Bollinger Squeeze

I must apologize for my complete absence all Friday. As some of you know I am running another (non-trading related) company and I needed to go down to take care of urgent business. But in the rush I completely forgot to let you guys know – my only excuse is that I’m a bit overwhelmed lately. Have only taken seven days of vacation this year and it’s starting to take its toll – of course this crappy market is not helping to relief the stress.

Anyway, I’m actually about to dash out of the door again but this place needs a comment cleaner – so here are a few quick charts that jumped out at me:

I think the point I’m making here is quite clear. We are looking for consolidation periods followed by a drop and a BB squeeze. Last year almost every squeeze heralded another drop lower. This year it’s been the other way around – every squeeze meant that the bulltards were getting ready for another push higher. As you can see we are getting squeezed quite a bit right now.

It’s even more pronounced on the VIX. So, the question is – are we going to drop or are we pushing higher? Personally I think the wave count permits for another push up, but then there’s this:

This is a simple 14 hour ATR slapped on my medium term wave count chart. As you can see the ATR fluctuates wildly lately and there is a distinct pick up when we drop – followed by a drop when we push up. I’m sure the tinfoil hats among you will interpret this in adventurous ways but to me it’s nothing but another tool to gauge the potential for a trend change.

According to the ATR drop the bulltards are attempting to push this thing higher but it’s not really working as they have run into a wall. Now, volatility has been pushing up again late last week and that could mean we drop from here. The wave count however would look very strange without a resolution, so even if we drop from here it would be better/cleaner to see a push higher before a big turn. That turn would most likely happen around the 1045 mark, so if we drop on Monday take at least partial profits there.

Please bear in mind that the odds for any resolution ahead of the new year are bad bad bad. So, do yourself a favor – play long term – play very short term – or don’t play at all. We are at the cusp of a trend change IMNSHO but it’s taking its merry time – and as option traders that is when we should step away and wait for some type of resolution. Long term however – and I need to throw that in – bear in mind how low Mr. VIX is right now – and if we ever get a hard drop the spike in vega will do wonders for any put holders – enough said but trade at your own peril – these are crazy times. Surviving as a trader is all about probabilities and the odds right now are not in your favor unless you are holding a crystal ball as all inflection points (bearish or bullish) are miles away.

Cheers,

Mole