Revenge Of The Volume Hole

As you know I expected a bit of whipsaw or perhaps a small obligatory correction near that 1380 volume hole. But today’s push lower is a bit more than I bargained for and it looks like it may  grow some legs. Obviously today the squeeze is on and we’ll have to wait until Monday to see if there’s follow up or not. It’s never the first candle that matters – it’s the follow up.

And here it is again – our volume hole in all its glory. A steep drop off on our volume profile map and now officially a hurdle that will have to be conquered if we are to make it to our 1390 bullish price objective. Now I know what you’re thinking – 1390 is a mere then handles away from yesterday’s highs, so what’s the big deal? And I would have to agree with you, which is why this correction may just be what the doctor ordered.

Obviously it shot some of our setups to pieces – in particular the one on ole’ bucky (i.e. the DX) – and it benefited others (i.e. the AUD/JPY short or that green monster on sugar). Summer has never been an easy trading period as trading volume is low and the chances for shake outs are high. Which is why I never have any compunction about taking opposing trades – first up it keeps me from taking sides (mentally) and it hedges me against little surprises like today.

If you are looking for support on the spoos then here’s your treasure map for today and early next week. Our nearest candidates are 1345 and 1340 – if we breach through both those then things may pick up momentum to the downside. So watch those two and don’t let wishful thinking direct your trading decisions.

The second reason of why I am growing less excited about the upside potential is Mr. VIX. Here’s a monthly chart that shows us a slowly dropping base of complacency (sounds like a Seattle punk band), which now points toward 13 or 12. So let’s say we  perhaps get a long setup next week and start approaching SPX 1390 while Mr. VIX drops toward 13 then I would seriously start looking at being long vega in a meaningful way. Which of course means being long puts.

I produced a pretty neat VIX P&F chart for you guys and guess what the bearish PO is – that’s right – 12! Frankly that sounds almost crazy and I don’t really feel strongly about getting there. But if we do – boy oh boy – that would be a nice setup.

Meanwhile of course we are already dropping and it’s way too late to chase today’s candle down. Monday and Tuesday will be key days that will show us if we are looking at something more substantial here or if we continue to 1390 and get a stab at the ‘Big Short’. If not then don’t fret – if I have learned anything then it’s that there’s always another opportunity to get an entry.

Have a great weekend.

Cheers,