The Spanish Boonies

I am somewhere near the Pirineos in an undisclosed location. Absolutely gorgeous country side up here as you can imagine. Today’s evil lair setup is a bit more spacious and no Barcelona style room redecoration had to be performed.

Unfortunately Internet access up here is a bit slow so putting this post out is going to feel like pushing an orange through a straw. Seems like all the hotel guests just checked into their rooms and are busy downloading adult content.

If you are trading options then I hope you heeded my warnings about volatility squeeze yesterday – if not then the 4.5% drop since yesterday won’t make a huge dent yet in your account – yet. But it should serve as a second warning as we are still outside the Bollinger. And in particular in context with our new prime setup on the SPX:

What can I say – I really hope you guys know the drill by now if not please consult our cheat sheet. Please bear in mind that I have no directional bias here (yet). The ZL has been pretty dead and after five consecutive down days on the SPX it makes sense to see a bounce or some selling exhaustion. But I am not convinced that we are completely done yet – which is why the outcome of tomorrow’s session is going to be so very important. If we breach today’s highs we could easily see some acceleration – and of course a mighty volatility squeeze as well. If we break down here – well, then we have two charts that you should keep an eye on:

First we have our Net-Lines/BB chart, which shows us that we are sitting at support inside the lower 25-day BB. So far so good but if we get an inside day sell tomorrow then 1357 is where things are starting to get serious as there’s nothing below until about 1320. And given market sentiment we could see an acceleration to much lower.

The second chart to be watching is our ES volume profile. As you can see we halted exactly inside our next best volume hole and the next one is at 1330. Bear in mind fair value here which is currently -4.7 – so just add 4.7 to these levels to derive the approximate SPX equivalent. Anyway, the bottom line here is that a breach of our current volume hole would probably lead us to SPX 1335 or lower.

I suggested two trades on bonds yesterday – long if we would breach those two entangled SMAs – short if we stopped below. Well, I hope you took that setup as we dropped quite nicely here. It is permissible to take some partial profits but I am going to keep a few lottery tickets for a continuation lower. Bear in mind that there will probably some flailing around here and we may have to be patient.

Crude also held the line and is starting to look bullish – nothing to do here – your stop should be set below the 100-day SMA and you can forget about this trade until we get to target or we get stopped out.

I think this is where I’ll have to cut it off today – my bandwidth is simply too meager and uploading images is taking forever. It’s also important you guys have enough time to get prepared for tomorrow’s resolution of the inside day setup. I keep poking around for the next hour and if I see another setup I’ll simply tack it on here. Not sure where I’m going to be tomorrow but I’ll be sure to chime in.

Cheers,