The Bear Beckons

The market speaks to us in many ways and one of the most effective means of direct communication is how it measures up against our open campaigns. Now having been at this game for more time I care to admit I have developed a discipline of observing the probabilities of outcome at every stage. Which is in part why I keep posting on this blog, beyond an additional (small) source of income it forces me to express my views and trading activities as succinctly and clearly as possible.

In addition hosting here serves as a polished personal mirror in that every single thing I do and say is on public record. There is no hiding from that and suffice it to say that I have learned to choose my words wisely, a habit which at the same time is offset by a strong desire to not resort to ambiguities. In other words – no matter what, I am to keep it real here at Evil Speculator. Now having set the stage, let me walk you through my thinking process this morning:

The stop out of my E-Mini long campaign comes to no surprise as the writing was on the wall yesterday mid session. If you go back to my post yesterday then you’ll see that I was aware that the market was at an important inflection point. My choice given the available evidence was to be long and if stopped out I would observe the action and perhaps enter short on a reversal higher. We are not there yet and thus I will observe the price action in the coming hours for signs of a ‘dead cat bounce’ so to say.

But why even think about short positions? After all I’ve made a point myself yesterday that volatility was still sending shockwaves through the financial system. Although many pundits are pointing at various news related culprits I suggest that you ignore all the noise and instead remember how consistently wrong the same ‘opinion makers’ have been over the past decade. Instead let’s just look at what the charts are telling us.

UVOL shows us consistent selling pressure on Tuesday followed by a weak equilibrium session which suddenly turned into a concerted sell off. I don’t know what triggered that but until we drop < 2690 there is still a chance that we reverse today and continue back higher. I would not blindly buy the dip here however either as downside risk is now again on the increase.

For one there’s plenty of juice here should the bulls slip over another banana peel and end up losing that 2690 spike low. A dead cat bounce from there into 2740 would be an extremely compelling short opportunity with a nearly binary threshold at 2786, after which the bulls once again run the show.

Something that hasn’t escaped my attention is that the VIN/VIF ratio has continued to rise over the past two months. If you are a subscriber then I hope you enjoyed my pertinent abstract yesterday on what probably is one of my favorite IV related ratios.

And speaking of IV and the VIX – there is more – a lot more you don’t want to miss out on. So please grab your decoder ring and join me in the lair:

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