Alea Iacta Est

So we crossed the Rubicon and I wanted to spend a little time to review the implications right here and over the longer term. What we know so far is that yesterday the starts were perfectly lined up for a textbook reversal but instead the tape suddenly fell off the plate late in the session. The timing of this is particularly interesting and suggets that there may be follow up. However, as the dynamics have now shifted it makes bottom calling a very difficult and probably foolish endeavor. On top of that we have quite a bit of conflicting evidence – much of which I’ll present this morning:

As usual the easy stuff first – and again let’s keep it simple and stupid. Fact is that we breached that 100-day SMA and in combination with that NLBL 1350 will now pose resistance, assuming we push back there in the next few sessions. I would also watch that 100-hour SMA near 1342, which is entangled with the upper 25-day BB.

The weekly as well as the monthly panels also show us possible support. But that’s less important than the fact that we are now trading below the weekly NLSL. A close below ES 1359.25 is medium term bearish and possibly leads us to a test of the monthly NLSL at 1316.75.

Now, none of this excludes a bounce right here – these are long term charts. But it’s something to keep in mind – whether or not we bounce or continue further. Of course if we breach through that monthly NLSL and close May below then we have official confirmation of a long term trend change. But we are not there just yet – and it’s not clear that the abyss awaits. The fat lady may have to wait a bit longer. Quite a bit more about that below – secret decoder ring required:

My long term SPX P&F chart points at 1270 as its bearish price objective. In order to revoke the double bottom breakdown with a low pole reversal we would have to see 1345+. So that of course ties in rather nicely with the resistance levels we are seeing on the price chart.

Gold is looking pretty shot to hell and is officially met its bearish price objective per P&F rules. Doesn’t mean it can’t drop lower but in any case I am not interested in a position in either direction here (yet).

Crude also on the downslide – I told you that a breach a of 95.5 would be painful. Please note the bearish price objective of 84.5. As it stands right now we would need a reversal to 95.5 to weaken that outlook. A push above 97 is required to change the bearish PO I think.

Ole’ bucky has been on the run! As you know as I live in Europe now but am getting paid in Dollars. So this ramp has been putting a big smile on my silly face and I’m sure you guys in the States don’t exactly mind some extra purchasing power either. I still think the easy ride for the Dollar is over for now though and I would expect a little shake out. As long as we don’t breach through 80.5 the current uptrend remains pretty solid.

Copper has often preceded equities and that divergence on the top was again spot on. It’s still pointing down however, which casts a bit of doubt on any hopes of a meaningful bounce – wake me up when we see a divergence here. As you know oversold conditions can sustain for quite a while and I would require a bit more evidence than a few support lines to recommend going long equities here. Sure someone will try and perhaps get away with it and then drop by here to brag about having conquered the trading universe.

Of course you never hear from all the guys who get wiped out by stupid moves like that – they simply walk away silently and find themselves a day job. We stainless steel rats prefer to err on the cautious side and thus live to trade another day. Anyway, as per copper – it may be a fake out and we don’t know for sure unless we get a failed retest of 3.55 (the lower line of that flag).

JNK:TLT ratio – still pointing down. Another strike against the necessity of a reversal here.

CPCE however remains in bounce territory. But this may tie into what I said about oversold conditions being able to sustain for a while. The raw signal (this one is an MA) has actually dropped a little so it seems there has been some profit softening. Nevertheless, we could easily see another quick stab lower here on the price side without this chart changing by much – keep that in mind.

I’m a little surprised about my NYSE Up/Dn volume ratio chart – that’s quite a stab lower and it’s been a few years since we dropped below 1.2.

Like I did over the weekend here’s the inverse (DN/UP volume): Remember when I mentioned that the bulls weren’t in great shape either as we had dropped while this signal was dropping toward a sell line? I guess that may have caused yesterday’s wipeout to some degree. Of course on the other side of this equation looms that buy line – one that the bears need to breach in order to herald in a new chapter in equities. Luego veremos…

Finally and more short term: Mr. VIX closed outside the BB again – which restarts our count to 1. What we would want to see next is a close back inside the BB. Not much to see here until that happens. If you’re trading options be aware of the possibility of a vega squeeze – but heck, this thing has been jumping around like Mexican beans lately – hard to predict.

Bottom Line: We are now somewhere in limbo land right now and I went from having things fall in sync to a complete unwind just an hour after proudly announcing it. It’s not that I’m emotionally rattled but experience shows me that we are now in Vegas territory. Some people will gamble here and win – many others will get their asses handed to them. I personally am not interested in low odds high stakes games. I prefer to trade the Latin lover way – slow and steady with clear entries 😉

Cheers,