End Of The Line

You may have heard the old expression before: Life is what happens while you’re busy making other plans. The same idea often applies to trading – last Sunday I was entertaining thoughts of a possible inverted H&S resolution, a scenario that now obviously seems remote at best. As I’m not completely useless I did however also suggest two inflection points that would put the Full Monty (i.e. our short squeeze scenario) at risk:

SPX 1340 was where we tripped the high pole reversal warning – that was strike one. Strike two still awaits at 1315 – if that one goes then the bullish price objective of 1390 will officially be revoked. So knowing that gives us something to hang your bearish hats on. But I wouldn’t call myself the evil Mole if I wasn’t able to throw in a bit more meat for my intrepid subs. And in my mind the fat lady has not yet sung – I would be very cautious about jumping to bearish conclusions here. If you haven’t noticed – the tape has been treacherous as of late and we need to think on our feet as to not get trapped into the losing side of things. So let’s review a bit more evidence – please step into my lair:
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Let’s take stock of where we are: The spoos are now trading below a NLSL for three days, below the 100-day SMA, and as I’m typing this below the 25-day SMA as well. I don’t see anything on the daily side that shows any sign of support. Totally understandable how one would be bearish here.

Except that we have some possible support on our LT panels – there’s a weekly NLSL at 1317.5 which lines up nicely with the monthly at 1316.75. Now fair value right now is around -5.15 – which means that we are talking SPX trading around 1322. And if you look at the P&F above then it’s rather clear that this is how far things are allowed to drop before we technically flag some very bearish implications. Long term bearish potentially. I would actually love to get to get down there as it would be a great long opportunity with little stop risk (i.e. below SPX 1315).

Also interesting here is Mr. VIX which breached its 20-day SMA and then dropped back. Thus far we are below it again – let’s see what happens here near the bell.

Also noteworthy is my VXV:VIX chart – we also seem to be bouncing at that little support line equities have enjoyed since May. Obviously a breach here would line up nicely with all the other bear pørn I have presented above. But as I mentioned earlier – the fat lady hasn’t sung just yet. Also note that little bounce higher today.

Another long term chart on the currency side I actually have a hate/love relationship with. As you can imagine this expat is pretty giddy about seeing the EUR/USD drop through 1.22 today. But then I also see a potential long opportunity near here as we are touching monthly support right now. Putting the odds slightly in the favor of my cherished exchange rate is the weekly panel which should be confirming another sell signal tomorrow – assuming of course we stay below that NLSL. So this is going to be interesting – a drop below monthly support next week would most likely take us to 1.4 .

That’s all I got today – there are some setups that may be technically valid but unless I’m seeing a bit less volatility on all fronts I would suggest to just keep whatever is left in the running and to wait things out until next week. Or at least until we see either signs of a floor pattern or a breach. As I’ve said before – there are easy times and there are tough times to trade. Guess which ones a smart trader would pick? 😉

Bottom Line: We remain in limbo unless we drop through the support zones indicated on my P&F. If that happens then I reckon things are going to become a lot more directional in a jiffy on all fronts. We are near important bearish inflection points but we are not there just yet – and sometimes even a single tick of support can make a world of difference.

Cheers,