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Tough Tape
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Tough Tape

by The MoleJanuary 13, 2009

Boy, I’m really worn out after today’s tape – can you say Whipsaw Central? So, I’m mustering up the little ounce of focus I have left to get you guys up to speed. Please forgive me if this one is going to be very brief – I’m exhausted. Let’s get right to it:

Well, the good news is that everything remains on track. We expected some sort of consolidation right around 860 and that’s what we got. However, as strange as this might sound – I would have felt better if we kept on rallying a little bit. Bullish momentum today was not strong enough to take out the 878 short RL which has a very low probability I might add. Advancing/Declining issues were about 50/50 in the SPX – and that’s really how the day felt – completely indecisive. Both bears and bulls were swapping punches all day and we didn’t go anywhere fast.

However, loooking at the NYSE as a whole via the $NYUD indicates today was actually a bearish day with declining volume outpacing advancing. We are not at extremes yet by any measure as you can tell by the 5/10/21 MAs (which are a traditional measure). Plenty of downside to go here, which hopefully will get us to our intermediate 820 target.

For the little we moved and also based on the adv/decl issues the CBOE put/call ratio however dropped quite nicely, which is IMHO good news for the bears. This is the type of sentiment discrepancy I expect during bear market consolidations. The bulls try to bang the market higher and sentiment flips back in favor of loading up on calls. As a contrarian this type of discrepancy is what I want to see.

In that context Erik mentioned this today:

Short term traders have started building long positions expecting market to bounce short term,
option expiration is 3 days away. Market will whip down and then back up by Friday burning out front month options this week.

This scenario would actually fit in quite well, but we would need to start dropping tomorrow. If we wank around the current ‘nasty whipsaw zone’ marked on the chart for more than a day then I would get a bit nervous and maybe hedge myself a bit earlier than I hoped for. For more info on various hedging strategies when long puts see my Sunday post.

I think we might see more upside tomorrow – good possibility we’ll touch 884 before we drop again, that would line up nicely with the 23.6% fib line you can see on the chart. The 892 RL would be the maximum I can would want to see for tomorrow – again lining up with the 38.2% fib line. By Thursday I expect the current trend to continue to the downside, after the market had a chance to relieve some of the pent up buying pressure. Again, our intermediate target is around 820.

The U.S. buck is on track tracing out its 3 of 3 wave, as expected. I anticpate we’ll see further upside here until it pulls back – my rough estimate would be around 86 minimum.

Gold however remains to be stubborn and has yet to breach that diagonal, which is my line in the sand. I would caution everyone to refrain from going short here until we see this happen. FYI – there’s a reason why I’m drawing this line with a thick crayon.

Boy, I have come this far, I might as well throw in a little goody for you leeches. What you are looking at is the famed ‘crack spread’ – the difference between the Gasoline and Oil fund on the NYSE. No, it’s got nothing to do with the stuff in your crack pipes. This chart is the sole reason why refiners have had such a merry time as of late. Just check out some pertinent symbols:

ADM, ALJ, CVI, DK, FTO, HOC, SUN, TSO, VLO, WNR

See that? It’s been one big bullish kumbaya as of late. On a short term basis (this week to 10 days) those guys probably have some more upside in them, but many start looking pretty toppy to me on my daily chart indicators. But the key to trading those refiners is the crack spread – that’s basically their profit margin. So, keep your eyes peeled for a retracement in the crack spread, which might predicate a pullback in those refiners. Don’t even think about shorting those puppies until you see that happen.

Wow, I actually did it – a respectable post after all. There you have it – I just don’t know my strength πŸ˜‰

See you tomorrow steel rats – I hope it’ll be swift and short before we continue our journey to the downside.

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 the usual social media waterholes.
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  • MayDaze

    Thanks for the update. To my (admittedly) untrained eye, that Nasty Whipsaw Zone in the SPX chart could be interpreted as a bearish flag. So with the RLs so close together (873, 875, 877, 883) it wouldn't take much to send us down, as your projection shows.

  • http://robstradeblog.wordpress.com/ Master Shake

    Minor correction. You are looking at yesterday's stockcharts data, not today's. $CPC edged down slightly and Advancing volume actually beat declining volume today by 1.3:1.

