Post Ramp Churn Day

I hope you can forgive me if keep this brief as I’m not my usual evil self today. Mr. Stripey is in pretty bad shape and it seems we’re going to have to pull the plug on him either today or tomorrow. However life goes on for the rest of us and the market does not wait for anyone (humans, dogs, or cats).

Not wanting to be completely useless I did however manage to scrape a few interesting charts together. Scott has often talked about the odds of a sideways churn session after a big ramp day and today most definitely qualifies. So I won’t test your patience by dissecting today’s intra-day gyrations – instead let’s take this opportunity to refresh our long term view.

The weekly SPX chart above is now showing us that both of my upper BBs are starting to climb. A few weeks back I entertained the possibility of a BB touch or maybe even a blow off top pushing us to the outside. But no such luck for the grizzlies – I see no hard resistance here.

Similar situation on the monthly SPX chart – we are near the upper BB but have not touched it yet. I would like to see a push into our next price resistance at 1440.24 – which should be good enough for a BB touch or (gasp) perhaps a push outside.

The one chart that really has pointed the way for the past few months has been the Daily Zero. Especially the smoothed panel has been steadily pointing higher since late December.

But as you know there are signs on the horizon suggesting that this rally is most likely reaching its final stage. To paint a more thorough perspective let’s take another look at our 2011 A/D analog:

If you recall my post from a few weeks ago – I had noticed an unusual NYSE A/D fractal formation in the form of a climbing support line which held up much through the 2011 winter/spring ramp. What I was particularly looking out for in my previous posts were early alert signs that the rally may come to an end. Particularly I was interested in seeing a breach of that diagonal A/D support line with a few up spikes on the D/A panel.

The jury is still out but it seems that at least the easy times are over. We have clearly abandoned that 2012 support line and are now painting lower signals whilst making new price highs. I don’t think a reversal will happen right away but the odds of a reversal near our new monthly price resistance at 1440.24 are pretty high.

This is a daily chart but it may have medium or even long term implications. The Dollar has now dropped back below its 100-day SMA which establishes new resistance above. There is simply no juice in this thing and if it has anything bullish to say it seems that it’s unable to finish its sentences. This of course has been feeding nicely into equities and unless we push back above that SMA we may drop back to 78.

If a miracle happens and we push higher then things may get very interesting near 81 a we would be painting an inverse H&S of some sorts (yes, it’s not exactly clean but I think it would be technically permissible).

Before I run here are two possible FX setups:

EUR/JPY sitting right at a daily NLBL – plus there’s the 25-day and 100-day upper BB. I think this is a great short trade until we push above today’s highs. If that happens we may just turn into short squeeze mode so it would be permissible to flip that trade (but don’t overstay your welcome – grap a few ticks and be out if things run out of steam). My downside target would be a bit more generous at 109.

Cable is pushing against what I would call ‘soft resistance’ as both BBs are rising. What I find fascinating is that the high was exactly at 1.600 – so I would be short here with a stop one pip higher and be done with it. Not a high probability trade but maybe worth a play if you can grab it a few pips higher.

I leave you with this – Mr. VIX and the SPX are once again pushing in the same direction – second time this week. At the time of this writing the VIX is up 6%+ while the SPX made new four year highs and is currently almost up handle for the day. Food for thought – if you are long don’t get too comfortable and make sure you don’t overstay your welcome.

Cheers,