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Sideways Correction
101

Sideways Correction

by The MoleAugust 29, 2012

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 😉

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Cheers,


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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  • MrMargin

    USD/CHF buy STP @ .9588, 6 pip stop

  • itslance

    So if it is a sideways correction, how do you get bullish again?  Are you looking for volume to pick up, or would you use the 20SMA to defend a long position with a stop on the other side and hope for a short squeeze?  You don’t suppose this is engineered to frustrate the shorts into closing their positions before blasting the tape lower, do you?  I sure hope it’s not a sideways correction…how lame.  I like the old down-up.  I agree, this tape makes for painful watching.

  • AMCabrera

    http://content.screencast.com/users/AMCabrera/folders/Jing/media/258dec51-0a58-45d5-ab6e-7954fb0adbd7/2012-08-29_1504.png
    http://content.screencast.com/users/AMCabrera/folders/Jing/media/913ee6e6-9fc1-4813-bbed-e3a623715530/2012-08-29_1506.png
    I have not looked at the SPX chart in a while now. IMO this market has to take a shit first before it can eat more to the upside. Daily tells me we are not in sucker territory anymore but currently very ambiguous to make any strong decisions. Obviously, I would rather go long at 1350 and 1370 would seem like a natural target. If this happens first it would make the current rally very healthy IMO. If not and this goes higher then I will stay clear because of a potential diarrhea shower that could happen. Look at the weekly SPX, you can see once it sits and establish a good foothold the thing climbs very fast BUT then pukes and shits everywhere.

  • AMCabrera

    It just me though. You could try to ride this thing out higher. I would just rather buy cheaper.

  • itslance

    VIX is creeping higher and it looks like it’s about to touch the 50 SMA again.

  • MrMargin

    Just looked at my records: the last Trend Day that actually worked out was on 7 August 2012.

  • DarthTrader

    VIX RSI continues to diverge to the weak side

  • grednfer

    So Slow…………ES very controlled.
    Last week first close down in 6 weeks
    So far this week ES is failing to hold last weeks close….1410.5

    Where will this week close? over or under?

  • Darth_Gerb

    *Market Closed*

  • amokta

    Another groundporcine day concludes !

  • Skynard

    If we close below VWAP today that will be 2 in a row. Still short /ES.

  • https://evilspeculator.com molecool

    Yeah, it’s getting lame. I think a lot of folks are busy planning their 3-day weekend.

  • bdoone

    SPY trading 64M pretty much sums it up…And I thought yesterdays 77M was lame

  • I Bergamot

    Rally led bay banks? I must be seeing things. Isn’t AAPL supposed to be THE market?
     http://stockcharts.com/freecharts/candleglance.html?SPY,IWM,QQQ,XLF,KBE,KRE,$BKX,$BANK,aapl

  • BobbyLow

    And that’s that.

    Like I said earlier, I no longer have a position in the Slippery Black Stuff which was pretty good to me for most of the month of August.  I’ll take another look at crude after the holiday.  

    However, I bought a new 1/2 Long Position in PRU at the close.  I posted a P&F Chart on it in the previous thread.

    So let’s see what tomorrow brings.  🙂

  • amokta

     Time to recharge & refresh, and hopefully get your TOS charts back to full speed!

  • AMCabrera

    oh boy..eur/usd is looking ridiculous sitting at this price.

  • MrMargin

    That’s very interesting, financials are probably the stocks most sensitive to downturns. If money is flowing into those, it could be seen as sign of a “risk on” mentality.

  • grednfer

    If we get a weekly close under 1401 it could get nasty….but its been a good summer, all up since June 01. 12 and now 13 weeks of uptrend….. Maybe Sept will bring other things if we close below 1401.
    Went short today at 1411, but I normally don’t do that and it felt like a bet. It’s trading as if the target is much higher…..like 1450 or something. Just no sustained selling…..just dip buyers.

  • Darth_Gerb

    Schwerepunkt, I’m setting the ATR to 1.0 and my smartphone to wake me when it turns.

    if it takes 60 S&P points overnight gap down to do it, so be it!
    http://stockcharts.com/h-sc/ui?s=$BPSPX&p=D&yr=0&mn=3&dy=0&id=p48428470567 
    I’m going to sprinkle some sand on my toes and pretend it’s the Beeych.
    -DG

  • Schwerepunkt

    Blip.

