Step Three – Bear Squeeze!

It wasn’t a pretty day for the bears. Our impending VIX buy signal not only confirmed today – it immediately resolved!

Ouch – that oughta hurt – a 14% drop in volatility in one day! Option buyers surely felt that one in the groin area. So, what’s next? Are we rallying all the way to Christmas?

Alright, theoretically speaking there is still a chance this was a b-wave and we’ll descend further down into c tomorrow – if you buy into EWT rules, that is.

Right, exactly – and pigs can fly. Because this means we would have to breach Tuesday’s lows and I’m not really seeing that play out right now.

The daily Zero wasn’t impressed by this correction in the first place – and the fact that we stopped in mid-air without the slightest proximity of a support zone/line does not spell well for the mojo of the grizzlies right now. I think they’re simply spent and took the opportunity to jump out of short positions at the first chance that presented itself. Basically, the bulls granted the bears a little mercy fuck – that’s how I see it.

What I really like however is that little channel that’s been painting on the DZ for the past two month. With three touches each we got ourselves a bonafide channel going – not bad. And which ever side breaches it will dominate equities for the remainder of the year and perhaps the first months of 2011. Now, it’s possible we stay inside – and even if we do we have probably at least another month or so until a serious divergence would present itself. Of course if we paint down while we stay inside the channel there would be no divergence – but such a weak signal accompanied by red candles would be bad news for the bears as it would represent a slow consolidation out of medium/long term overbought conditions.

And there you have it – the DZ road map for the next few weeks. If you’re not a Zero sub – well, I hope you didn’t get your ass handed to you today. If you did I hope you can still afford the 49 bucks per month – IMHO it’s cheaper than taking it on the chin on a constant basis 😉

One of the most interesting charts today was actually the DXY, which did not drop as much as equities ramped higher. So, this is a situation which still may give the bears some hope. IF we stay above the 78 mark there is limited hope for the bears. But just like last year it may take months for a rally in the Dollar to make itself felt over in equities – so don’t bet too much coin on that correlation.

Before I run – here’s a must-see clip for all stainless steel rats:

You know what to do. I already closed out all my accounts with major banks, but I’ll be wearing my Man U shirt on the 7th. Hey, with some luck this could start a second ‘French Revolution’, which citizens in other countries may just start emulating.

A day that may strike some fears into the decrepit hears of banksters worldwide – wouldn’t that be something for starters? 😉

Cheers,

Mole