Technical Damage

It’s becoming difficult to ignore the amount of technical damage that the bulls have been accumulating over the past two weeks. There have been valiant attempts to trigger the now well established Pavlovian buying reflex near obligatory support zones. However each stab higher has been met with renewed selling pressure – and more importantly it happened right at technical inflection points. As the saying goes – the fat lady hasn’t sung yet. But we should be taking notice and I am watching the current gyrations with a mixture of bemusement but also a bit of excitement. Not that I care about the market’s direction per se – but a correction has been overdue and if we wind up getting one it will bestow upon us with a plentitude of technical context we’ll be able to use to entertain us all summer.

I’m running a bit behind tonight, so let’s dive right in. As you can see this morning’s RTV Buy setup on the spoos has now officially gone where technical setups go to die. Once those two short term SMAs were taken out the ensuing plunge was pretty much procedural. If you were still short then congrats to you – there’s not much to do right now as we are touching tentative support near the lower 100-hour BB, however I don’t see a pressing reason to jump ship here (or to start buying for that matter). Let’s see what the close brings us.

A bit more context here on the volume profile chart. Once again the 1605 mark is where we see a volume gap all the way down to roughly 1595 – give or take a tick. Last time the bears attempted to slash through it but failed miserably. Frankly I’d love to see them try again as a breach would probably result in a plunge lower.

More productively I would look for potential buying interest near 1605 – if it fails and drops lower it’s permissible to start accumulating a few (and only a few) short positions which would be considered extremely speculative unless you are already delta negative right now. A drop through 1594.75 will most likely result in a surge lower. Like you guys I don’t have a crystal ball but that’s how I see it play out based on what I see on my charts.

A quick and pertinent heads up – VIX:VXO currently suggests they may try a bit of monkey business ahead of the close. That’s short term and does not affect the overall picture of what I’m suggesting above. Whether or not it happens today – remember that volatility spikes will always generate strong counter moves – it’s a bit like Newton’s third law of motion. FWIW – this one of the reason why most bears lose in bears market – they are unable to deal with aggressive counter spikes which are an inherent side effect of rising volatility (you see this less in late stage falling volatility trending markets).

Natgas may be painting a last kiss goodbye – I would use the 100-hour SMA as my line in the sand. Once that daily NLBL has been breached the bulls are running the show again.

A few FX setups for my intrepid subs – please step into my lair:

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Cheers,