Long In The Tooth

The bulltarts have enjoyed a three month non-stop orgy which might have even put Soddom and Gomorroa to shame. Free catering, free money, and cheap floozies have been in ample supply courtesy of our friends at the Federal Reserve. Of course all festivities have been strictly invitation only and unless Curly sent you an RSVP printed on a Goldman Sucks letterhead you were pretty much SOL.

The rally we’ve endured in the past months have offered literally no chance for the bears to sell the rips and thus enjoy a a well deserved correction – Minor and Intermediate degree consolidations have all unfolded sideways, much to the detriment of anyone crazy enough to bet at more than 20 SPX points to the downside.

As we have practically lingered in overbought conditions for over 70% of this Primary {2} wave I am seeing increasing signs of bearish capitulation as well as renewed bullish exuberance all over the place. This has even taken a toll on this very blog as signs of frustration, silly quarrels, and finger pointing have become a daily occurrence. The trolls have also made their appearances, which is yet another sign that the bulls believe that the worst is over and that they’re running the show again.

However, the first leg of this Primary wave correction is getting a bit long in the tooth and there are signs that the party might at least allow for an intermission in order to let the cleaning crew rush in and dispose of all the dead bodies.

Case in point – back from the dead is the ole’ buck, which suddenly decided that 138.2% of the length of A ought to be enough for wave C. Daily sentiment on the Dollar reached a 94% bearish extreme last Tuesday, which was a contributing sign that a bullish slingshot response was near. Although I never base my trades on correlations it’s fair to say that I am keeping a keen eye on where the DXY is heading in the coming days as commodity and equity markets will most likely respond to a continued surge.

Here’s the same picture viewed from the dominion of bad dental hygiene, warm beer, upside-down traffic laws, and iffy culinary skills. Whenever the wave count is a bit difficult to decipher I often resort to bollinger bands – you’d be surprised what you reveals itself (if you look very hard you might even see Annamall posing in a bikini). This seems to work particularly well with currencies – why I frankly don’t know but you guys must have picked up on the fact that whenever I talk about currencies it comes with a bollinger band – ‘gratis’ as our latin pretty boy might say (where has he been btw?).

In any case – when I see a currency try its luck at breaching the 25-day 2.0 bollinger I pretty much know that selling that move (on the upside) is the order of the day. Which means for the near term future the trend might be down for the Euro and the Pound, and up for the Dollar. The next two days will be critical in confirming that notion.

Accordingly, the mad money dash in precious metals has also been stopped its tracks – for now at least. I bulked up on some longer term Silver puts as I believe that this might be the early signs that a multi-week or even multi-month reversal lies ahead.

For equities there are arguments supporting the bulls and bears alike however. I’m only going to share two sentiment indicators as most of the ones I usually look at have become practically useless (e.g. McClellan, long term MACD + stochastics, etc.). The Bullish Percent Index has not budged – but that doesn’t necessarily mean it needs to drop right now – after all we have pushed higher in fairly overbought readings for a month now.

Alright, the summation index is based on the McClellan – yes – but at least here the 5-day MA is telling me that the trend is officially still to the upside. Of course this is a trailing indicator but many long term investors follow this thing, which was probably why the bulltarts did their best to reverse its course before the ‘street’ started to jump on the bearish bandwagon.

I’m finishing my report with the wave count today. First up – the 5000 feet view – this is our general map and my long term trades are based on this perspective. It seems that we either completed a Minor wave on Friday or completed an Intermediate – there is also the possibility that we will push a bit higher and complete either on Monday – more about that further below.

The implications regarding the degree of the Friday (or Monday) completion are considerable – a Minor wave completion will only present us with a Minor wave correction – thus downside potential would be fairly limited – 910 is a good target. An Intermediate wave completion would mean that we’ll see a lot more pronounced consolidation – a retest of the 880 mark might be in the cards. Of course it’s possible that we yet again get a sideways correction in the form of a triangle – which has been the theme thus far. But today is not the day where we should worry about picking sides – let’s first wait for some kind of confirmation that a correction is upon us.

Quite frankly – not much has changed since my Friday update, I am expecting some degree of correction at this point. I mentioned above that we might push higher before we finally drop, which basically is the Green scenario – for both counts I am currently suggesting that we are close to a downside correction .As on Friday I have highlighted the respective inflection points on the chart above, which are 922 for Blue and 951 for Green.

Once a downside wave is unfolding we then can gauge its characteristics to conclude which wave degree we are dealing with. I apologize of having to be so obtuse at this point but corrective waves are often incredibly difficult to count which is why I am always very cautious trading them. However, that approach has thus far served me well as I have not been wiped out unlike so many other bears who come here to share their sad tales.

That’s all I have to offer for today – I have been working non-stop on Geronimo which should be ready to roll starting tomorrow morning. As promised it will be available to evil.rat subscribers for free (gratis en Español) for about a week. There are two versions we are currently considering to release into the wild – one of them actually holds overnight in very rare occasions – what is extremely interesting about that is that it is always correct in predicting an overnight gap (thus far). We are still debating which one to release but if we release the overnight version simply close at the EOD if you are uncomfortable holding overnight. The settings are identical on both and they both have an 88% success rate.

I want to throw something out there which might be a bit controversial – so for no just take it for what it’s worth: Mark the following dates on your calendar: June 24 – June 26. I am not at liberty to tell you what I’m looking at but at my current estimation those three days mark an important reversal date range. Unfortunately I’m not sure if it’s going to be some kind of bottom or top – hopefully I’ll be able to point towards a direction as we get near that date range.

Cheers,

Mole