I Don’t Trust This Tape

As we are approaching the long Labor Day weekend I do not expect too much in terms of fireworks for the remainder of today’s session. Tomorrow we’ll most likely see a slow sideways churn as pretty much everyone worth their salt is already stuck in traffic on their way to the Hamptons. I myself may chime in if I see any activity on the board – and of course something interesting to write about.

No new setups today as I am not going to take on any additional positions ahead of Tuesday. I however wanted to leave you with a few key perspectives. The first one is that the spoos have touched their first level of support which is the 25-day SMA. It is possible that we drop through a little but in recent history we recovered within three candles. However, if we continue downward then the next logical support cluster is around 1360.

The other more salient one is that we may start our countdown into a VIX buy signal today – assuming of course equities don’t run into magic bidders again ahead of the bell.

Some of our current FX setups make good guideposts for where we may be heading. Here’s cable (GPB/USD) which failed its NLBL yesterday/today and is back on its way down. You recall that I was not interested in a short trade there as the 100-day SMA is lurking right below. And that one will most likely act as support next week.

Here’s the EUR/USD – in essence I’m still short but am not excited about this trade whatsoever. As a matter of fact I may close it out before the bell. We should have dropped quite a bit more today and I have an inkling it’ll make another pass at that Maginot Line next week.

AUD/JPY – usually another good harbinger of what may happen on the equities side. We did drop through the 100-day SMA but today it’s limping behind equities.  Which is concerning as it has been leading them down all week – except for today. Do you remember my correlation chart I posted two days ago?

In essence I’m not buying this drop – well, I may have ‘sold’ it if it wasn’t for the low vol holiday tape. We’ve been sideways all month and suddenly this drop right before the long weekend? Do the words ‘big gaping bear trap’ mean anything to you? Heck, maybe I’m wrong but I don’t like the odds of participation here. As a matter of fact: IF you took a short position at the NLBL this week then I suggest you close out and wait for further instructions.

Call me paranoid but this tape seems engineered to trap folks into bad positions – and that ahead of a long weekend. Be careful and always remember that our prime directive is capital preservation.

Cheers,