Let’s Walk Slowly

Let me tell you a little story. There are two bulls standing on top of a mountain. The younger one says to the older one: “Hey dad, how about we run down there and screw one of them cows!?”. The older one smiles and says: “No son. Lets walk down slowly and screw ’em all!”. Well, the market right now is behaving like the young bull when it should be acting like papa bull.

Now you may be a little confused – I get it. Why is Mole talking about bulls when the market is selling off? Shouldn’t he be talking about the bears? Quite simply – this slippery little tale’s message is not about being a bull or a bear, it’s about taking your time and reeling in your victims for a proper smack down. Don’t worry it’ll all make sense to you in a minute.

First we have some obligatory charts to cover. Let’s look at the volume profile which shows us a potential vacuum near 1480 – that’s nice.

The weekly panel however is painting a weekly NLSL at 1491, so I would expect some type of buying interest to step in somewhere between 1480 and 1491. Heck, what’s ten ES handles among friends? 😉

With that out of the way let’s look at the whole story. No matter where we actually wind up slowing down there’s a problem with this and it’s shown here on our VIX chart. Within two sessions and after only a 35 ES handle drop the VIX has exploded by 30%. Now wait a minute, we were trading near 1490 near the 14th and the VIX back then was around 14.5. Mind you that was after running up from 12.6 just a day earlier after the ES dropped less than 20 handles.

Basically the same game keeps on being played here. We continue to see massive increases in volatility in the face of rather humble drops on the equities side. Come on – we are barely below 1500 as I’m typing this. Now, this doesn’t tell us that a floor is in but it does tell us that the bears are shooting their load way too early. Coitus Interruptus. So much panic after a tiny drop in the bucket – what would happen if we actually lost some real ground here and dropped through some support levels?

I think this is a very justified correction (which I suggested was overdue on Tuesday I may add – ahem) and we should let it run its merry course. We are one step into a VIX buy signal BUT it’s possible they’ll drive the VIX a bit higher, perhaps luring in a few more hobby bears while volatility is above 15. The trap is set and we just need to wait for it to snap shut.

Two days ago was the time to look down (or at least to bring your butt into delta neutral territory) – right now is the time to look for possible long victims. But take your time we want things to start slowing down first. Fear and panic can drive things longer than you think. Use the support levels shown above, they are our best lines in the sand to get positioned. If they go then all hell will break loose but the odds of that happening right now this moment are pretty low.

Now let’s do some setups. Silver is painting a nice inside day candle – use it.

Bonds – you recall my mantra about the 25-day SMA. We’re above it right now and thus I’m long. Quite frankly this could be a fluke and I’m willing to flip back into shorts if winds up dropping back below.

We’re going to sling some stock symbols today plus I ran into some goodies on the FX front:
[amprotect=nonmember] More charts and non-biased commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
[/amprotect] [amprotect=1,13,9,12,5,10]

WYNN – you are seeing the daily and weekly panels here. Nice touch of the 100-day SMA and it’s approaching its 25-week as well. I am long until we see a breach below the 25-week SMA then I’ll flip it for a short position.

SHLD at its 25-day SMA as well. It’s been losing some steam lately and I want to be short on a slip below. Long only if it manages to climb above the 100-day SMA. Set your watches.

Very very interesting configuration on MCD. Watch that daily diagonal lead prices lower – long only on a breach higher, and until then you can be short. The 100-hour SMA is also very useful as it correlates nicely. Very good setup – one of my favorites today.

GS – the evil empire is at its 25-day SMA. Like it or not I’m going to have to buy there as soon as I see some buying interest on the hourly. Right now it’s looking it could slip lower and you know what to do if that happens (i.e. be short with a stop above).

DE below its 100-day SMA right now but above its 25-week SMA. I’m only short if it drops below the weekly SMA, until then I will remain long.

CME – drop into its 25-day SMA – I want to be long on a touch. The hourly unfortunately is not correlating right now.

BGC dropped through its NLSL on the daily and I’m already short. May be a bit too late for you guys this one, don’t chase it. Long on a recover of that NLSL and especially if it pops above that 25-day SMA

Soybeans at our inflection point – I’m sure you remember that one, we’ve been waiting for this one.

NZD/JPY selling off fast. I want to be long here but need to see the hourly push above some resistance first. Let’s watch this one for now…

AUD/CHF right below its 25-day SMA – also there’s the 100-hour Bollinger above. Good short right now with a stop above 0.96ish.

Cheers,