Where Is Waldo?

Over the long weekend I’ve saw so much mental masturbation in the comment section – I actually came twice.

Hope it was as good for you as it was for me 🙂

Seriously rats – you guys are over thinking this whole game way too much. Despite the fact that we are tracing out a Primary degree consolidation wave, at this stage the probabilities will resolve quickly as orthogonal confirmation lines are relatively near each other. So let’s put down some ground rules:

Our mission for this week will be to find Waldo – in this particular version of the game our challenge will be to determine the bottom of Minor C of Intermediate (X) of Primary (2).

Orange Waldo: We most likely concluded Minute {ii} of Minor C at the Friday highs and are now pushing into {iii} which should take us a lot longer – first support I see is around 845 – 847, which might be where we bounce into {iv}. Thus, Minor C is still under way and will probably conclude in the 830 region.

Blue Waldo: We concluded Minor C at the Friday 879.61 lows and are now most likely tracing out Minor X, which should propel us towards the 905-907 mark. If you are short you might want to hold through this as there is no guarantee as to when it turns – might be as early as 904.

Green Waldo: We concluded Minor C at the Friday 879.61 lows as well but we completed this consolidation and are now pushing into the final Intermediate degree leg of Primary {2}. Based on the recent breadth numbers and complementing momentum/sentiment indicators I would only give this scenario about 30% as of today. If we breach 907 and push beyond 915 it would become our preferred count. If you are short this is obviously the one scenario you are worried about. Depending on your exposure you will have to take on some pain at least until the 907 mark.

Time to whip it out again – my weekly stochastic chart that is. Although I don’t put too much weight into the 200 day MA it’s interesting that we touched it and then dropped right away. Also note that the weekly stochastic is now giving us a traditional sell signal as defined by a breach through the 80/75 line (depending who you ask).

On a more short term perspective this is actually an interesting chart. Since we embarked on Primary {2] on March 6th we had a maximum of 3 consecutive down days until last Friday when we painted 4 in a row. This might indicate that the bulls are ready to push back and lead us into the Blue Waldo. Mentally I’m prepared to take on some pain this week and keep adding short positions until the 907 mark.

The CBOE Put/Call Index has been moving down with the market which is one of the reasons I give Green Waldo a much lower probability. Obviously the bulltarts only see this as another opportunity to ‘buy the dip’ and it’s very much possible that they’ll run out of tacos when the big squeeze hits them.

More evidence supporting the mouth breathing sentiment – the Bullish Percent has not budget and much downside potential remains.

The more medium term McClellan however is pushing into oversold territory which might also be a supporting arguments for Blue Waldo.

I talked about the TNX (10-year treasury yields) all week as we as we have pushed towards the 3.5 mark despite the fact that equities were selling off continuously for four days. Can you say ‘developing bond market dislocation’? 3.3% is usually where the things start getting dicey and what’s also worthwhile noting is that the spread between the TNX and the 30 Year current coupon mortgage index has collapsed to the tightest level in 2009 [per ZeroHedge]. If this continues it will destroy any plans for providing cheap 30 year mortgage – I’m sure Curly has been in a marathon session of meetings all weekend.

The ZN futures contract is based on the 10-year treasuries and hence it runs inverse to the TNX. I actually think there’s a good buying opportunity here right now and I might try my luck on some kind of bull spread. Fujian – could you poke around and see what you like?

IF this thing bounces higher right here we should should see a drop in the TNX, which would also mean more bearish pressure for equities. Again, this would support either Orange or Blue Waldo.

Eighty is a psychological mark for the Dollar and I would be very surprised if we wouldn’t at least see some kind of push back after last week’s sell off. And yes, a strengthening here would theoretically be bearish for equities and commodities – but let’s not forget that this correlation was not being observed all last week. Sometimes these type of inter-market correlations work for quite a while – until they stop working. You can’t base your trading on this and should only take correlations as a final supporting argument to your existing analysis of each respective market segment.

In terms of the wave count I would love to see a bounce here, thereby completing what appears to be a zigzag consolidation before a push to the upside.

Silver is actually offers a clearer count than Gold lately and it seems that we are now completing the 5th wave of a C wave. There is also a long term diagonal resistance line which should slow things down a little. If we see a pop higher in the Dollar it might be the catalyst necessary to initiate the next leg to the downside. Again, as I metioned above – be cautious about trading correlations and only take trades based on the merits of your own Silver analysis.

You all know that I’m not a fundamental trader but it’s still interesting to note that historically May and June are downside periods for Silver. Click on the link to access the original chart and accompanying information.

That’s all I got for you rats tonight – should be enough to keep you busy and out of trouble for a while.

Cheers,

Mole