Follow Through Wednesday Wrap Up

Today’s follow-up on yesterday’s drop was a bit of a surprise to me quite frankly. Let’s look at our VIX chart to support my point:

What this means in the long term – well, first I have to see tomorrow’s tape but my initial assessment is available below for subscribers.

Now to today’s wrap up:

The ZL was surprisingly negative today – as a matter of fact the signal was more negative than during yesterday’s massive drop! There was a bit of a divergence at the lows but not enough to justify going long aggressively. We did make it to VWAP and I pointed out that the signal would need to get over that bearish divergence that developed afterward. However it didn’t and thus we closed below the VWAP line – as suspected.

This is actually yesterday’s Geronimo signal – I forgot to post it in all the hoopla. Yes – two stop outs – I really need to add that TICK filter, which Scott and I believe would keep Geronimo from trying trades in down trend days. Sorry, I just have been swamped lately – and I am also switching over to a new data feed as you remember. But I am committed to doing it in the next ten days; the base code has been written, it just needs to be implemented and then optimized.

And that’s today’s signal – one winner – yay! I am quite happy that Geronimo is able to do its thing in regular downside tape as well. Once that TICK filter has been implemented it’ll go a long way toward protecting us from false positives during down trend days.

Okay, below my thoughts as to what today’s VIX follow up ramp may mean in the medium and long term:
[amprotect=nonmember] Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
[/amprotect] [amprotect=1,9,5,2] Well, what it may mean is that this was real follow through and that the chance of this being the initial drop of a bigger decline should be something to consider at this point. Remember, we don’t want to be biased toward either on the long or short side – so if new evidence presents itself we need to take it seriously.

However, one day not a trend makes – or however Shakespeare would have put it. Fortunately there was no recorded organized stock trading until the late 17th century – otherwise he may have wasted his talent in chasing stock!

We need to see how the tape responds by the end of this week. This could be a glitch and we may race up again tomorrow. But if we see downside follow through like today then this may be the first leg of what the bears have been waiting for. It’s quite possible we drop a bit more tomorrow but the 1300 mark will most likely be heavily defended by the longs.

As you can see there was an attempt to breach that 25-d SMA line today but the SPX bounced back in late trading. If the longs can keep it near this line and get above I expect there to be follow through. Otherwise we may find ourselves at one of those red arrows (i.e. 1270ish or 1240ish) by the end of the week or early next week.

Tomorrow will be an important day. I thought the bounce back would come today but the bears actually put up a fight and it’s now up to the longs that they have the means to drive this turd up one more time. Once/if that happens we can then discuss whether or not it’s time to go short equities in a more meaningful way. Scott already eluded to his strategy yesterday and if you haven’t read his post I strongly recommend you do.

Cheers,

Mole