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Tumultuous Tuesday Wrap Up

Tumultuous Tuesday Wrap Up

by The MoleMarch 1, 2011

Yesterday I asked for bearish evidence and we got served a heaping platter of it today:

This was a solid down day as evidenced in price and the ZL readings. As you can see the hourly Zero is now painting a respectable -1.4 signal – on both the smoothed and raw panel. Plus we dropped from near the 78,6% fib back to the 23.6% fib – not a good day for the longs and it may lead to an epic assfucking with the bulls on the receiving side (Scott’s words btw – not mine – I would never curse in my posts – hehe).

The Zero Lite remained in negative territory all day. What was particular interesting – and something I pointed out – was that quick spike up around 11:30am PST (2:30pm EST) which immediately failed and did not meet any further buying interest. This is the exact inverse of what we used to see on the bearish side – every time the grizzlies would drop the tape to some support level the marines would storm in and take it all back.

Well, apparently this beach was out of reach for our intrepid friends at 33 Liberty. Even with over $100 Billion in outstanding POMO cash this tape is at least looking like it’s ready to drop further. More on that further below for the subs.

I was pretty stoked that Geronimo was sitting this one out and then at the very end of the day it decided to take a long setup. Which of course got stopped out. I don’t think it was a bad setup – the situation was ripe and beyond this being a losing trade I have some important thoughts which I will share below.
Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
Geronimo gives us important clues about this market. That last trade should have worked out – the timing was right, the setup was good – heck there was even a divergence on the Zero Lite! So, not to make dumb excuses – a losing trade is a losing trade. However sometimes you got to look behind the obvious and by doing so you may catch a glimpse of the bigger picture. In order to do that let’s look at today’s VIX chart:

Look at this chart – forget about the markings for a second. If nothing else we can agree that this represents an extraordinary condition as a 30% drop in volatility followed by a 15% ramp is something that should raise our eyebrows. It’s something to take notice of. We are now seeing increasing volatility in the VIX – yes, I’m talking about volatility in volatility 😉

More technically speaking it represents a failed VIX buy signal. And that is important as this has not happened in nearly two years. We are mere days away from the 2-year anniversary of the March 2009 lows and since that day the bulls have been ass raping the bears San Quentin style (Scott’s words again – not mine – I’m way to sensitive to use such foul language).

And that fail will most likely have consequences as it has the potential to be a game changer. Am I talking Primary 3 here? Not really – I have long given up on waiting for Godot. But it’s very much possible that the longs have finally worn out their welcome and this may have been a first wake up call. Heck, maybe at some point we’ll actually see a normal market again – remember, one that goes up and down?

Let’s also not forget that today was the first trading day of the month – which traditionally has a long bias. To see such an epic fail on a day like this is very bad medicine for the bulls and it also finally broke a long winning streak.

Scott is still in his PM short trade I think – but I was stopped out today. After a week of initially moving in my direction and then bouncing back and wasting my theta it was time for me to let my lottery tickets go. Not much lost here and I did point out that it may take several attempts to catch this one. But this time was not the time and I await further evidence before I try again.

Old bucky meanwhile is literally clinging to life. I posted this chart a few weeks ago and suddenly it’s starting to pop up all over the web – go figure 😉

Make no mistake, if 77 gives with a vengeance the DXY is going to drop into the abyss – game over. I really don’t hope this is going to happen as I gasoline is already selling for over $4 here in Los Angeles. Last time I saw gas hit the big four was in 2008 and we all know what happened then – I’m not a fundamental trader but even I worry when it’s obvious that consumers are unable to pay for basic necessities and transportation.

Scott is busy tonight but he wanted me to share this short setup in the EUR/USD with you. As you can see it’s the type of inside candle that makes ole’ Scotty drool with anticipation.

Personally I don’t love but it’s not because I think it’s bad but because I trade currencies a bit differently than Scott. See, I would have wanted to get in at the top or outside that upper BB line. And when we were near the 1.385 mark I did check it out but did not think the odds were good enough.

But if you trade this follow Scott’s rules – entry on the breach of the prior daily candles’ low and stop at the top of that same candle. Pretty simple – you can even switch to a long trade if/when you get stopped out. Not my type of play but it seems to be working for Scott.

Bottom Line:

Today was either a warning signal or a game changer. I have not completely decided just yet. We have those alternating days of bearishness/bullishness and at some point the tape needs to pick a direction. Back in my EWT days I called this situation ‘1-2/1-2 hell’ – which refers to a setup that can be interpreted as either the C wave of a zigzag down or a succession of 1-2 waves preceding the long end of the stick which is a third wave ramp up. Based on today’s action I am looking downward but until we take out 1294.26 we should not dismiss the bulls just yet. After all they have somehow managed to pull the cart out of the mud on way too many occasions.