  • Schwerepunkt

    If you believe the DOW theory, this market is “going” nowhere. But it IS sitting on Ichimoku support.

    http://stockcharts.com/h-sc/ui?s=$TRAN&p=D&b=5&g=0&id=p40924524122

  • Skynard

    Getting a nice push now. Took profit earlier and now want to play again:)

  • Skynard

    AUDJPY been battling it out with the 23.6 retrace from 74.497 @ 81.423.

  • Skynard

    Strange that the /DX did not open as usual tonight.

  • Skynard

    Aussie on the move:)

  • MrMargin

    And ES is about to take out the 20d.

  • Skynard

    Just Evil:)

  • Skynard

    AUD mover @ 2130 hours

  • Skynard

    Ouch:)

  • Skynard

    Out of /ES, will reload on the next ramp.

  • Darth_Gerb

    I see a downtrend channel.
    Yes, I misplaced the T post.
    http://s12.postimage.org/gs163eyi3/Aug_29.png 

    Lesson learned: T posts placed in V patterns is simple.
    T posts placed at the bottom of a backwards N is complex.

  • AMCabrera

    by the hairs of my hairs of my chinny chin chin the highs was 1.25599

  • AMCabrera

    preparing for the inevitable though re placing sell orders.

  • AMCabrera
  • AMCabrera

    getting ready again.

  • Skynard

    Now you tell mee, ah! (JK) On my radar:)

  • Darth_Gerb

    he he.  
    yep. still there.

  • Darth_Gerb

    ack! TOS web Prophet is down, switching to local.
    [/ES]
    http://s14.postimage.org/oh8g07swv/temp1.png
    bull/bear/neutral.
    -DG

  • AMCabrera

    well I fell to sleep after my workout. I see that 1.2530 is now being completely avoided now..

  • Darth_Gerb
  • AMCabrera

     Sooo 5×25=125 pips if you kept buying and selling between these levels…past eight hours in the eur/usd. yea im pretty bored right now.

  • AMCabrera

    The order book is filling up with more longs in eur/usd. I suspected this would lure more longs in and shake weak shorts out. No matter I will wait at 1.2530

  • Skynard

    Wow!

  • https://evilspeculator.com molecool

    Let’s see if the Marines swarm in again to save the day.

  • https://evilspeculator.com molecool

    Must…. keep…. market up…. ahead of ….. elections…. arrrrrghhh…

  • DarthTrader

    Nice long tail on the /ES  that is how they like to make bottoms.  By no means certain but you do see it a good bit  . . .  Longs stranding Shorts

  • Skynard

    Might see that happen after a decent correction. Targeting 1370:)

  • BobbyLow

    Mornin Folks.

    Perhaps tomorrow will be the last day of “The Month of the Zombie Market”.

    Or not.    🙂

  • Skynard

    Too early, lets scare the children some more or at least a div presents itself. Short /ES 1402.25

  • neowave

    did anyone read the lastest articles of martin armstrong?
    Cause although he seems to make sense… he confuses me with his end of western civalisation, but the market will not crash? funky shit

  • Skynard

    Would like to see SPX 1398 taken to the woodshed today. That did not look like a typ bottom pattern at all:)

  • ronebadger

    Don’t forget, tomorrow is a FULL MOON…..and, it is a BLUE MOON as well.  OK, which one of you guys has chart stats for Blue Moons.

    http://www.youtube.com/watch?v=7giOrKYIwpQ

    http://i2.listal.com/image/1586726/600full-full-moon-fever-cover.jpg

  • BobbyLow

    I gave up reading that kind of stuff because I found that it did not help me.   It also made me kind of a downer at parties.  

    So basically, I’ll leave it to the Zero Hedgers to discover and solve all the problems of the world.  🙂

  • https://evilspeculator.com molecool

    I hate August – don’t like summers to begin with. But August is the worst of ’em all. Definitely downhill from here.

  • Darth_Gerb
  • Skynard

    JBTFD:)

  • Darth_Gerb

    /es 1401 & JNK showing no fear.
    amateur hour over in….

  • https://evilspeculator.com molecool

    Yeah – I’ve read his stuff as well. All of these guys have been announcing the end of the world as we know it for years. And they make good points and all – very smart guys. Except that if you kept trading on that info you went broke three times over. 

    The problem with bearish pundits is that they, despite their intelligence and their often valid theories, continue to underestimate the time it takes for the powers that be to run out of ammunition. I mean, come on, who amongst us would have expected a 3.5 year bull market in March of 2009? I did suggest a Dow of 10k but we all knew that there were systemic problems.

