Full Steam Ahead

Trading volume in the S&P 500 has finally been on the increase after what amounted to a pretty sleepy August. However as always when looking under the hood I am seeing a few disconnects that are worth noting. For one effective participation in the E-Mini as shown on our Zero indicator remains minimal, suggesting that the ratio of executed shares vs. the number of transactions may be high.

Now before you read on below make sure you catch my Sunday post for an update on last week’s long/short stock portfolio and of course our new long/short victims for week # 38. Enjoy!

Here’s the E-Mini in all its effervescent glory. Things are looking bullish as heck on the surface of things and don’t get me wrong, I’m not trying to over complicate matters. When in doubt always follow price, especially when it manages to overcome two weekly NLBLs in one big swoop.

What irks me quite a bit however is this: UVOL/DVOL with the latter outrunning the former for most of the past two sessions with Wednesday being a coin toss. I don’t have a well formed explanation for this but obviously it’s not what you want to see if you’re holding long equities. If this phenomenon continues this week then we may need to consider contrarian entries. But be assured that nothing bearish happens until price actually gives us a reason.

Of course a significant aspect of this equity rally is directly related to Dollar weakness. Nobody wants to hold the greenback right now as it continues to dance on the edge of the abyss. A slide through the 90 mark would most likely produce a significant number of stops to be run. So let’s take a look at some of the major pairs to gain a more in-depth perspective:

The Yen has weakened over the past week which has given the USD/JPY a very nice boost, pushing it above its 100-day SMA. Maybe I should be living in Japan instead of Spain? The 100-week SMA is now up for grabs plus there are a few lingering NLBLs – all of which would require a push > the 112 mark. I have my doubts to be honest and we’ll have to see what this week brings. This advance higher was fairly strong and could be running out of juice when it matters the most.

Cable is on a rampage right now and I’m sure Jean-Claude Juncker and his pals in Brussels are hating every single tick of it. I’m rooting for our British friends of course and hope that it at least can maintain and hold the 100-week SMA. Of course this means a drag on the Dollar.

We are still long the EUR/USD and I have not moved my stop since I pushed it to break/even. This turns out to be a pretty good EUR hedge for me and at this point it’s free.

And we are also long the USD/CAD – surprisingly so as I thought it would have been taken to the woodshed by now. No cause for celebration however as this one could still turn into a loss. Of course with the Dollar as the base currency this offers a bit of hope for the greenback. I would rather see weakness in the EUR or Yen however, which command the vast majority of Forex trading volume.

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