Discretionary Trading
Now Reading
Time To Shake Down Some Piggies
98

Time To Shake Down Some Piggies

by The MoleFebruary 10, 2012

I love it when they suddenly drop the tape just before the weekend – on top of trading losses it also creates uncertainty and psychological damage. “Do I really want to step in and hold short/long positions over a weekend? What will they cook up in Europe in the next two days? Is it too late to take on short/long positions?” You know the drill – plus there’s no way of hedging via Forex until Sunday night once the currencies wind down late Friday afternoon.

Yesterday I told you guys that we had reached the ‘moment of truth‘ and that the odds of a large medium to long term reversal remained iffy, at least according to the situation on the FX side. At this point my stance remains as is and will only change after assessing the magnitude and velocity of the current ongoing correction. More on this below – let’s first take a look at our short term picture and possible near term targets should we continue lower today and into Monday.

As you can see since this morning we got ourselves a brand spanking new hourly NLSL at ES 1333.75 (today’s low). So the good news here is that trading just became a LOT easier on the short term side (long term is another story). I would be long right now until we close below that NLSL – simple.

If we continue below ES 1330 and breach through that cluster of daily NLSLs then my first target area would be near ES 1312. Depending on the pace of things we may however push just below ES 1300 – I think that old expired NLSL at 1296 would be a good line in the sand. A drop below that may really accelerate things and although there’s a T2 on the map T3 near 1240 would be my next best guess.

Volar made a good point about raging sentiment this morning and I have further observations to share – please step into my dusty lair:

[amprotect=nonmember]
More charts and cynical 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 or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
[/amprotect]
[amprotect=1,13,9,12,5]

I take it you remember this chart and I think in the context of today’s instant reversal it is crucial evidence. That rising support line on the NYSE A/D ratio has breached today and although we may push higher before the end of the day it seems that the easy pickings may just be over. It really depends on what happens in the next two hours and on Monday. A deeper close below this line would mean we get a more meaningful correction – meaning one extending beyond Monday.

I mentioned the VIX yesterday and said that the creep up was meaningless to our medium to long term picture. Quite simply, the tape was getting ready for a potential short term shake out which is evidenced by today’s rise on the VIX. Now, an important inflection point may be hit on Monday, assuming of course equities continue lower. If we close outside that 2.0 BB on the VIX then one of two things will happen:

  1. We get a VIX buy signal and the tape continues higher a day or two later.
  2. We get a VIX buy signal and the tape ignores it (i.e. equities continue lower) just like it ignored that recent VIX sell signal.

Bottom Line:

The outcome of a bonafide VIX buy signal will determine our medium term trend. Or in simple terms: Yesterday we approached an important line in the sand by the bears – conveniently today we turned on a dime, much to the satisfaction of anyone holding bearish positions – in particular the Prechter crowd. You can be assured many hobby bears are doubling down as we speak. Whether or not they are right (for a change) will depend on what happens by Monday and in particular if we get a VIX above ~21.52. The fact that this is happening before a weekend is not accidental and will add to a sense of insecurity and fear.

Regarding Volar’s sentiment measures – of course he’s spot on. But my point with this post is that quite often things do not happen the way people expect it. I always ask myself what would hurt the most traders. One scenario would be to drive the tape up to an important inflection point and then turn it around, just according to expectations of any remaining contrarians. After a quick washout of the weak hands the tape may then turn and run up to its bullish price object and THEN turn, of course long after any of the weak bears gave up their seat on the bus.

Perhaps this time we’ll get an exception and we continue straight down, clearing out months of extreme bullish sentiment. Whether or not that’ll happen will depend on how we close today and in particular where we wind up on Monday. If we push higher Monday then we may still continue downward – so I would rather see it continue downward pushing the VIX into reversal territory (i.e. the VIX buy signal).

So in a sense – in this upside down topsy turfy world we call the market a continuation lower today would actually give us more clarity and a better way to assess the tape. A push higher today or Monday may turn into an opportunity for a retest variation sell (RTV) setup and we’ll talk about when it happens. The best thing for the bulls here to happen is a quick shake out, which may buy them a bit more life in the ongoing trend. As Volar demonstrated – sentiment has become way to one-sided for the ongoing medium to long term trend to continue without lightening up the bus a little bit.

Hope all that makes sense – if not ask me in the comment section. Happy trading 😉
[/amprotect]

Cheers,


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.
  • Joe_Jones

    Thanks Mole. Great post. Let us see if bears fuck it up by pushing the VIX above the daily BB.
    I think the best option for the bears would be that the day finishes at VWAP.

  • http://evilspeculator.com molecool

    As you pointed out – that would be my favorite scenario by far.

  • Anonymous

    Shake out on NGSX, just missed my tight stop @ .56. Lucky bastard!

  • Anonymous

    And maybe fill some of the gap quickly to make a move down more ‘legitimate’.  Not to mention giving the bulls a false sense of comfort and shaking out some weak shorts.

