The Big Roll Over

Equities futures are rolling into their March contracts today which is in part why we saw a distinct increase in realized volatility over the past week or two. Not being a huge fan of rainy winters in the Mediterranean I for one can’t wait for expiration day which also happens to be my spring vacation season. Then again I shouldn’t complain about the weather judging by what some of my trading buddies in Chicago are going through right now. Scraping ice from your windshield is one thing, scraping it off your contact lenses is another.

The E-mini has been flailing around like a Sudowoodo over the past few days and it goes without saying that any temporary weakness should not be trusted unless we see one of two inflection points breached:

The volume profile still shows the Emini trapped within a volume island between 2620 and 2660. As long as we bounce around in that range it’s best to simply place small contrarian trades in anticipation of another leg in the opposite direction. A breach and close above 2660 or below 2620 however will most likely launch a more directional move.

And the odds are not necessarily on the bullish side judging by what I’m seeing on the VIX. Some intrepid steel rat asked about the VIX signal the other day (and was instantly hazed into oblivion since we are cruel and petty individuals) wondering if or why we didn’t trigger a VIX buy signal (relative to equities) after the big spike toward 15. Well, that is easily answered: we didn’t close OUTSIDE the BB and therefore no cookies.

However what I failed to explain to him that day was that this could actually turn into a more bearish scenario judging by wha happened last time. When you see IV explode and instantly reverse like this then that’s not exactly a very bullish sign. Healthy bull markets in the mid of their trending phase simply correct a little and then go on with business. Wonky spikes like the one last week however often produce follow up, so let’s not fall prey to whatever bull trap they may throw at us today or tomorrow.

Silver apparently has purchased season tickets at the woodshed judging by the current merciless sell off. Didn’t I tell you guys ’tis was not the season to be long precious metals? I hope you listened! Anyway, don’t buy the dip here – period.

Copper however may throw us a bone if it can hold the diagonal on the daily and the 25-week SMA it just bounced at. It’s extremely early in the game here but alas…

I am going to throw a very small 0.3% lottery ticket at this formation. Odds are pretty low (1:3 at best) but if it succeeds it’s bound to burn a bunch of shorts all the way into Christmas.

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