Soylent Green Reloaded

On April 2nd I presented my esteemed readers with a reboot of our Evil Speculator Soylent charts in which I proposed four possible scenarios, each with its respective probability. At the time of me writing that post the E-Mini futures were trading at ES 2487.25 and looking rather droopy but we all know what happened next. Let’s revisit my analysis in early April and then project forward where we may be heading next.

Here is what I proposed in conjunction with these four scenarios:

• Soylent Yellow: We bounce today and push into 2600. This has 50/50 odds but if it occurs then Soylent green increases to 65%.
• Soylent Green: Predicated on Yellow so at this point it’s a coin toss. Should we see a push above ES 2650, then we most likely push at least toward ES 2900. That sounds like much but if accumulation is occurring here then it would trigger additional buying interest in hopes that the worst is behind us (which most likely it is not).
• Soylent Orange: We continue dropping today and drop toward 2300 or even 2200. Odds here right now are 50/50 but if it occurs then Soylent Red pushes to 65%.
• Soylent Red: Predicated on Orange, so again it’s a coin toss right now. Should we see a drop below ES 2200 then most likely all hell will break loose. Although I am properly positioned (see yesterday’s update) I sincerely hope this doesn’t transpire.

Clearly at that very moment the market was balancing on the proverbial pin as visualized by my posts’s featured image. Wave wankers all over the globe were pulling out their collective hair trying to figure out if their favorite count would resolve to the up or downside.

In that post I also mentioned an early give away that the bulls may be getting ready for a stab higher in that expected move had been observed after over a month of blowing through it. Otherwise there unfortunately wasn’t much to hang one’s head on and we had to stick with price.

Which we now all know resolved into Soylent Orange and then triggered Soylent Green when passing ES 2650. The rally up into 2900 has been a lot more arduous than anticipated as it took us an entire month. Some may point to that as a bearish sign but I would actually disagree.

Bear market rallies are usually highly volatile but they are also fairly directional. This bulls up had to fight for every handle on the way up and thus this presents us with a lot more technical context going forward. Meaning if the bears truly step in around the 3k mark then they’ll have a fight on their hands.

With summer now on the horizon and COVID-19 most likely being put to rest until mid-fall we should see a bit of normalization of the economy. Of course many small to medium sized business will already have been wiped out with millions of people out of work for many months or perhaps even a year or two to come.

What that means for the financial markets remains to be seen. It’s not unusual for bear market rallies to recover quite a bit of territory after the initial shock fades. But we should also be cognizant of the fact that tech stocks seem to be cruising through this 1st quarter relatively intact.

I already hear voices that suggest that Q2 will be terrible but we should not base our trading on that hypothesis. It’s easy to fall in love with the bearish scenario and both Tony and I will miss it as we have been doing well selling calendar spreads and verticals, especially during earnings season. We are already looking forward to July and especially October 😉

Since tech is leading everything right now I think it should serve as our canary in the proverbial coal mine. A gap fill over the next week or so has very good odds and if it happens then what transpires afterward is well worth observing.

Also if the SPX pushes above the 3k mark then I would expect panic buying to set in which could actually push us into new all time highs, as strange as that may sound. However consider how extraordinary a push to ES 2900 seemed just a month ago.

UPDATE 9:48am EST: Monsters Of Tech filled the gap at the open!

Take Away

If you are a sub then you know that our market momentum indicators have not signaled bearish yet, so I once again recommend to keep your powder dry until we see evidence that this market is ready to roll over.

In the interim, and once implied volatility has dropped a bit more, Tony and I will be deploying an exotic option strategy we termed the ‘hammock’ due to the fact it provides significant upside in both directions and thus the P&L curve resembles a hammock. More details will be shared in a future post – definitely something to look forward to.

Alright, I can already hear you whinging – so here’s a little appetizer. Mind you this is not a trade we would consider putting on with the VIX still above 30 but if it drops a bit more we’ll be definitely post more details here.

Finally before I run here are some major symbols that report today:

2020-04-30   AAPL
2020-04-30   TWTR
2020-04-30     SO
2020-04-30    COG
2020-04-30      V
2020-04-30     MO
2020-04-30   ATUS
2020-04-30   AMGN
2020-04-30    WDC
2020-04-30    KHC
2020-04-30     IP
2020-04-30   AMZN
2020-04-30    LKQ
2020-04-30   GILD
2020-04-30    MCD