August Story Board

I hope you rats had a wonderful mid summer weekend – the weather was glorious over here in Los Angeles. Unfortunately I was working a large portion of it and I still have some coding to do before tomorrow morning. So, this post will be in story board format – let’s get rolling:

Despite the rather hasty rush to the exits late Friday it’s reasonable to assume that we might get one last bust to the upside touching 1000 on the SPX (futures are already creeping upwards). However, the short term trend (one to two weeks) should be to the downside. It’s impossible to predict which shape this  retracement will take as there are 11 combinations in EWT – let’s hope it won’t be a sideways triangle as my puts have been battered enough.

This is a more expanded view showing the Dow Jones. We might keep climbing for another day or two but it seems to me that we completed a clean motive to the upside. A drop to 8600 is a possibility but after the past few months I have become extremely conservative with projecting targets as bullish sentiment is on the increase and will push into record levels by the time Primary {2} of c nears its end.

Again, I wish I would have had this chart near the notorious ‘neckline fake out’ in mid July. Seemingly the appetite for risk keeps growing, all fundamental reports notwithstanding (of which admittedly a majority are cooked). Always remember that bond traders are a lot smarter than their equity munching brethren – I have highlighted several occasions in the recent past in which the BAA-TYX spread was rising whilst retail investors kept pouring cash into stocks. We should take note if we see both lines start moving in the same direction as it might be another early alert signal that the end of Primary {2} is nigh.

As you rats know – I love this chart. The three MAs have now ‘detangled’ to the upside. I expect us to flatline again and revert towards zero if/once we see a meaningful retracement in equities. A detangling towards the downside will be a lagging indicator suggesting more downside (i.e. Primary {3}) is in the works. However, ‘lagging’ means that this one will be late – therefore it will be most useful for anyone hoping to jump in at the Intermediate (2) of Primary {3} high.

If you owe anyone in Euros right now I suggest you buy yourself some time 😉 Yes, we might drop a bit more before the final bottom is in but this looks like a bottoming pattern. Also, Dollar bulls are basically non existent at this point (single digits) and thus the contrarian in me expects a reversal.

I was already depressed about Silver running off without me but it seems we might get a rare 2nd chance. Two scenarios are possible right now – either we start dropping immediately from here and this was simply a 2nd wave to the upside – or we breach 14.1 and push towards 14.5ish. If I get a chance I will get myself some puts on Monday morning with a stop at 14.1 – very little risk and a great possible entry. Next entry would be 14.5.

This kind of tells the same story – obviously price will most likely tell us before we get an update on this chart. But it’s good to keep watching this correlation – remember, a rising ratio is bearish for both gold and silver.

Many thanks to Fujisan again for her excellent post – as she pointed out, I myself had a lot of fun in FX lately. However the Friday forex action was a painful reminder to be very disciplined with setting stops 😉

10:20pm EDT: Bonus Chart!

I had totally forgotten to post this chart but it’s an important one. As you can see the 10-year treasury futures are testing the upper boundary of a channel it re-entered about a month ago. A break out should lead to a significant push to the upside. I might buy a few ZN calls on Monday, depending on which way the open swings.

10:30pm EDT: Just a friendly reminder that I have separated resident.evil from evil.rat – both are now available as individual subscriptions.

Also gone is evil.rat/XX as there were few subscribers – not worth keeping it around. Anyone currently subscribed has been manually converted to evil.rat/ES plus evil.rat/NQ.

See you on the other side.

Cheers,

Mole