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Volume Pothole

Volume Pothole

by The MoleAugust 31, 2011

Although the tape looks pretty straightforward on a daily SPX chart the journey intra-day has been filled with traps and tribulations. What comes next may be determined by whether or not we’ll make it across this gaping pothole:

I posted this twice in the comment section yesterday but got very little response. Which surprised me a little as the implications of this chart are rather significant. As Scott already hinted at in his own update – we are in a low volume rut right now and I expect quite a bit of churning before we get resolution here. But let’s assume the current long squeeze does not extend and we are able to bridge the gap here – what would be our upper targets?
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Well, we’ve got a 100-day SMA looming ahead around 1280 which will probably coincide with the upper 25-day BB by the time we may get there (notice my weasel speak here – we really cannot be sure). In essence I think that the would be hitting rather stiff resistance around 1280 and that’s when I would be starting to analyze the tape for signs of a downside reversal. Perhaps that would also coincide with my mid-September mark on my POMO swamp drain calendar.

My trusted RSI_EMA chart on the SPX allows for a bit more upside – never guaranteed but definitely supportive thus far. Once we hit the 80% mark I am gone and goner on anything resembling positive delta.

I took another look at my volatility combos today and they look pretty supportive – no big medium term divergences just yet – except maybe on the VIX:VXO, so let’s take a closer look at that one:

I’m using a ratio here as opposed to a delta but the story is the same. Anyway, since the 1987 crash it’s rather common to see across the board IV to outrun front strikes IV. And again, let’s remind ourselves that on this ratio BB breaches are more interesting and that long term divergences are really what we are looking for. Well, we still have room on the BB and I don’t see anything standing in the way of more upside.

Before you even think about touching any short positions take a glance at my NYSE breadth chart, which after some creative recoding is usable again – I had to truncate the huge spike we got on the D/A panel two weeks back. Anyway, look at the recent cluster of 10.0+ spikes – a lot of energy has been expended to drive this turd higher and this is not the type of tape I would feel comfortable shorting right here and now. Best to wait for some clear divergences plus I really want to see an accumulation of closes within the usual < 5.0 range.

Bottom Line: The spoos are currently sitting above their daily 25-day SMA plus we are above both the 25-week and 100-week SMA on the SPX. Let’s not forget the 100-month SMA which we breached yesterday. In addition we are inside a big volume hole that yet needs to be overcome. If we manage to somehow claw our way higher then this will represent fine support for once things start to slide lower again – perhaps late September. But that’s all Isaac Asimov for now because nothing happens until we make it across the volume pothole we’re stuck in right now.



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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