Magic Bounce

At the risk of sounding cynical but that bounce off the lows today was rather mysterious and reeks like an engineered double squeeze. Once again our Zero indicator signal paints a pretty good representation of today’s whipsaw:

Some poor sub was asking me how to interpret those wild swings and the best I could offer was the following:

1. Clearly the tape suddenly turned on a dime today. You may point at some random news event as an explanation but I smell turkey.
2. The bounce and gap fill that followed looks like it was run by prop desks and institutional traders. The strongest spike was a 1.0 compared with a negative 2.5 on the downside.
3. VWAP has not been touched since the lows, which is rather unusual given a) the initial drop lower and b) the diminishing participation which since has turned into a flatline.

Obviously all this is completely in sync with the current market phase – which remains to be one big sideways high volatility wood chipper bent on destroying as many participants as possible. So treat carefully and make sure you get exposed only when the odds are clearly on our side.

Speaking of which – what an awesome entry at ES 2011 yesterday. Things looked quite rosy there after the open but it was not to be. I am staying short here as swapping positions here due to a bounce is not part of my system – I got a good entry and I’m riding it to the end. Moving my stop to break/even however, that’s for sure. I’ll be looking into swapping for longs if that happens – as discussed yesterday.

The positive thing here is that this dip lower builds even more context, once again demonstrating that the short side is unable to breach little more than short term support levels. The current NLBL at 2111.75 has already been tested and a breach higher would be a damn good reason to be long. But for now I’m not going to second guess direction – this is exactly the type of tail chasing we need to avoid. You got an almost perfect entry – stick it out as per the system rules.

Some updates on our ongoing campaigns – EUR/GBP looked good for a while but has dropped back lower. Nothing to add since yesterday’s entry. Still willing to flip for a short position should it drop below the weekly NLSL.

CHF/JPY – also looked a lot better a few hours ago. I’m moving my stop to break/even now.

AUD/USD – that one seems to be good to go! As you can see it’s peeking over its 25-week SMA and a breach here could lead to a squeeze higher.

Natgas – I think I threw that one out for free yesterday. I really hope some of you guys grabbed a few long positions after it produced more context near the 100-hour SMA. I’m riding this sucker all the way. Stop now at break/even of course.

A few more goodies below the fold for my intrepid subs:

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Cheers,