  • Joe_Jones

    Yep. Unfilled gaps make me nervous.

  • Anonymous

    all the ZLs are trending down….something to think about

  • Anonymous
  • Schwerepunkt

    So . . . do the shorts cover into the weekend or do the longs take profits for SIX WEEK grind up?

  • Schwerepunkt

    Me thinks the former, but now I’m talking to myself.

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

    bulls make money, bears make money, pigs get……
    oh man, why did you post that link!?
    LOL.

  • Anonymous

     yes…

  • Anonymous

    agreed…vix is being taken up a bit too fast.  bears best hope for a sustained sell-off would be a little cool down on vix.

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

    dunno.
    everything upper here, could be a flying turd.  with Monday at SPY 133 trenchline.
    or this could be a trap, and one more push up to 135 for a roof top right shoulder.

  • Anonymous

    Geez, was going to bail but VIX is keeping value up on those calls for now.

  • Joe_Jones

    Yep this down move stinks of a trap. I know one thing though: I’ll be in cash over the w-e.

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

    just pray it isn’t like Jan 17th.
    (looking at 30m candles)

  • http://evilspeculator.com molecool

    Well, well, well, what do we have here? VIX just pushed outside the 2.0 band 🙂

  • Joe_Jones

    Can somebody please BTFD?

    Where is Amygdala7 when we need him?

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

    sweet Boss.
    but it has to close outside.
    even a Gerb knows that.
    30m to close.

  • Anonymous

    Ya, will bail at EOD.

  • http://evilspeculator.com molecool

    Signal range is still tiny – not yet buying (I mean selling) this.

  • http://practicalt.blogspot.com/ Darth_Gerb
  • http://evilspeculator.com molecool

    Hey, a trader can dream, right? 🙂

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

    you’d have to sleep to do that.
    he he.

  • Anonymous

    Playing the old pop and drop for Mon, or maybe just the drop. Hum?

  • Joe_Jones

    On a second thought, I may keep some lottery tickets over the w-e as VIX is coming down nicely in those last few minutes.

  • Anonymous

     Ya, retest:)

  • Anonymous

    The Bear population in the market is probably primarily made of of 2 groups:
    Group 1: Has been short and finally getting a little less L in the P&L. (But crowing ‘I told you so’).
    Group 2: No choice but to get short today (because ‘this is the move’), so sitting close to breakeven with only 6 handle ES range.
    And of course option holders whose theta has already been burned lately unless they got in the last few days.
    So a ‘pop-n-drop’ would do most harm.

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

    buy the dip! (VIX)
    he he

  • Joe_Jones

    good analysis.

  • Joe_Jones

    I would add that one wants to see a failed retest of the high before committing itself to the bear side 

  • Schwerepunkt

    VIX stops trading in a few minutes and it’s not going to close outside the BB at this rate.

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

    It may be nothing.
    just a fluke. JNK science.
    http://i42.tinypic.com/t5hqg4.png

    Market close < 5min.

  • Anonymous

    Thanks, it’s only because I would’ve been part of either group in the past until I found ES and wised up…Plus suck in some late bulls, set up a retest variation sell and gap fill.  Is that asking too much?

  • http://evilspeculator.com molecool

    Damn it – I wanted that VIX up – not down. This should make things interesting on Monday…

  • Anonymous

    Bear trap!

  • Joe_Jones

    LOL! Same for me. I am still learning everyday something useful on ES.

  • Joe_Jones

    Why? I don’t follow you.

  • Anonymous

    I dont think so. Vix closed a bit down not at highs.

  • http://practicalt.blogspot.com/ Darth_Gerb
  • http://practicalt.blogspot.com/ Darth_Gerb
  • Anonymous

    VIX way over bought IMO, should test the highs or close that gap before a significant fall if we get one.

  • Joe_Jones

    ROTFLMAO!

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

    VIX 18 is very significant.  (see 5 year support area)
    first touch is always over reactionary.
    wouldn’t you agree?

  • Anonymous

     Absolutely, not over for the bulls by any means.

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

    agreed.
    now the emphasis is the next thing.
    rounded top, or more MOJO until March/May?

  • Joe_Jones

    fully agree on that. If we gap up on Monday with weak ZL, I’ll be adding to shorts though.

  • Anonymous

    VIX

  • Anonymous

    J & C time, good weekend all:)

  • Joe_Jones

    Cheers!

  • Anonymous

    Mole, can we get a Daily Zero update please?

  • Kudos

    More mojo till after the next ltro on feb 28th? Until then banks will be adding a lot of liquidity snatching up gov debt to use as collateral and this will help all risk assets. These are just my thoughts. I wonder if MOLE could do an update on the draining of the swamp chart and if it captures Europe.

  • Fibz

    headline article about an extreme low in gasoline consumption seems like a classic zerohedge contrarian indicator.