    I don't think that changes much, thought.

  • http://www.aggressivelyuninformed.com nepharis

    Nice post, mole, thanks. If you're head gets a little too big, just tilt a little and rest it on your shoulders.

  • OldChicago

    Mole,

    Great job as usual. Just a quickie – Assuming we are still in Wave 4. Would the “blue-line” scenario stretched the “timeframe” out too far out for it to be wave 4?

    All – what's your opinion? Given that Option Exp is only 3 days away, and inauguration 5 days from now. I expect market to “rally” at least a bit one of these days. JPM is very green all day and it's reporting Thursday. There's something under Jimmy Dimon's sleeve, or else they wouldn't choose to report early. Is he anticipating the market will drop after Obama takes office?

  • etechpartner

    Mole ich muss dir sagen das ich immer fuerchterlich beeindruckt bin mit der information die du hast. Crack spread…. hab noch nie davon gehoert. Danke fuer den Tip !

  • molecool

    Oh shit – you're right – that damn chart is delayed – never get used to that. Meh – I'm too tired to change it no, but 1+ for paying attention.

  • zman

    Change
    01/13/2009
    5:46pm ET
    Up$41,453.72

    Covered FAS short at $16.50, and rolled into NDX front month ATM option puts for a 7 point day trade! I may sit out until after OPEX. To much of a chance for shenanigans by MM's.

    Great post Mole!

  • http://jadedapprentice.com JadedApprentice

    Whipsaw was very good to me today, after beating me senseless yesterday and forcing me to defensively liquidate a lot of positions to keep up. Not only did I restock my C premarket at a hefty discount, I was able to hedge it with FAZ at the day's low, which I then partially sold near its day high. Taking my cues from the Zero let me leave the day with both restocked longs at new low and solid levered hedges (FAZ and TYP) that will let me play another whipsaw tomorrow in either starting direction. I will never doubt the Zero again!

  • BigHouse(Aka Mr Vix)

    Has anyone tryed to short the X3 ETF's? Are they easy to borrow?

  • grednfer

    Something is Funky with the $RUT…..We need more AIR between the RLs

    So last week we had this situation with the $RUT where there were almost sequential RLs above the current price. I went ALL short because I couldn't envision going long into that….and it went down and hard, I guess based on congested resistance. Anyway, thats a good scenario to remember.

    Now I have another interesting phenomenon….the RLs in both directions are almost sequential or at least too close for my trading risk/return tolerance…….Check this out homies…..

    -Short RLs
    498
    487
    480
    475
    473 Current Price
    -Long RLs
    473.39
    473.14
    472.74
    472.09
    471
    469
    466.6

    I think based on the long congestion……the path of least resistance is now up/long….but that doesn't look great either, based on where we just came from and we JUST came from there.

    I haven't been an RL trader very long…less than 6 months or so. Its been very profitable ……. but based on these RLs its either over πŸ™ ,or something is going to happen to clear the congestion. I think with the way the RLs work, some BIG SWINGS up or down for a prolonged period of time would do it….
    If that happens ZERO would come in handy for that.

    Other thoughts?

    Does anybody have previous experience with this RL mush? How does it get resolved?

  • BigHouse(Aka Mr Vix)

    Overnight seems to have some meat to it, interms of the upside. But its a long night.

  • Insect Overlord

    mole…great post. I'll definitely be checkin out those possible shorts. As an aside, PLD today met my trigger to short, but I actually did not short it only because I, too, feel there is more upside to be had. I haven't been discriminatory enough with my trades, so I'm trying to do just that.
    Btw…I literally sold my SLB put at the 5 day low. >:)

  • JustinB

    grednfer,

    I don't trade the Russell much any more as I've switched to the ES/SPX…and am guessing the levels you posted above are dailies?

