Welcome To The Wood Chipper (Again)

I’m happy to report that I’m on the path to recovery but it’s been one rough weekend down here at the lair. The week prior I injured my lower back and just when I was getting better I came down with a nasty cold that kept its grips on me until Sunday. Not feeling 100% by any measure but the reflection in my mirror is starting to resemble a human being again – well, sort of (in the right light and special effects).

Now back to business – this is the situation in the nutshell: The bears dropped the ball near an important medium term inflection point (i.e. 1900) and the ensuing punishment has been swift and brutal. We’ve recovered almost all lost territory and are now back where none of us really want to be – in the dreaded wood chipper zone which spans between 1955 and 1980. Twenty five handles of pain and I don’t expect this to be a fun week. Chances are there will be profit taking up here and fortunately we may be joining the fun:

If you’re a sub you should still be long since 3917.25, which at this point has banked us around 2.6R. My stop has been advanced to the 2R mark at 3985.25 and so should yours. Nothing much else to report on the equities side. I don’t see any entry opportunities worth taking about right now and given where we are picking a direction here is tantamount to a coin flip.

However if you want to grab a few lottery ticket shorts then this is pretty good territory. Perhaps pick a collection of 194 to 193 Spider puts and then link your stop to ES 1580. That is where the bears should lose all hope (again). The bearish case isn’t completely dead but it’s looking pretty bloody due to massive stab wounds. Expect it to expire if the ES finally manages to hop above 1980. I don’t have a directional bias here – let’s see what the tape does. If we start looking weak I may myself grab some of those lottery tickets – for a limited time (i.e. in this chop zone for a day or two) the risk/reward here is pretty good actually.

For the subs I have some very interesting EUR/USD perspectives – you don’t want to miss this!

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You have been briefed – now have fun but keep it frosty. See you guys later this afternoon.

Cheers,