It’s Getting Ugly

Unfortunately I don’t see any setups of note right now. As I don’t want to let you hanging in limbo let’s turn our attention to an increasingly ugly looking situation over on the equities side.

The spoos sliced through that volume hole at 1330 like a hot knife through butter on the way down. And it seems that tables have turned now as it posed sufficient resistance to bring us back to the 1300 mark. It does not take much imagination to see that a breach of 1290.6 could launch an avalanche.

What’s even worse is that Mr. VIX has now officially gone spasmodic – we just saw a 25% delta in IV within two trading sessions. Even at today’s quirky standards moves like that spell trouble – people’s option premiums on both sides of the option chain were getting shafted here. Both BB lines are now starting to point up and this is going to put a real damper on the possibility of a bonafide VIX buy signal.

However, what you really need to see are two of my long term P&F charts:

I think the SPX is really hanging by a thread here and 1295 should be the final line of defense for the longs – I expect them to put at least a little effort into holding it. Be cautious when betting on the short side as the usual suspects may try to whip you all over the place before picking a final direction. A lot of times when things look really ugly those mysterious buyers step in at bargain basement prices. But a bonafide close below 1295 should trigger stops like dominos – our bearish PO is ~1270. Fair value right now is about -2.0, so on the spoos 1293 is your uncle.

I also wanted to show you what’s happening on the Dollar side as it is extremely significant. Stockcharts has not updated it yet so I had to do it manually. As you can see we now have breached long term resistance and are painting new highs. Our bullish price objective is 82.7, which doesn’t leave too much room until we should see a bit of a correction. I’m still elated as this major progress for ole’ bucky.

Bottom Line: I am a bit conflicted as our bullish price objective on the Dollar almost has been met. It’s possible that the S&P will resolve to 1270 nevertheless and it’s worth taking a position on the way down once we breach support. However, I would strongly recommend you only employ petty cash as things are simply too chaotic right now. Yes, if you get lucky you catch a big move and IV will boost your profits if you are proven right. But as they say South of the border: No vale la pena. I am not much of a gambler and as things have been a bit detached since yesterday my appetite for taking on risk has been reset to a bare minimum.

Cheers,