    I came to the realization that I was seeing too many RL's on the daily levels that were literally hindering me from entering a trade because I was seeing too many noisy potential reversal points. The trades using the daily levels didn't have enough perceived 'juice” in it. I've found that using the weekly RL's have been very helpful – I'm actually trading based on the weeklies (trading intraday) as I'm looking for 8-10 point swings (on the ES). I'm aware of where the closer daily levels are and assess risk and tighten stops accordingly. Granted, there are days when I don't take a trade due to the lack of perceived “juice” but I'm finding two to three days a week there are good trades. It's helped me in my trading in these markets…I hope this helps.

    In regards to the direction of the resolution – give the benefit of the doubt to the direction of the moving averages.

  • Erikd

    $tran did not look good today

  • jigdaddy

    any thoughts on what tomorrow brings?

  • toad37

    Thanks Moleski, great post.

  • http://spnakr007.blogspot.com/ Steve

    Mole, Thanks for the road map. I was going to ask you if you would change the target for D, just because my chart shows some upside potential, perhaps to E. Since you reiterate the same scenario before I could ask that question, so everything is all good…Trade according to the evil plan..
    Danke!

  • BigHouse(Aka Mr Vix)

    Yea alot of bull shit.

  • BigHouse(Aka Mr Vix)

    saw that. The reason i got out of XLF is the following

    http://screencast.com/t/RKHIrVr9A

  • http://www.chartsandcoffee.com chartsandcoffee

    I found your mention of the crack spread to be an interesting trend to watch. I have added it to my radar. I gave it a mention on my blog tonight.

  • GEO

    Big descent.

  • Erikd

    great TA.. 11.80 level should be line in the sand on XLF. will be gone for most of the day until the afternoon.

  • Erikd

    hit 850 sometime tomorrow

  • grednfer

    I think what I'm seeing, the lack of air between the RLs, is the result of the sideways grind for the past 7-8 weeks…..and its not confined to the $RUT. The 20 and the 50 have converged and really flattened out, implying prices are stabilizing.

    If the stability can hold (big if), I can return to my core business, which is selling options, not buying them.

  • Erikd

    or bear shit….

  • BovineStew

    Thank Mole. Fantastic post.

  • anon

    Are for me. Use Tradeking broker. Never have problem.

  • gagelle

    Superb film on PBS: “The Ascent of Money.”

    http://www.pbs.org/wnet/ascentofmoney/

  • gagelle

    Thanks for the great post Mole. I've been wondering why gasoline has been going up while crude has been falling. The “crack” spread is an interesting concept.
    On another note, after watching film “The Ascent of Money” on PBS, I think I understand why Denninger said “It's all about bonds now.” We're in a very tenuous situation. We're counting on the Chinese GDP to stay at a high level. (As if it can't fall.) If they we're forced to dump our bonds, the result would be catastrophic.

  • jacksoo

    Check out Warrens blog – he's not a stock picker but I read his book a few years back and I guess must thank him for shaping my then great concerns that housing was a disaster in the making. He's been spot on with detailing how the global mess would unfold – I think you might him interesting. All the best. http://wbrussee.wordpress.com/

  • gagelle

    Thanks jacksoo. I'll check it out.

  • standard_and_poor

    Still holding cube puts, faz and short on stocks. Hope we don't hit 890 spx, thought coast was clear for brief period earlier (how wrong).

  • standard_and_poor

    Spx futures down 4 pts. on early morning trading 4 a.m. cst.

  • standard_and_poor

    I checked it out, thanks

  • standard_and_poor

    Really hope so.

  • jacksoo

    You're welcome – he's a very smart guy, worth keeping tabs on.

  • Erikd

    will not be able to comment until mid afternoon at best today. need some support from the Bears while I am gone today… XLF top level that should hold is 11.80 but hopefully it is watch out below today only..

  • peterey

    Thanks for informing Erikd,
    if the XLF 11.80 holds throughout the day, what is the target or the possible reversal point during the day, if any?

  • mikeri

    Again, you short call was wonderful. Grutsi. I have hopped over to small caps. Wish I had followed your index call. Good trading y'all.

  • mikeri

    LZR. I have the float at 1.8 million. The daily chart on OBV shows 1.1 million held. If anybody has a better indicator, please post. That leaves 700k left to be bought. When we get near to 1.8 million, KABOOM. Also holding DNDN calls.