If you are itching to get a piece of this bearish action – just don’t. It’s not worth it, especially after this massive infusion of vega today. Futures are a different story but if you are trading those for more than a few months you most likely know what you are doing and don’t need my advice. In any case – if this is for real there wil be push back eventually and another ramp higher. That will be the right moment to strike and get positioned – and by then we’ll have a lot more evidence to work with so your trades will be based on solid evidence. Not a guarantee by any measure – but there are none in this business, sorry folks 😉




About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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  • convictscott

    Outstanding post Mole 🙂 I cant really improve on that, its very comprehensive. A couple of thing I can point out.

    The failure of the bulls to capitalise on the EOD geronimo signal/ zero lite divergence is a genuine game changer. To me it indicates that the bearish bus left today COMPLETELY EMPTY, there were no shorts to take EOD profits.

    I'm starting to entertain the hypothesis that the big boys are going to start playing the market from the short side.

    Also, as an overall thing, this market is now behaving exactly like any other market, and not like a game of 3 card monte. For those (Bobby I'm talking to you) who have complicated option strategies based on the slow motion melt up, its time to give it a total rethink.

  • convictscott

    Onorio, after an opinion on cable

  • jigdaddy

    great call today in RT on th daily break of SPX…i enjoyed that ride with you all the way down….covered a bit today but added back on the failure to close above 1305 and recaputre 1312.5 i've got my stops in place…

    Also, I_Got_Precthterized deserves MVP on this trade, i believe he was expecting this the whole time and might have caught the top in AH..

    anyways great stuff man..

  • volar


    the VIX is not at 15 it is back a 20. and that to means the tide has turned.


    We dont know if this is ABC or a 2, and until anyone can say that with confidence, this will be choppy.

    Maybe we make some new lows, but all my sentiment data says do not expect a flash crash.

    The ISEE has coooled way off, but has room to run

    i am still net short, but i want to play the next sell-off as it has a higher probability of turning into something big- that could be in APR, however.

  • convictscott

    Jigdaddy, its the setups not me. An interesting way to spend an hour is to bring up a chart and go back in time to major topping points. 1987 crash, 2007 peak, dot com bubble, the top of oils parabolic move to 155 in 08…

    You will see this exact same pattern play out at nearly every major high. Its part of the *how* of how major tops get formed. And now you know what it “feels” like… at the top of the retrace it should “feel” like it could go either way, and one day should change everything.

    So where we are now is the opposite of 8 hours ago. Yesterday we *should* go up and anything but that is a game changer. Today, from here, we *should* drop and drop hard… anything but that is indication that bears are about to get buttslammed again.

  • convictscott

    I echo that, do not be short gamma here, the risk is totally out of proportion

  • molecool

    You are making very good points here – spot on. Yes, in other words – the onus is on the bears now (and the anus on the bulls – hehehehe).

  • volar

    Guess we will see if we can get some real selling tom.. like scare the piss out of bulls and make a new low.

    In a perfect world we eat shit tom. and form a base over the next 1-3 weeks. then rally, make a false high, and the real sell-off starts

    however the market will TELL US when it is done, and we need some real red and a lower low for this to work out IMO

    otherwise BTFD

  • Joe_Jones

    Awesome post Mole!

  • Onorio

    At this point i would prefer buy the dip between 1.6175 and 1.6225, no bearish divergences yet.….

  • volar
  • kbmck

    “either a warning signal or a game changer” I'm leaning towards… the warning signal side.. thinking the 50 day EMA needs to be significantly taken out and low of Jan before I start to get short term bearish (intermediate bullish and still long term bearish). Also remember the Gothic cathedral (I plot the 10 day ema of the $NYAD:$NYUD…mega peak formed on th 28th and still coming down) I'm thinking we may are finishing a (ii) down and are setting up for a (iii) up soon. But what do I know. I think Gold and equities top out later this spring. Tops take time.

  • BobbyLow

    I hear ya Scott and believe me when I say that I trust nothing – absolutely nothing about this market. And as Mole said it is good to see a market that can go down as well as up.

    I began my latest journey with being Short the Diamonds on Feb. 4th. On Feb. 15 I shorted SPY and on Feb. 18 I shorted the Q's. On Feb 4th I began with protection on the Diamonds and have done the same with the SPY and the Q's. Also since that time, I've worked various Option Spreads around these positions so that I can adjust from being net short to net long from time to time.

    The key to my strategy is to have enough base hits with my ever evolving option protection to be profitable and for the most part have been. My underlying Short Stock positions are all set up for a Home Run if the situation presents itself.

