Tough Tape

Boy, I’m really worn out after today’s tape – can you say Whipsaw Central? So, I’m mustering up the little ounce of focus I have left to get you guys up to speed. Please forgive me if this one is going to be very brief – I’m exhausted. Let’s get right to it:

Well, the good news is that everything remains on track. We expected some sort of consolidation right around 860 and that’s what we got. However, as strange as this might sound – I would have felt better if we kept on rallying a little bit. Bullish momentum today was not strong enough to take out the 878 short RL which has a very low probability I might add. Advancing/Declining issues were about 50/50 in the SPX – and that’s really how the day felt – completely indecisive. Both bears and bulls were swapping punches all day and we didn’t go anywhere fast.

However, loooking at the NYSE as a whole via the $NYUD indicates today was actually a bearish day with declining volume outpacing advancing. We are not at extremes yet by any measure as you can tell by the 5/10/21 MAs (which are a traditional measure). Plenty of downside to go here, which hopefully will get us to our intermediate 820 target.

For the little we moved and also based on the adv/decl issues the CBOE put/call ratio however dropped quite nicely, which is IMHO good news for the bears. This is the type of sentiment discrepancy I expect during bear market consolidations. The bulls try to bang the market higher and sentiment flips back in favor of loading up on calls. As a contrarian this type of discrepancy is what I want to see.

In that context Erik mentioned this today:

Short term traders have started building long positions expecting market to bounce short term,
option expiration is 3 days away. Market will whip down and then back up by Friday burning out front month options this week.

This scenario would actually fit in quite well, but we would need to start dropping tomorrow. If we wank around the current ‘nasty whipsaw zone’ marked on the chart for more than a day then I would get a bit nervous and maybe hedge myself a bit earlier than I hoped for. For more info on various hedging strategies when long puts see my Sunday post.

I think we might see more upside tomorrow – good possibility we’ll touch 884 before we drop again, that would line up nicely with the 23.6% fib line you can see on the chart. The 892 RL would be the maximum I can would want to see for tomorrow – again lining up with the 38.2% fib line. By Thursday I expect the current trend to continue to the downside, after the market had a chance to relieve some of the pent up buying pressure. Again, our intermediate target is around 820.

The U.S. buck is on track tracing out its 3 of 3 wave, as expected. I anticpate we’ll see further upside here until it pulls back – my rough estimate would be around 86 minimum.

Gold however remains to be stubborn and has yet to breach that diagonal, which is my line in the sand. I would caution everyone to refrain from going short here until we see this happen. FYI – there’s a reason why I’m drawing this line with a thick crayon.

Boy, I have come this far, I might as well throw in a little goody for you leeches. What you are looking at is the famed ‘crack spread’ – the difference between the Gasoline and Oil fund on the NYSE. No, it’s got nothing to do with the stuff in your crack pipes. This chart is the sole reason why refiners have had such a merry time as of late. Just check out some pertinent symbols:

ADM, ALJ, CVI, DK, FTO, HOC, SUN, TSO, VLO, WNR

See that? It’s been one big bullish kumbaya as of late. On a short term basis (this week to 10 days) those guys probably have some more upside in them, but many start looking pretty toppy to me on my daily chart indicators. But the key to trading those refiners is the crack spread – that’s basically their profit margin. So, keep your eyes peeled for a retracement in the crack spread, which might predicate a pullback in those refiners. Don’t even think about shorting those puppies until you see that happen.

Wow, I actually did it – a respectable post after all. There you have it – I just don’t know my strength 😉

See you tomorrow steel rats – I hope it’ll be swift and short before we continue our journey to the downside.

Cheers!