What Really Just Happened Here

I don’t have too much to report today. All of our commodities and FX setups posted in the past few days are in the green – and that’s the exception, not the norm out there right now, folks. So enjoy your ride! 😉

The daily spoos busted through its 1319.25 NLBL but turned short of of testing the old highs (and next NLBL) at 1329.75. If it does then we got strike 2 and that means we push higher. As it stands right now there’s still a decent chance that we get a Retest Variation Sell á la Convict Scott. And the next chart lends some credence to that possibility.

The volume profile on the SPX shows us nothing but chirping crickets above 1330 – good luck pushing above that without painting some overnight gap. Not impossible (and it has been done before) but not without some AH ‘surprise’ move – watch the AUD/JPY and the spoos at night.

But the short term is only half the story – if you take a step back then you may get an idea of what really happened here in the past few days:

The weekly chart has some subtle information that may not be apparent to everyone. What happened here is that we ran into weekly resistance – remember what I said a week or two back? The monthly however is far from hitting its 1400+ target and in between we needed to ‘generate some air’ – that is loosen some of the resistance looming above. So we basically churned around sideways, giving momentum a chance to reverse some of the overbought conditions. This did not affect the Bollinger by much and now gives us room to head higher.

When you find yourself in a situation with little opportunity then simply change the situation! Very interesting how that works sometimes and that is the very exact reason why having a binary perspective on the tape is in most cases a very expensive endeavor. In other words – the market is a fluid glob of probabilities that is in constant flux and can change on a daily basis. What was excessively overbought a few days ago is suddenly a second opportunity for a short squeeze.

Now, having said that – we are talking medium to long term here. Short term I am very skeptical about the upside as there’s no juice above. I think we may just churn around a bit more and until we breach 1330 I am going to be short here with only a few handles of risk – that’s the way I like it. If we do breach then I’ll be long all the way with half at the breach and the other half at the retest (which would be highly probably given the lack of volume on the profile).

UPDATE 3:15pm EDT: Bill (an intrepid sub) just sent me this chart he grabbed from the public (not private) section of Sentimentrader:

Here’s his commentary:

Overall volume on the major exchanges has been low, and that’s especially true among many of the exchange-traded funds that profit on a market decline.

The S&P 500 went the entire month of January without a meaningful drop, so traders are not seeing much point in hedging against seeing one anytime soon.

The chart below shows the volume in inverse ETFs.  We can see that the other times this hedging volume was so low, stocks got hit soon afterward.  Even if we compare this volume against total composite NYSE volume, it’s almost exactly the same picture.

And you know who’s usually playing inverse ETFs, so this chart makes me even more skeptical about any further (short term) upside. The best scenario I can think of here is a quick and fast reset that allows short term sentiment to recover (i.e. to normalize) – followed by a continuation higher as suggested by my long term charts.

Cheers,