Wenches And Mead

Today’s sideways tape was to be expected for several reasons – one being that we now have new long participants in the market. Make no mistake, institutional traders bought at the bottom and sold at the top. In contrast retail traders (a.k.a. ‘new participants’), bearish as ever, were short at the bottom and got long near the top desperately trying to chase a move that is most likely due for a little correction.

In the context of an inside/outside day Scott last week provided great insights on the very same underlying psychology:

“What is happening when a NEW PARTICIPANT has a day where nothing happens? He starts to get nervous! He wanted it to go UP/DOWN and it did not do what he thought it would. Therefore he becomes on high alert for jumping out. That is the psychology behind this trade and its inherent edge.”

The trade he referred to was a more rare outside/inside day setup and today we most likely will get a whack at its more commonly seen cousin, the regular inside day:

I suggest today’s lows for your stop and be done with it. [I screwed up the first chart – sorry for any confusion]

More below – please step into my badly decorated lair:
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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 or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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Well, here’s the other reason why a little pullback was to be expected – the SPX pushed outside the 25-day upper Bollinger line and that’s usually my T1 (first target) point. Maybe today is it and we bust higher on Monday (thus triggering a signal) – or we see a more comprehensive shake out.

As you know I’m always on the lookout for early warning signs and the S&P E-Mini is usually my first chart to consult. The hourly panel is showing a cluster of support right now with two NLSLs between 1272 and 1274. Right smack in between is the lower 25-hour BB line which I would not want to see breached. If it is closed below then we may drop back into 1250 or lower.

Almost the exact same picture on the spoos’ distant cousin, the AUD/JPY – so keep an eye on both over the weekend.

Medium and long term the picture is now fairly bullish. The SPX has sliced through its 25-week SMA and revered the August NLSL breach on the monthly chart. A close above 1249.05 on Monday would be very bullish on a long term perspective.

At the danger of sounding like a broken record – I must once more point out how well the longs are playing the volatility game. This is the 2nd time the bulls pushed the VIX right to the edge and then backed off. That’s how the game is being played.

But the more interesting chart is the SKEW, which – looky looky – has barely moved since mid-week. Plenty of air above (and of course below) for continued monkey business.
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On this beautiful autumn day (I’m in CA, and your mileage may vary) the flat tape gives me an opportunity to reflect on the past year.  Wow, what a ride this has been and we have come a long way, my fellow steel rats. This market has thrown the kitchen sink of doom at us but we not only escaped unscathed but mightily profited in the process. I truly enjoy the good fortune of having Scott, Volar, and Fearless on our side – providing a wide spectrum of unparalleled analysis and technical insights you will find nowhere else.

It’s been an awesome year and it’s time to fade out the noise and enjoy the fruit of our consolidated labor. Which for us stainless steel rats means wenches and mead!

Have a kick ass weekend – I hope it is filled with joy and the pursuit of the both of the above.

Cheers,