Monday Quicky

As I’m turning into a pumpkin in about 30 minutes I’ll be very quick:

The trend is weakening – although we recovered from the initial gap down today we are now pushing into strong overhead resistance. Note that we stopped at that diagonal line I draw last week – the next one is converging around the 880 line I have pointed out on several occasions now.

Blue: We are done with Minor 3 of Intermediate (A) and will proceed lower from here for a more meaningful consolidation which will last longer than just 2- 3 days.

Green: A final push into the 870 region will conclude Minor 3 upon which we also descend into a long needed consolidation.

I am giving both scenarios about a 50/50 chance at this point. The trend will break when it finally decides to. There is no pressing reason for blue to occur tomorrow and although I personally discourage from trading against the trend at this point, especially during OPEX week, intrepid bears might start their hunt for a few select short candidates. A consolidation is near – we might need a catalyst in the form of a botched earning – perhaps a GM bankruptcy will deliver the trigger event we are waiting for.

Berk showed up today and I knew without reading his comment that something was going on with Mr. VIX. For the noobs: Berk used to be a contributor on this blog and his technical skills are awesome – one of his most popular charts were on the VIX, and today is a great occasion to yet again post Berk’s rules on VIX buy/sell signals:

For a $VIX confirmed signal you need 3 things:

1. a close outside of the 2.0 Bollinger Band (20 day, SMA (check – happened on Friday)
2. a close back inside the 2.0 Bollinger Band – this issues the signal (check – happened today)
3. a higher close (sell) or lower close (buy) than the close of the day back inside the 2.0 Bollinger Band – this confirms the signal (we await for that to happen tomorrow, which is a possibility if we push into green)

Once you get those 3 things a major reversal usually occurs within the next week. The sell signals are far more accurate than the buy signals.

The last point should be kept in mind but since we are extremely overbought and since this developing sell signal coincides with an overdue 4th wave correction we could have a winner here.

While we’re on the subject – thus far my longer term outlook for the VIX is coming along quite nicely. After a push up (Minor 4) we should be descending further for several months. I’m fairly confident that the 30 mark will be breached sometime this summer.

Gold might push a little higher here but is running into heavy overhead resistance. I decided to hold my GLD May puts through all this as one never knows where the break happens. Until we breach the 940 zone I remain confident that the medium term trend is to the downside.

That’s it for tonight – see you tomorrow – I am looking forward to reaping my rewards on that GS calendar spread fujisan and annmall sold us on today. Great stuff girls – keep it coming.

Cheers,

Mole

UPDATE 12:47am EDT: I didn’t want to mention this premature – but I just double tested it and here it goes: Due to various improvements I slaved over squeezing into the evil.rat core strategy over the long weekend I was able to improve annual evil.rat/NQ profits by a whopping 8.3% whilst lowering its max drawdown from -5.78% to -5.53%. Mind you, that is on top of the already improved performances I updated the evil.rat page about last week. evil.rat/ES improved from $44,912 to $45,437 whilst lowering the max draw down from -4.29% to -4.25%. I will update the tutorial page tomorrow morning.

Also, I was able to fix one nasty bug in the notification module this afternoon and will proceed with real time beta testing of evil.rat/NQ and evil.rat/ES tomorrow. I think I might commit to a final release if I see it execute flawlessly for the next two days.