Don’t Get Too Comfortable

Last week’s gap upwards has left market participants catching their breath and looking for a sign of future direction. As we are near all time highs there isn’t much technical context to hang our hats on, and until new context is established everyone is kind of stuck in limbo. Of course withholding new context by keeping the tape inside a narrow range is a great opportunity for market makers to make some easy money by bitch slapping over eager participants around a bit.

Some Tape Reading

Think about the sentiment in both camps. The gap has most likely led to a capitulation of a lot of bears who either have already bought or are looking for a decent dip to buy into. There aren’t many of them left but it would aid the bull’s efforts to hold the fort up here above ES 2320. There are probably some very aggressive bears who are looking at this little island near the ATHs and are willing to plunk a few bucks into some lottery tickets, perhaps a handful of puts at least. On the bullish side many probably took some money off the table right after or during the gap and, since having done, that are unwilling to buy back in right now without a decent dip.

So in summary quite a few bulls and bears are now waiting for a dip mixed in with a small minority of hardcore bears willing to be short near all time highs.

I wish I could tell you which way it’ll resolve but since I don’t have a crystal ball all I can offer are probabilities based on technical evidence. And they are around 50/50 right now with the bulls enjoying home-field advantage (just watch the NQ) . What I can tell you however is that a final resolution is most likely not too far off based on what I’m seeing on my (realized) volatility charts. We have now been enjoying over six months of fairly low RV but note that the Bollinger bubble is already starting to expand.

By the way don’t think that big waves never happen during summer. This ain’t surfing and if you recall we got quite a bit of chop last May and June followed by a nasty wipe out (blue arrow in the center of the chart). So don’t get too comfortable now and be prepared for an increase in volatility. Which of course comes with juicy trading opportunities if we play our cards right. And we always aim to do just that.

Campaign Updates

EUR/USD hasn’t budged an inch or even a centimeter and as I’m still holding long there’s nothing to be done here until either my stop gets knocked out or we blast through 1.0950. Fortunately I somehow win either way 

Soybeans finally got out of the gate and I’m rather pleased with myself as almost a week of patience finally got rewarded. Stop now goes a few ticks above break even < 964.

Bonds unfortunately expired overnight and the diagnosis points toward sudden death by stop syndrome. This is actually quite interesting given where we are on the daily panel. It’s possible that we’ll see some more whipsaw here in the coming weeks but the odds still support a final resolution higher. If we do remain down here for much longer then that BB is just going to keep coiling up tighter and tighter. Rest assured that I’ll keep a very close eye on this one.

Copper also finally taking off – seems like the snail strapped on some roller-skates. Quite a bit of profit taking there though and I’m now moving my stop to break/even as further downside from here would invalidate the potential of a timely resolution within my trading window.

That’s all for now – no new setups for today. Let’s see how this all plays out.