    So far, I like the way my positions are set up and as of the close today, I want you to visualize a Pendulum swinging from the far left to the far right with a swing to the far left being unlimited profit to the short side and a swing to the far right being unlimited profit to the long side. (At least until 3/19/2011) . BTW, with the Pendulum at a standstill and vertical, all three positions are in small profit. So you see, I would make out much better if we melt up into the Stratosphere or Crash Down to the Abyss.

    Now before we leave March Expiry, my goal is to have the same set up for April. And no this shit ain't easy. I have to make the appropriate adjustments when necessary in order to maximize my profits on position insurance. I also have to make sure that I don't screw this up.

    Other than that, I'm cool where I'm at and the market can do its thing. I'm pleased that the market went down today (even though I would have made about the same amount of money if this move was to the upside) because I want to see the market be a market and not some Propaganda Money Machine for the Giant Squid Bankers. 🙂

  • jigdaddy

    seeing people who missed this bus commenting on how a powerfull rally is in order to screw all sides…i dont see it..i see that as BTFD mentality and nothing has changed..

  • SW6

    From this morning (though I just saw it this evening):

    Herr Mole, is there anything you'd like to say? 😉

  • BobbyLow

    Here's some of our competition folks. 🙂

    “The Goldman 10-K is out! Here's a look at how it did trading wise. It had 68 days of making more than $100 million from trading. It only lost money on 25 days for the year.”

  • Joe_Jones

    You can't compete with the Devil, BobbyLow.

  • convictscott

    nzdusd fell off the plate in the last little bit

  • jigdaddy

    looking forward to seeing what happens when the $ actually rallies hard

  • molecool

    Indeed! Remember we talked about that one today. Seems like its continuation for the entire list of FX pairs we looked at.

  • molecool

    Wishful thinking may be at work here – yes – but in the end none of us really know yet. The evidence is just coming in now – for a prolonged retracement we'll have to see a bit more. I mean just look at the last nine months – it's been a one way run. So we suddenly see a few red candles and it'll take a week or two to produce sufficient context.

    But I agree with Scott – this feels different.

  • SW6

    Well, I'll say it – “News does not matter!”

  • ds2

    This is the greatest trading blog on the net! I really thought the break of the 61.8% line yesterday would take us higher. The gap up this am was looking positive. The gap fill I expected. Ben's “interview” fueled the drop. By this time I was at the gym. The tape seems to always drop when I go there. It was still looking reasonable when I left. By the time I got to work, it was ugly. All my longs stopped out fortunately w/ some profit. I agree this feels very different. I tried to buy the afternoon bounce on the zero w/ a very tight stop. Of course it did not work. Trend Day! The spike in zero was too tempting. I will stay in cash until something proves itself.

  • Scrillhound

    Some thoughts –

    Ragged Euro H&S?
    Weak Yen?
    /NQ Downside target.

  • convictscott

    I took 3/4 of the position off after it fell 80 pips in 60 mins. Nice to bank a windfall profit and move on 🙂

  • convictscott

    IF mate, IF, never *when*

  • convictscott

    Bobby, thats an inspired strategy. I'm certain at this point that either we get some real downside OR the USD falls to nothing, its the worst short squeeze ever, and we see dow 15000 in short order. Im sure as hell we wont be here in 2 months time

  • convictscott

    Yep, its up to bears to close the deal. And they suck at that

  • jigdaddy

    thanks for pointing that out…damn man you seriously are a machine…lol

  • Gold_Gerb

    heavier volume on the down days versus the up days perhaps?

  • convictscott

    Hasnt meant shit for over a year, why would it start meaning something now ?

  • molecool

    The house always wins, mate 😉

  • molecool

    Not sure what you're getting at, mate….

  • convictscott

    BTW the 50 and 61% fib levels at retests of major highs dont actually mean anything. Well they nearly always pause there, stop out idiot wavers trying to time the top of a wave 2, then fall.

    You have to expect buying pressure to be a little higher while the trend is in play, so the 61% level is not one to be relied upon for a first counter trend setup

  • spicestory

    March 2, 2011 Outright Treasury Coupon Purchase $5 – $7 billion
    March 3, 2011 Outright Treasury Coupon Purchase $6 – $8 billion
    March 4, 2011 Outright TIPS Purchase $1 – $2 billion

    Not that we haven't known, another $15 billion for the rest of the week

  • convictscott

    ¨°º¤ø„¸ N E W „ø¤º°¨
    ¸„ø¤º°¨ P O S T “°º¤ø„¸

  • amokta

    I cant comment on latest post (for some reason work filter not happy), so will comment here
    -What colour should i paint the floor – red or green 🙂
    -Great posts by CS & Mole