Not Going to Make It

I really hate to disappoint you rats but I am not going to be able to post my usual extended forecast tonight. Now, I wish it was due to an overdose of Easter holiday pleasures but the ignominious truth of it all is that I have been slinging code all day as I am trying to resolve a few last bugs in the evil.rat notification module.

However, of course I won’t to leave you guys high and dry, so here’s a little bone for you rats to chew on:

Blue: We completed Minor 3 of Intermediate (A) of Primary {2} at the diagonal channel boundary I posted about last week. We should now traverse a corrective wave into Minor 4 in the form of a simple zigzag or something more complex like triangle, a flat, or a threes combination (i.e. double or triple three). As it’s expiration week the possibility of being bestowed with something pretty nasty and sideways is very real.

Green: Almost the same as blue, with the only exception that we’ll paint a little push higher ending most likely at 880, which will be the completion of Minor 3. We then drop into 4 as well and the same rules apply – either we see a zigzag or something a bit more annoying in typical OPEX week fashion.

Both scenarios presume that we won’t push past that 23.6% fib line around 881 as I expect at last some bears to emerge out of hibernation around that important mark. Also, this rally is running out of steam and most of the activity we are seeing is from fast liquidity quant trades, in particular by Fed darling Goldman Sucks. This has thus far been a self sustaining forest fire but it can’t keep going on forever as most of the easy fuel consumed and charred.

But it’s not impossible for those cats to drive this tape higher just to sweep a few more stops on the OTC derivatives side and we might see some violent and surprising candles coming out of nowhere. So, keep your exposure limited – we are sailing in some very dangerous and rough waters right now and expect to be boarded by Somalian pirates any moment. I personally have set up trip mines around the perimeter of my positions – let them try to come and mess with evil Mole – mmwwwuuuuhaahaahahahaaaa!!

While I’m on the subject: Yesterday I came across a great article on program trading posted by zerohedge, which is quickly becoming one of my favorite daily reads. Anyway, it’s a lengthy treat on the more obscure world of quant trading (as I write my own trading strategies I’m into that kind of stuff) but a key point stuck out to me, and I quote:

What retail investors fail to acknowledge is that the quants close out a majority of their ultra-short term positions at the end of each trading day, meaning that the vanilla money is stuck as a hot potato bagholder to what can only be classified as an unprecedented ponzi scheme.

First, one has to appreciate the linguistic gymnastics Tyler employs to convey his point – beautifully put. Second, consider this supporting evidence to justify my almost religious adherence to closing out a majority of my discretionary trades right before the closing bell. In my not so humble opinion holding positions overnight has now become tantamount to playing Russian Roulette due to increasing volatility and ever decreasing liquidity, as evidenced by large gaps and an increasing number of ‘overnight surprise moves’.

If you missed it last week – here is exhibit A which I posted last week and does not require much of an explanation. In other words, this bear market rally is running on fumes – and a large cloud of the stuff is being emitted by the massive delta hedging of Goldman Sucks equity derivatives books which now accounts for over 30% of all market volume.

Hey, whoever said that bear market rallies are fun? As a matter of fact, they are nasty and in many cases you either can’t get in or if you’re being squeezed you can’t get out. I can tell you right now that a majority of funds and retail investors have mostly  been sitting this one out. If they actually managed to jump in they probably got whipsawed to death as they were stuck holding the bag overnight. And judging by the chart above, it’s been one gut crunching Six Flags adrenalin ride.

Lest we not forget that business is war I leave you with a few relevant passages from one of the ultimate classics on the subject matter – the Art of War by Sun Tzu.

17. According as circumstances are favorable,
one should modify one’s plans.

18. All warfare is based on deception.

19. Hence, when able to attack, we must seem unable;
when using our forces, we must seem inactive; when we
are near, we must make the enemy believe we are far away;
when far away, we must make him believe we are near.

20. Hold out baits to entice the enemy. Feign disorder,
and crush him.

Back to coding for me – enjoy the last hours of your long weekend! See you tomorrow morning, evil eyed and bushy tailed.

Cheers,

Mole