with what I’m presenting above. See the delay in the response on the S&P? Ponder on this one over the weekend.

Alright – I’m exhausted and am desperate for my Friday treat:

beer5

Not her you deviant! I’m talking about the Hefeweizen – which is waiting and that’s my cue. See you guys Monday!

Cheers,

I Hope You Bought Insurance

Given the fact that the ES futures have been proceeding lower overnight I will dispense with our usual morning briefing and instead present you with a few of my favorite momo charts. There’s a lot of confusion out there right now and it is important to remind ourselves of where we are in the long term trend in order to properly assess the odds for our respective trading activities.

Let’s start with a chart I already posted yesterday – the NYA50:NYA200 ratio which expressed market breadth across the NYSE. A drop in the signal tells us that we are seeing more symbols above their 200-day SMA in comparison to the ones above their 50-day SMA. If indices remain at elevated levels during such times it suggests that the intermediate trend may be weakening.

As you can see we dropped through a rising support line which in the past two 1/2 years has served as a launch point for dip buyers. That is interesting but the hidden message here that may not jump out at you is that a contracting breadth range in itself makes a statement about market sentiment. In essence dip buyers have been jumping in earlier and earlier. Where in previous years a healthy correction was necessary to generate buying interest it doesn’t take much of a drop these days to launch a veritable BTFD frenzy.

Skew measures the perceived tail risk of the market via the pricing of out-of-the-money options. Generally, a rise in skew indicates that ‘crash protection’ is in demand among institutional investors (institutional/professional investors are the biggest traders in SPX options).

Some folks prefer to plot the VIX and the SKEW against each other – for me the ratio of the two appears to be more predictive. Well, it used to be – a divergence between the SPX and the SKEW:VIX ratio has usually led to at least a small obligatory correction. I have posted a five year chart above and you can see how things have become more and more complacent over the years. As of right now we are in a pretty unique situation in that we have produced a very healthy divergent signal (indicating professionals are buying OTM protection) and that given a rising VIX! Nevertheless price has not moved a millimeter (yes, the lair has gone metric!).

But wait – there is more below the fold. Please step into my lair:


More 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 you get free access to all Gold posts, which gives you double the bang for your buck!

Please login or subscribe here to see the remainder of this post.

So in short – I hope you bought insurance while it was cheap (like we told you).

Cheers,




    Zero Indicator


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