Meanwhile Over At The Woodshed

While equities have been pushing sideways for over a week it’s been rather tumultuous intra-day with wild swings and spasmodic gyrations aimed at running stops and wearing out any remaining summer participants. Personally I have no dog in this fight and when I see technical setups fail three or four times in a row I usually step away and focus my attention on easier victims.

The upside of all that back/forth is that we were graced with a daily Net-Line Buy Level at 1,695.25 – and thus far it has proven to be impenetrable. If you can get inversely positioned nearby then odds are you are able to enjoy a ride to the other side of the fence. Which until yesterday was the NLSL but going forward we only have a rising 25-day SMA for downside support.

The NQ a lot more bullish and the 25-hour appears to be holding –  for now. If you grabbed that early morning entry then you were able to ride all the way to the upper Bollinger and back. Enjoy it while it lasts as I see potential storm clouds on the horizon.

Which brings me to the VIX, which is the most interesting chart of the week thus far as it has been quietly lifted while the spoos have pushed sideways and the NQ has managed to ride higher. So what gives? Well, think about it – why would market makers furtively raise the VIX when equities are at all time highs?

Well, several reasons. They may foresee more risk on the horizon for one. I personally don’t see anything screaming bearish right now. Perhaps with August at the door the possibility of a correction exists. Fine – possible of course. But as I’ve been in this game for a little while let me also suggest another possibility. Let’s see we get a small correction and they drive the VIX up even higher to 15 or so. Bears get excited – buy premium with their long puts – and all you need to do then is to drive the tape back up and drop the VIX like a rock back to 12 or lower.

With or without wearing a tinfoil hat it’s a pretty sound assumption that participation in equities right now has a rising risk to benefit ratio. It’s summer tape and thus anything may happen anytime – and the fact that they’re lifting volatility (and thus vega) tells me that nasty games may be afoot. Not a spot where I enjoy getting exposed. In particular since we have very little technical context here – which may easily lead us to fill in the gaps with your imagination. And you know where that usually leads.

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Cheers,