Yesterday I posted a chart of the NYSE advance/decline ratio on which I highlighted that the past two weeks were more reminiscent of patterns we see during lows and not something we observe during advances. FWIW – right at the top I am also seeing our coveted Gothic Church Tower fractal, have a look:
Well, one of our fellow steel rats decided to chime in and shared some rather interesting statistics:
I see other things, that normally happen at lows. For example, ES open interest is about 2.9 mil cars. Last time it was that high in end of May – beginning of June. A time before that was in end of November 2011. Also significant low. Sept – Oct of last year was as high as 3.1 mil cars. I started to keep these records around that time, because I noticed that open interest increases when market falls. Its not a fact, just my observation. I could not find historical data, so can’t check if its reliable at all. Also, I understand that open interest may naturally increase towards expiration, because more and more people getting stuck, but during Jan – Feb this year it stayed around 2.5-2.7 mil. And right now we are nowhere close to expiration anyway.
Now let’s look at another chart that is looking rather peculiar, given that we are currently trading 14 handles below this year’s highs:
Just eight sessions ago the VIX was frolicking below the 14 mark, dropping as low as 13.3. Today we almost touched 17 and that’s an increase of 22%. And this, my dear steel rats, is exactly what I was referring to a few weeks ago when I suggested OTM put lottery tickets. While prices on the underlying have barely moved premiums on SPY or SPX puts for instance have risen simply due to a 22% increase in vega. Even calls bought near the top should have remained near break even, despite the 14 handle drop.
Case in point – SPY ATM calls bought on the 17th – after 12 days of theta burn and a 14 handle drop have only lost 60 bucks. Know your greeks folks!
But wait there’s more – make sure your tinfoil hat is in place and you have tightened those chin straps. Here’s another chart I posted two days after we painted those lows on Mr. VIX. Remember those peculiar spikes we saw on the SPX:VIX ratio?
Someone got to buy premium at bargin basement prices and whoever did is now smiling all the way to the bank. Despite the fact that the SPX is trading only 14 handles below its highs. Nevertheless all characteristics of the tape in the past week point toward an ongoing correction. But it may just be a sideways one. Which means that give it a few more days of this Chinese water torture and the Mole may just get excited about the long side again. For now I remain guarded – but the odds of upside continuation will increase vastly once that NLBL expires. The bears had plenty of chances here to take things down by a notch or two but thus far it’s not happening.
But the running theme of today’s post is that we seemingly have reached an inflection point across the board. I am seeing an almost identical configuration fall into place across both currencies and commodities. So let’s take a look, shall we?
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USD/CHF – still dancing on its Maginot Line (i.e. the 100-day SMA). We went long here yesterday per the rules. But I am really waiting for a fall through here. I definitely want to be on board for that one.
Cable already tested its own Maginot Line and is now approaching its NLBL. That is really all that’s separating it from a stab higher and I am waiting for a breach. Not interested in the short side here.
Continuing our prevalent theme is the EUR/JPY. Yes, it’s permissible to be short (until we cross over) but I have an inkling we may get a push higher here.
AUD/JPY – yes, you guessed it – just bounced off its own 100-day SMA. Good spot to be long, assuming the existing trend continues upward.
To freshen things up a little we have an inside day + NR4 combo on the USD/CAD. We actually had one three sessions earlier, which I think I missed for some reason. If you are short already then today’s lows will be your continuation signal tomorrow – today’s highs should be your stop. Otherwise treat it like a regular ID entry setup.
Not to be outdone ole’ bucky is also painting an inside day. Have at it.
Over on the commodities side we have copper slowly following its Maginot Line downward. I concede that this is a tough setup to the upside. But if you are short then resistance is falling in your favor.
Finally we also see our new favorite theme on cotton – here I am mostly interested in a long breach. If we get it we will most likely see a bit of a shake out here, so be prepared.
This ought to keep you guys busy for a while 😉