  • Fibz

    Sanctions on Iran a proxy for renewable energy growth?

    http://www.jpost.com/MiddleEast/Article.aspx?id=256979

  • Anonymous

    Hi guys, can anybody recommend a good book or site that discusses bollinger bands as the main trading tool – maybe mixing it with other indicators? Thanks for anything!

  • Anonymous
  • Anonymous

    this trader thinks we’re going down:
    http://standardpoor.wordpress.com/

  • Anonymous

    bollingerbands dot com

  • Schwerepunkt

    You getting ready to post something CS?  I hope so . . . 

  • Anonymous

    thx!

  • Anonymous

    I got nothing to say right now, no edge yet. Looks ready to fall, but I need a retest first

  • Joe_Jones

    A knight went off to fight in the Holy Crusades but before leaving he made his wife wear a chastity belt. After tightly securing it to her, he handed the key to his best friend with the instruction: “If I do not return within seven years, unlock my wife and set her free to lead a normal life.”The knight then rode off on the first leg of his journey to the Holy Land, but he had only traveled barely an hour when he was suddenly aware of the sound of pounding hooves behind him. He turned to see that it was his best friend.”What is the problem?” asked the knight. His best friend replied: “You gave me the wrong key.”

  • Anonymous

    LMAO!!

  • http://evilspeculator.com molecool

    Hey guys – I broke my nose during MA today, so my post is going to be a little late.

  • Anonymous

    WOW! There is our pop:)

  • Anonymous

    vote passes. everything is great. keep buying…

  • Anonymous

    Ahhh Mole..Is it bad? I hope not.

  • Anonymous

    http://content.screencast.com/users/AMCabrera/folders/Jing/media/1e8ae103-1494-430d-bc07-103a8b3a9887/2012-02-12_1806.png
    There you have it…I hope no one jumped the gun and didnt fight the line. Let the pincer movement come to you.

  • Anonymous

    Ah yes, just drag this default out as long as they can.

  • Anonymous

    Yeah. New definition of default. “I wont pay but no CDS trigger”!

  • Anonymous
  • http://evilspeculator.com molecool

    I’ll be fine – no worries. Just have to get it xrayed and properly set. Not feeling any pain so far. I went into a coffee shop while waiting my turn at the clinic. People seemed very uncomfortable as I had blood all over my nose and all over my shirt – LOL 🙂

  • Anonymous

    Make sure its seen to my ent specialist

  • Anonymous

    You should not be eating or drinking just in case they have to set it back for you.

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

    I don’t know what a ‘MA’ is…so I’m assuming your wife has an excellent
    RIGHT HOOK.
    😉

  • Anonymous

     What does the other guy look like:)

  • Anonymous

    There were two nay three.. Mole fought valiantly…

  • Anonymous

     Some early indications of momentum shifting here. Plan on shorting the cash open today.

  • Fibz

    i broke my nose once when i was younger and had to have surgery to get it set back in place. was standing behind a friend playing golf and the club swung around and whacked me in the nose.

  • Anonymous

    yes sometimes. I am surprised they let him walk out to have coffee.

  • Fibz

    the surgery was a few days after though.

  • http://evilspeculator.com molecool

    I have been waiting for three hours now. Medical system in the US sucks blocks.

  • Anonymous

    “martial arts” I am guessing.

  • Anonymous

    welcome to my world.

  • http://evilspeculator.com molecool

    My systema instructor – he actually set my nose again. Very cool guy.

  • Anonymous

    you havent seen medical system in third world countries. stop bitching…lol

  • http://evilspeculator.com molecool

    NOW you tell me…

  • Anonymous

    AUD 7:30EST

     http://www.forexfactory.com/#details=39542

  • Anonymous

     Get some ice on that puppy!

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

    AUD/JPY
    paranoia pays again.
    83.18 currently.
    http://evilspeculator.com/?p=27011#comment-434841898 

  • Anonymous

     If this data triggers you could see that tonight:)

  • http://practicalt.blogspot.com/ Darth_Gerb
  • Anonymous

     Hey, I wanted the black one!

  • Anonymous

    Weakening rsi on retest 15min. not looking strong maybe i will try a short.

  • http://evilspeculator.com molecool

    Yupp…

  • Anonymous

     Her is what I see:)

  • Anonymous

    OK, time for a review of DJ FXCM Dollar index (equal weight EUR, AUD, JPY & GBP).

    4h breakout still holding.

    Trigger points:  Worst case at this point is a retest of the trendline. Stop is therefore below same trendline. 

    Key step ahead as well. 

    Testing the upper 25BB. It it becomes embedded, this is the best to expect so far. Also at resistance of the mid-point of BB100. Not going through the first attempt is healthy, therefore, wait and see from here. A break of the 100BB midpoint and a little embedding in the upper 25BB are add to positions triggers for me and the best case scenario.

    So far: previously reported break of trendline seems indeed to indicate a short term trend change, is healthy and progressing normally. 

    http://screencast.com/t/JDbH7zmKUplZ

  • 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„¸