Battle Of The Bulge

Welcome back my intrepid stainless steel rats – I hope everyone enjoyed a relaxing and joyous Labor Day weekend. I won’t dillydally around as there is a battle unfolding – one that will potentially decide the outcome of the war that has been fought for the past six months:

That’s right – you may be fooled by the eerie silence but the bears are fighting the battle of the bulge.

I am absolutely fascinated by the clarity and continued observance of this channel. Quite frankly – over the past few months I have come up with a number of indicators and charts that served us well but IMNSHO this rather primitive channel (which admittedly I discovered way too late) beats them all.

But there are implications of great consequence – if Von Rundstedt can mobilize his panzer divisions and produce a close outside 1100 on the SPX the bearish allied forces may yet be smashed into oblivion.

The daily Zero is currently painting a GTC fractal – though bear in mind that the day has not complete, thus we may see another spike up. If it resolves it may produce a quick reversal but it is in no way indicative of a P3 scenario – let’s be clear on that. Adding fuel to the 34th infantry divisions is the smoothed center panel which remains stubbornly bullish. Thus, my current assessment is that a quick and potentially deep reversal is possible but may just be an attempt to shake out some Johnny-Come-Latelies.

We are two steps into an equities sell signal – another close above today’s close will be needed. However, the problem here is that we pushed up quite a bit despite the fact that we are only about 10 handles below Friday’s highs. Although I personally still believe that risk and volatility is far from being properly priced in here I do think that this move is a bit suspicious. But if we get confirmation tomorrow then I will most certainly entertain a medium term downside potential. Until then I’m not going to fall for any traps.

That’s the original version of my SPX:VIX ratio chart. I post it here as it uniquely describes the ongoing trend as well as the transition periods. Where we are right now resembles the shift in sentiment observed in late 2008 into 2009. So, it’s possible that we are inside the early stages of a primary degree down wave. But it also could have been simply a big correction and as long as the blue line is above the golden one nothing long term bearish has been confirmed.

Bottom Line:

I’m currently taking a wait and see attitude. The potential VIX buy signal should not be ignored. Neither should the GTC fractal on the daily zero. However, that particular pattern on the Zero is usually a few days early and we could see another strong up day or two until it resolves. So, don’t bet the farm here, as tempting as it may appear. If we get confirmation on the VIX tomorrow then I may want to add a few more positions – thus far I am however extremely unimpressed with the signal on the hourly Zero and the Lite. Which is why I am playing it small – I caution you to do the same until the signals all fall into place.

Long term: The bears are on their last leg here. Much more upside and the bulls may just reach escape velocity and push all the way into Berlin. Another reason to keep your powder dry – you may need some to play the upside should this turn out nothing but the quiet before the storm. We’ll know in a day or two – right here and right now everything remains in play.

Courtesy reminder – today is a POMO day. Watch your six.

Cheers,

Mole