  • BigHouse(Aka Mr Vix)

    Looks like we will gap down first thing in the morning.

  • http://gemstowear.etsy.com Jan

    Thanks Mole, for another grea post. You are a true die hard.

    Here is an article relating to shipping index:

    http://tinyurl.com/79pnfp

  • mikeri

    Oh, real quick. I sold half my DNDN calls. Booking profits is good. Left with the house's money. I have made this OPEX play several months in a row and they all went worthless. The lure of cheap calls. Just may get the pop here, as OI in puts is enormous. Think Chicago may want to queer the 7.50 puts. We will see. Happy trails. M

  • katzo7

    Excellent analysis Mole. I suspect today's futes will speed up the scenario. Will Friday still be an up day after we head for 820 today and/or tomorrow?

  • http://guidepostings.blogspot.com perspective

    more bulltard dribble – higher highs and lower lows

    tradepostings.blogspot.com

  • poopsquad

    Mole – what do you make of this pre-market action…Futures blowing through all the support levels…this a sell the gap down day or you still think we could turnaround from here ?

  • http://gemstowear.etsy.com Jan

    HBC gapping down….will post articles if you'd like

  • Erikd

    target on XLF 9 dolloar area see ya this afternoon

  • BigHouse(Aka Mr Vix)

    I should of stayed on the yellow brick road πŸ™

  • geckoman

    Just got done reading the 2sweets RL's. Those Long reversals are down there quite a bit.

  • C.C. Rider

    I guess I covered too early. I plan on legging in per 2sweets SPX of 847, 832, and 807 if hit. If you catch it right, wave C up will prob give you another 25 percent move up to SPX 1050ish.

  • BigHouse(Aka Mr Vix)

    Going long for a bounce.

  • katzo7

    Too earky, will be one more drop.

  • BigHouse(Aka Mr Vix)

    June spy 65 puts now 3.00-3.15 πŸ™‚

  • Bricks

    We're on the 847 Weekly Go Long RL

  • C.C. Rider

    First purchase long, NDX Feb 1200 calls

  • BigHouse(Aka Mr Vix)

    Zero hitting -10 lol

  • moneyfarm

    846.84 is a weekly long RL with 89% odds too

  • C.C. Rider

    Thx for that. I like the weekly numbers better too, and as an affirmation.

  • BigHouse(Aka Mr Vix)

    10.50 very important for xlf. Seems to be holding for now. Still holding my long for a bounce.

  • DZZ

    I would have expected GLD to gap down at the open in preparation for the 3rd trading day run up. Let's see if GLD runs further down before the run up.

  • molecool

    Nice – hope you've got a boat load of them πŸ™‚

  • geckoman

    Not really surpirsing but I'll note that the 30 m BB Squeeze fired short signal at 10am.
    I'll post when signal says cover.

    http://www.screencast.com/users/geckoman/folder

  • BigHouse(Aka Mr Vix)

    Yesterday someone put a single butterfly trade of 30,000 contracts betting Mr Vix will settle between 50-70 by March.

  • C.C. Rider

    I think we have one more dip coming to around 843 SPX which is lower Bollinger Band level.

  • Keirsten

    Do you have that programmed in, or is that a something you're paying for? I was looking that over yesterday- very nice.

  • geckoman

    WOuld of expected FXY to go up and $IRX to be down but both are not doing what I thought? Any thoughts?

  • geckoman

    Do we do anything here with the June SPY puts yet or still waiting for 820?

  • BigHouse(Aka Mr Vix)

    XLF respecting 10.50…Will it hold?

  • molecool

    CLEAN CUPS you bloodsuckers πŸ˜‰

  • molecool

    I KNOW – it was actually -12 for a minute – INSANE!!

  • geckoman

    it's programmed in.

  • http://pg.webring.com/members/blog/cheapsoftwareoem/ justin More

    +1! Add your blog in my bookmarks, Disqus is an interesting plugin to add comments!

  • http://pg.webring.com/members/blog/cheapsoftwareoem/ justin More

    +1! Add your blog in my bookmarks, Disqus is an interesting plugin to add comments!