    My point is that all this information is great academically. But we are here to make money and trading is like driving on a freeway. You mostly worry what’s right ahead of you, maybe a few hundred feet down, perhaps even a mile. Driving while holding a map of the continental U.S. is useless. The big picture is useless as long term trading events can vary by months or years. Nobody invests/trades this way anymore.

  • Skynard

    If this wave has any mustard, should slice through 1400 like butter:)

  • neowave

     What I like about the guy is that he makes you think. But in the end you are right, you can not use him for trading purposes, since he has very conflicting ideas.

  • MrMargin

    Lots of gap-downs in individual stocks and that hourly coil on the SPX is certainly gone for good. I’d put my money on a downmove here, but ZL doesn’t look too supportive yet.

  • MrMargin

    ZB about to take out the 50d

  • Skynard

    Out @ 1397.75. Will re-enter on a bounce.

  • Skynard

    Playing the game. Long @ 1396.75

  • DarthTrader

    /ES back to retest the Upper Down Trendline, Again.

  • Skynard

    Took puts off the table. Good point DT:)

  • Skynard

    Stopped out, power move!

  • AMCabrera

    taking half profit setting rest at b/e. That was a little better.

  • neowave

     nice one

  • AMCabrera

    not really I’ve been stopped out 30 pips twice but I’ve made a full 30 pips earlier this week and now made half of this one. Then add in that my sell order was barely missed in the GBP/JPY at 124.85 today is a shrug my shoulders day.

  • MrMargin

    Short HG @ 3.4465, stop 3.4505

  • Skynard

    Short at VWAP, SPX 1400 test.

  • MrMargin

    Short ES @ 1398.75, stop 1400.25

  • http://iberianviews.blogspot.com/ catracho

    more or less flat now..gonna wait the “news” event..yes I know news doesn’t matter but there are a lot who don’t so hopefully will be able to take advantage of THEIR trading on news…
    specifically looking at buying on weakness; commodities, european indices and euro crosses

  • http://iberianviews.blogspot.com/ catracho

    FTSE 4 hr chart

  • http://iberianviews.blogspot.com/ catracho

    DAX 2hr 

  • http://iberianviews.blogspot.com/ catracho

    Silver below 30 , gold below 1650, some levels

  • MrMargin

    VIX is still outside the upper BB

  • http://www.tradingsign.com/ T. Waffle

    Sup fellas 🙂 

  • ronebadger

    I’m gonna watch that baby ride all the way up as the bands expands

  • Skynard

    Lost 1400, goodbye!

  • MrMargin

    You mean, you prefer betting against the odds?

  • Darth_Gerb

    (DG, formerly GG’s – jaw hits the floor)

  • dane20

    can i contact you

  • Skynard

    Lastly, need DJI below 13k and we got it:)

  • ronebadger

    I’m not sure what the odds are; I’m just relating my druthers

  • AMCabrera

    yes?

  • http://www.tradingsign.com/ T. Waffle

    lmao! how’s it going Gerb 🙂

  • MrMargin

    VIX outside the BB is the first step for a equities buy signal.

  • Darth_Gerb

    excellent.  I’ve learned so much since you’ve been gone.
    please give us some juicy story of where you been.  something along the Bourne Legacy genre.

  • ridingwaves

    Loving paradise..Mai tai’s are back on at 12pm…another volume alert this morning..Bio spec play..Tuesday conference call and phaseresults..nice short ratio-11%, above the fearless 20sma and 50sma cross on 180sma…trying to catch a pull back on first lot..looking for run to 2.60 360sma

    STEM…
    http://s12.postimage.org/o5kdbzbjh/stem_chart.jpg

  • http://www.tradingsign.com/ T. Waffle

    Sup MoleCool!!

    Blast from past :wavey:

  • Skynard

    When did you get out? (JK) Good to see you:)

  • Skynard

    full short /ES

  • ronebadger

    not so fast….the other alternative is a run up the upper band….we have all seen that before

  • dane20

    How can i private message

  • https://evilspeculator.com molecool

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨ 
    ¨°º¤ø„¸  N E W  „ø¤º°¨ 
    ¸„ø¤º°¨ P O S T “°º¤ø„¸
    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • dane20

    I just wanted to learn your system

  • http://www.tradingsign.com/ T. Waffle

    :hi!! hehehe

  • dane20

    Would you share with me how to learn your strategy?