The Woodshed

Everyone was invited to the woodshed this week and apparently many decided to dress up and attend. As someone suggested in kind this morning – the Mole woke up and had to watch his USD exchange rate being stomped into oblivion. Anyway, based on what I’m seeing on the Zero only a small minority of traders benefitted from today’s Euro drama sponsored short squeeze:

I’ve added another day to the Zero Lite chart to show you how minimal the participation today in comparison to what we saw in the past few weeks. Looks to me a good number of hobby bears got taken to the cleaners today.

In particular if you held puts overnight – or calls for that matter as vega killed premiums on both. That’s right – volatility crush is a raving bitch from hell and today she’s partying like it’s 2012.

Okay Mole – now tell us something we don’t know. Happy to oblige – and you really don’t want to miss our chart of the month – which won by a wide margin due to sheer evil intent. So please drop your bottle of Xanax and step into my ash covered lair. I’m not kidding by the way – there are wild fires near Valencia and the sky is orange red and we’ve got big flakes of ash dropping all over the place. As a Californian that almost makes me feel like home!

So it seems we just get that inverted H&S after all. After some soul searching I decided that the neckline of the damn thing can be debated until the cows come home so instead I decided to keep things simple/stupid (to my own benefit) and use that conveniently placed 100-day SMA as the line of truth. I think it’s fair to say that a breach should probably propel us higher toward our P&F bullish price objective:

Here it is in case you don’t have it handy. It’s amazing how orderly this thing looks like once you remove all the noise and in particular how that diagonal support line held in place rather nicely.

And here it is: A double spread of Mrs. June 2012 in all her glory. And of course it has to be the weekly/monthly Net-Lines chart on the spoos. Yesterday we were comfortably trading below on both and with only one session to go a weekly NLBL reversal plus a monthly NLSL confirmation were almost baked in. But not so fast – what a difference a day can make. I hope you were watching FX overnight – by the way a suggestion I have been making frequently.

Now did I expect yesterday that today’s spike would be happening? Hell no! But I did suggest that market makers may just be looking to the upside as evidenced by a continuing divergence on the VXV:VIX front.

Plus the JNK:TLT ratio has been supportive – no divergence on the horizon just yet. Sorry perma-bears!

In terms of setups you can imagine that the pickings are rather slim due to long candles from hell pretty much bunker busting any technical configurations. Not that I was excited about much in the first place. I did however dig up two FX configurations worth keeping an eye on:

The first one is the NZD:USD – today’s Friday surprise puts us right at a NLBL plus the 100-day SMA. Quite a bit of resistance and even better support if we make it above. Cancel out your emotions and see it for what it is – a good short trade with a tiny stop above the SMA. And as usual I would be happy to go long on a breach – when it comes to inflection points I tend to swing both ways.

Almost the same setup on the AUD/USD, since I took this snapshot it actually pushed just below the 100-day SMA, so this is a good time to get positioned. Same rules and worth flipping to a long if it resolves higher.

Cheers,