The Plot Thickens

I really like where things are going and for the first time in a while I’m actually getting excited about equities. It’s been a while and I better mark my calendar! As you know I always try to fade the hype and try to glance below the hood to hopefully see early signs of market reversals. Not that reversal plays are what I a constantly focus on. As a trader I know that reversal plays are highly speculative (and most difficult) – it’s an aspect of trading many fledgling traders waste much time and even more money on.

However, for some mysterious reasons I have made a good share of reversal calls in the past. And frankly it’s not so much that I have a secret formula of sort. All I do is to look for what I would call ‘vertical market convergence’ –  basically when several of my charts come into sync at a particular time – this can be indicator or price based, sometimes it’s a mixture. Even then you can totally blow your call but at least you know that you have reached a fork in the road – and that makes trading easier and also more profitable.

Frankly, those are the times I live for as a trader – when things start coming into sync and I suddenly sense a certain order in my trading universe. Which is rare – especially these days the tape is very difficult to negotiate on a daily basis. I really don’t exactly know how to convey that but in essence what most traders are looking for is that one ‘holy grail’ indicator that addresses all their trading needs. Well, that is a mistake as it does not exist. The best you can hope for is a small collection of market measures (again, indicator, oscillator, system, or price based) that works for YOU and allows you to bank coin consistently on an annual basis. It its possible – and the first step in getting to that point is to overcome your own prejudice, your own ego, and in particular your emotions and cognitive biases.

Alright – on to the charts – at the danger of pointing out the obvious: Unless we drop like a rock before the end of this session we are most likely at step 2 of a bonafide VIX buy signal. If you don’t know the rules then please check the cheat sheet.

On the spoos we got one more stab down this morning which nailed that volume hole I have been pimping since the weekend. Not a bad spot to be long if you had the cohones to take it. The Zero Lite painted a slight divergence but frankly it wasn’t strong enough to justify a trade, so the volume hole was the only thing we could count on. Of course whether it holds up or not remains to be seen. But per the above – I do like the VIX chart in conjunction with this one. It does suggest that a reversal may be in play. Whether or not we will be wrong does not matter – it’s a setup and it has the luxury of offering us a very tight stop.

But that’s not all – the daily Dollar chart appears to be in sync with the proposed perspective. I also have a few setups for my intrepid subs – please step into my mediterranean lair:

Ole’ bucky has reached the end of the easy ride – frankly I’m astounded to see it above 81. As we are now hitting resistance it is possible that we may see a reversal in the coming days. May not happen tomorrow but it’s on our watch list.

CAD/JPY – nice support cluster there – hope it keeps it up, especially given this:

Inside day – which I plan to play either way – you know the rules by now (I hope!).

Not a setup yet – but inverse to ole’ bucky silver is now running into support. Add that to what I referred to as ‘vertical market convergence’. Again, we can’t expect that all these charts are going to turn on a dime tomorrow – but I think that the dynamics now have very good odds of shifting. In terms of taking a trade here and now – meh – possible. But I have also seen a lot of currency/commodity charts overshoot their boundaries in the past few days, so I’m cautious and rather wait for a floor pattern.

Inside day also on ZN – the 10-year treasury futures contract. If you pull it up on our double BB chart you’ll see that it’s also happening outside both Bollingers. However they are both rising, so a reversal was hard to predict – and it still is but the inside candle affords us an opportunity to get in early with a relatively tight stop. And that type of approach has worked very well for us lately – wouldn’t you agree?

Okay, that’s all I have for you guys today – let’s keep it frosty and don’t bet the bank on what you or I think the tape will do. Let’s do it the stainless steel rat way – we simply follow whatever Mrs. Market throws at us. Let’s leave the drama, opinons, and emotions to the hapless schmucks at the other side of our trades 😉

UPDATE 3:30pm EDT: The line has been crossed and the game is O-V-E-R for the bulls – at this point we are talking a possible medium/long term trend change. No VIX buy signal and the volume hole is officially K-A-P-U-T-T. If you are short enjoy the ride – at this point there is no edge in being long and there is no reason to take exits if you happen to be short. Most likely we are fulfilling the bearish price objective I proposed on my weekend P&F chart.

Most importantly the market once again taught us an important lesson today. Even when things come into sync they sometimes swing the other way – there are no guarantees. At this point we are back into watch and learn mode – no setup in equities until we find support. If you went short on the breach – good for you! Please look at my weekend post for possible target zones.

UPDATE Closing Bell: At the danger of sounding like a broken record I want to make something crystal clear based on the comments I am reading below:

We crossed an important inflection point. A reversal is NOT what we should be thinking about right now. We watch the tape and IF we get a reversal then we may take entries once we get back above SPX 1340.

My rules are very clear on this shit. Some people claim that I swing with the wind – but I do only when it comes to my setups. My analysis is very binary and where we are now gives us ZERO edge for going long.

Cheers,