Monday Melt Up

The dip buyers showed up today and enjoyed their ‘toe dipping’ day. I guess the expectation was that a traditional ‘Monday Melt Up’ was probably their best opportunity for getting some long exposure. On Friday I already had pointed out a developing long term divergence to Zero subscribers (yes, the subs get it first, freeloaders! ;-)) and thus it was nice to see the tape retrace a bit today.

Last week before I left to San Francisco I proposed two main clusters for a bounce:

And where did we bounce?

At 1077 but we dropped further on Friday to a 1072 low. Close enough. Yes, yes – I know – unfortunately I don’t respond well to praise.

But I know the thought that’s rattling around in your little rodent brains right now. Are conditions ripe for a prolonged bounce?

Maybe – my A/D ratio chart points towards that very possibility. I’ve taken the liberty to point out a few bounce patterns after prolonged drops in the SPX. The spike today seems like a good indication that something is in the works. I however don’t think we’re going to retrace much more than 61.8% – if you look underneath the hood of what’s driving this market it’s quite clear that the bulltards have been overstaying their welcome by several months. And to prove it to you rats here is a novel and extremely complex market indicator I have been working on in my evil lair:

I call it ‘vol-ume’ and it’s way too complex to explain it to mere mortal rodents like you. However, if you rub all available synapses together you can see how vol-ume spiked up considerably on the way down and then reduced back down to a whimper on the way up today. That can mean two things – either it’s truly some gentle toe dipping by the bulltards or it’s just the quiet before a bear squeeze shit storm.

It’ll all come down to tomorrow – if we bust higher and can maintain a strong A/D ratio (i.e. breadth) then we might actually make it to the 50% mark, and maybe even higher. But if this thing trickles up like this I think the bears are just going to wait it out and then pick a good moment to stomp on this meek attempt to extent the bull’s hope vapor rally.

Right now as I type this the index futures are not looking so great – but let’s see who shows up tomorrow and if that channel I drew on the SPX chart can be breached. If so, I think an obligatory bounce is in the works, which is why I held on to my Feb calls today.

Long term, well… let’s say put it this way:

Cheers,

Mole

P.S.: gmak – please tack your post on to mine so that someone actually gets to see this – thanks!