Easy Now!

Let me begin this post by ripping your bear suit off after which I’ll hose you down with ice cold water and chase your naked ass around the block a little. There – feeling better now? Yes, I know equities feel like they’re about to tilt over and die. But we have been fooled in the past plenty of times with extreme measures abound. So let me be the broken record that keeps rubbing your dirty nose into this nasty chart:

Yes, there was a tiny drop off in the 20-day rolling total of floating POMO cash, but we remain firmly in record territory. Boy that’s a lot of outstanding cash. And even a fat drop would really matter anyway – as long as we are not approaching the zero mark the tape can either push higher or churn your put positions into a slow and agonizing death. So remember that  when you hear the usual suspects suggest an impending and massive drop. Don’t get me wrong – I have little doubt we’ll see some type of correction fairly soon – I mean things are really getting a bit out of hand at this point. I might even dip my toe into a few select short symbols here and there. But if I manage to catch a fast reversal I’ll be sure to take profits and run for the hills. If P3 ever happens there will be time to get positioned after an initial drop and a snap back, and until we see that I don’t care about bullish exuberance. For it can feed on itself for a long time.

Nothing bearish is going to happen anyway until the Dollar seriously gets out of the gate. Thus far we remain stuck in 2nd wave hell. Meaning this could be the beginning of a third wave down – or we just painted yet another a-b-c correction after which it’s the express elevator into the abyss of all currencies.

We won’t know until we either take out 78 or 81 – nothing that happens in between should affect your trading as those FX bastards are teasing the heck out of you. They want you to see what you want to see – and they love these types of setups and will stretch it out all the way. I don’t expect much of a resolution here until after the holidays.

My exotic NYMO:BPYNYA ratio signal turned exactly where I thought it would, thus continuing a divergence that has been unfolding for months now. The one question that remains of course is when equities will finally follow suit. The way I see it is this: At some point we’ll see some wild snap back that we will all miss out on – it’ll happen suddenly out of nowhere and without warning. No, we will not be positioned for it and if you buy puts today you will most likely guarantee that it’ll happen just when they expire. So we are doomed to watch that first red candle in complete exasperation wishing we had been smart enough to get positioned. Sorry rats – trading is not for the faint-hearted.

The only consolation I can offer is actually that very first POMO chart. Chances are our primary bankster POMO sucking friends will take advantage of such a dip to drive the tape higher after having run the stops of legions of retail trading schmucks. Yes, that would be you – well, if you weren’t a stainless steel rat that is of course. Because we’ll watch all that in bemusement because we won’t be ones getting their asses handed to them. NO, instead we’ll be the ones selling the rip that will undoubtedly ensue. Well, that’s the theory at least – it’ll get a lot uglier and will probably take a lot more time to unfold then we all care to imagine.

NYSE volume ratio is telling a similar story. I’m not going to sugar coat it and don’t let my POMO chart fool you – I’m definitely not bullish here. Medium term I see two phenomenon here:

One, we keep painting divergences which refuse to resolve in any red candles on the equities side. Why? Kindly refer to my POMO chart which serves as the ultimate floor painting utility. Back in the days tape like what we have been forced to watch in the past few months would have resulted in a several hundred handle down candle on the SPX. These days we keep racking up those ISEE equities points as if they were frequent flyer miles on a black squid AMEX card. Go figure – but I’m not about to start arguing with ‘the man’ – I eat the crums I’m being handed and live to trade another day.

Anyway, two – those blue lines I painted seem to be some be some momentum coil that at some point will resolve in a fast and dirty move to the downside. Again, my best bet right now is that that moment will occur in January. But again – I don’t think it’ll be anything like a P3 situation – maybe a hundred handles on the SPX, maybe a bit more – but it will be bought either the same day or the next. So, if you catch it – be nimble.

Yes, yes – the smoothed daily Zero is still hovering below the mark and is also suggesting that a reversal may be near. There’s definitely a lot more volatility as of late and the picking is not as easy as it’s been since early summer.

But that’s not why I’m posting this chart this time around. Rather, now with 2010 drawing to a close I want to use this chart as prime example of what a dreadfully horrible trading year this has actually been. Just humor me and take a step to the back wall of your prison cell, squint a little, adjust your package and relax – yes, that’s good – don’t overdo it now. Alright, just look at the smoothed signal and tell me if you see anything bullish here. Look again.

No – not really. I mean quite the opposite, right? It’s actually a miracle that we are where we are and it’s also a testament how long a Fed induced sucker rally can torture those righteous souls who dared to short what should rightfully be an S&P 500 trading somewhere around 400 by now. But it was not meant to be and it may never be  thanks to an endless supply of phantom digits in the Fed’s virtual printing machine.

Bottom Line:

There’s something nasty brewing out there but they will most likely try to paper it over just like they did in 2009 and 2010. So, don’t get your panties in a bunch about P3 again. I think it’s not unreasonable to start thinking about short positions once the holidays are over and done with. But personally I’ll go easy on myself and go after the laggards – then, when a dip occurs I’ll head for the hills as soon as I get the chance.

After that I’ll just watch for a while and then decide what’s in store for 2011. At this point any attempt at plotting a long term path is mental masturbation. Doesn’t matter anyway – the meat is in the daily grind – like it or not. I know – not as sexy as that crash scenario – but waiting for Godot is not a trading strategy

Public Service Announcement:

Quadruple witching tomorrow. It will get ugly. You have been warned.

Cheers,

Mole