Defcon 2

This morning’s gyrations produced a bear trap of biblical proportions. I can only imagine how many grizzlies rejoiced when the former low of 1039.83 was breached by 13 cents – just to then having to watch their legs being chopped in a matter of minutes. I can’t help but admire such an evil setup. I hope you all were watching the Zero as it continued to be extremely skeptical throughout the entire morning drop.

The most meaningful chart for me is one I presented a few days ago:

You don’t have to be a master chartist to imagine how this may be a bad situation for the bears. Not only did we bounce at that 25% channel line again – we did so in short succession, thus painting a very ominous double bottom. Not good!

NYSE A/D ratio is at 5.27 right now – and that’s quite bullish, possibly supporting a move higher.

The wave count is getting a bit gritty at this point. I’m not going to sugar coat it – we should not see such a wave formation at this stage. Fast retracements – yes. Opening gaps – yes. Fake out moves – yes. But a double bottom right here in a third wave? Very strange…

Now, I’m not going to throw in the towel right away. It is possible that we are painting some complex sideways pattern, which after bending a rule or two will lead to a count that satisfies Clockwork Orange. However, it would be foolish to not consider a more insidious scenario – one in which we just completed a very shallow Minor 1 down and are now pushing into a Minor degree retracement which could take many shapes (and burn more theta).

The game here seems to be quite simple – and it’s the one you’re all feeling: This is all about theta burn – delaying the down move as to further discourage the bears. Unfortunately it’s working as I may have to yet again add more theta to my long term positions.

Of course what’s driving all this is the AUD/JPY – and I don’t see this thing turning any time soon. There are some huge currency interventions taking place here and if equities (and the ES futures) catch up it’ll be one hot late summer for the grizzlies.

I am increasingly starting to feel like Michael Burry who a few years ago bought credit default swaps to bet against the sub-prime mortgage market. It’s a long story – but one you may appreciate. The banks selling him the swaps fucked with him all the way to the end – until they finally had no choice but to shut up and pay up. Suffice to say – all through his ordeal he didn’t have many friends. This is no consolation and no – I don’t want to be a Michael Burry. If I see any indications that we are pushing above the center line on my first chart I’m going to head for the hills.

Anyway, we are at Defcon 2 here at the Evil Lair – I don’t like this tape and we better reverse here righ away or bad things may happen next week. Thus far I’m sorry to say that it’s not looking good at all.

Cheers,

Mole