Booty Map

We ben through some tumultuous tape in th’ past wee tides an’ I think ’tis the time that we take yet another eyeball at ou booty map lest we lose our bearings an’ be swallowed up by th’ evil sirens off th’ shores o’ th’ NYSE.

That nice support line o’ ours be tested an’ breached after which ‘t turned ou’ t’ be nothin’ but another bear trap. As we keep sub-dividin’ a multitude o’ possibilities will indubitably keep many Elliott wavers sweatin’ at night. Nay us stainless steel sea dogs howereas th’ tape be rather clear now. Momentum on th’ Zero be pointin’ upward an’ nay matter how far we sail I expect us t’ hit th’ wall at either 1200 or 1220 mark. Expect more hum an’ haw at that point followed by a final resolution – which will either be a push into 1250 or a drop aft toward 1160.

The most important part o’ our booty map be th’ volume profile which supports our view that th’ 1220 t’ 1260 cluster be what separates th’ bull from th’ bear. Whichereway th’ tides will brin’ us – expect us t’ be thar t’ inflict maximum damage.

But wait, thar be more, ya scurvy dogs!!
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Okay, back to Mole speak. First up I have a few more reflections on our volatility map. What stands out are some divergences on the VIX-VXO and SKEW-VIX panel. Let’s analyze what those mean and then draw our necessary conclusions.

VIX-VXO has been dropping and if you think about it this means that front month ATM IV is gaining against IV across all front months strikes. So, apparently market makers are pricing in more short term volatility but mainly within the current trading range. My deduction is that we may be bouncing around here a bit more before we see a final resolution as proposed above.

SKEW-VIX has been dropping as well and thus it seems that IV across all front month strikes is gaining against the delta between front month OTM put/call IV. Wow, what a mind bender! Let’s try it the other way – the difference between OTM front month put/call IV (and thus price) is dropping against front month IV across the board. So – it’s getting cheaper to bet on a big drop outside the current trading range.

The take away message, as confusing as it may be, is that market makers are pricing in higher short term volatility within the current trading range, with less volatility on the medium term. On short term basis there also seems to be little concern about a market disclocation.

Market makers are a pretty savvy (and evil) bunch, and they sometimes have been wrong in the past. However this would support our current analysis and at minimum let’s keep this in mind when we arrive at particular inflection points (as outlined in my booty map).

I have a few more P&F charts I would you guys to see:

Our daily copper futures chart is one box away from painting some quadruple bottom. When/if it happens we’ll have to talk about that particular P&F pattern and how to trade it.

In a pinch you can use the gold P&F chart as toilet paper. What’s highlighted is a previous high pole reversal warning, which is often the first sign of a possible trend change. There actually was one more before that – forgot to point that one out. The orange boxes paint my own non-official trend line which was just breached. I think what would seal it is a drop past 1800 but a lot can happen until then as we seem to be in a congestion zone. I would only take another short wager at 1860 – right now we are in limbo territory. Of course a breach of 1870 would be a potential long trade, so don’t hesitate to play both sides of the equation.

P&F chart on silver – again I have pointed out HPRWs and after a fake out breach below 40.5 we are now again pushing higher. Apparently we are coiling up here though and which ever way it resolves will most likely result in a multi-handle acceleration.

For your general bemusement here’s the SPX P&F chart, which clearly is fighting to break out of a diagonal down trend line (indicated by those green boxes). And look where that SMA line is hovering – right at 1245, which is smack middle in our volume hole, assuming the fair value of about -$6.3 between the cash and the futures.

Also worth noting is the little fake out drop to 1140, which is a bit reminiscent of what happened in 2009. Will it have the same resolution? Impossible to say and I would not jump to conclusions.

Last but not least yee ole’ bucky and as long as doesn’t paint a box below 76 we should be okay. But if we drop to that we’d be signaling a high pole reversal warning. That would not necessarily be bearish but would have to be bought back with vehemence. Anyway, after a little short squeeze like this it’s natural to expect a counter reaction but my FXE chart from yesterday looks like it could gain some traction and that would favor the longs on the equity side. Poor ole’ bucky – will it ever get out of the gate? Failing this break out attempt would be a very bad omen – so let’s keep an eye on that 76 mark and in particular at 74.6, which is where we find that 20SMA moving average it continues to fail.

Cheers,

Mole