Wiggly Wednesday Wrap Up

The tape smelled of non participation today:

Last night I pointed out that bullish divergence on the ZL which however did not immediately translate into a snap back. Instead we got a little push higher today which kept being sold down.

Or was it? I do have some thoughts on the matter further below for the subs. What’s important right now is that green diagonal I drew – Zero subs should keep an eye on that one tomorrow.

Geronimo got stopped out once today for a loss of 12 ticks. Not happy about it as there were plenty of opportunity for scalping. But it seems the usual suspects are not playing the game right now – which may be intentional.

I do have a few thoughts on the Dollar as it implicitly is also connected to what’s going on in equities. We may have ourselves a ‘wag the dog’ scenario which affects what may come next:
[amprotect=nonmember] 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.
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Alright, back to my DXY chart – as easy as it gets when it comes to technical analysis – a clean simple diagonal support line. Now the Dollar already pretended to fall into the abyss late last year and suddenly we saw a magical recovery that ‘looked like’ ole’ bucky would go gang busters. Except that it didn’t and instead it kept everyone holding their breath for two months (as I predicted) until it finally reverted back to where we are now – at the edge of the sword.

Now, in my time I have become quite a bit of a cynic – I know it’s almost undetectable as my sense of sarcasm and cynicism only registers in ultrasound frequencies. Which is also why wild dogs keep running up to me all the time trying to hump my leg, but that’s a different story. My point here is that ‘zee ole’ tease’ as I now call it, is rapidly wearing out its welcome and it’s now time to either shit or get off the pot as they say over here. In other words – either drop into the sweet abyss of inflated fiat currencies or stage a push back that triggers a mighty short squeeze. Trust me – even my French gardener (who pisses on my bushes instead of watering them) is watching this chart right now and although a large percentage of pundits claim that the Dollar is doomed – believe me there are plenty of longs who are salivating at staging a short squeeze.

Which brings me to the tape in equities. In the past two weeks we’ve seen quite a bit of commotion on the short side but thus far equities have been able to avert complete destruction. Case in point – despite a whopping 15% one-day ramp up in volatility we are still trading above 1300. Food for thought!

If the old buck fails right here it will most likely help to send equities soaring – not because of a straight correlation (those are quirky) but because the Zero signal is currently leaving a door open for a reversal. That open door needs to however be taken – it’s a ‘possibility’ – not a necessity. If the bulls step through that door plus the Dollar goes the way of the dodo I would definitely not want to be caught on the short side.

Now, the other side of the coin looks a bit different. If ole’ bucky stages a 70s rock band style come back it’s possible that equities may be able to ignore it for a while and still either hold or at least remain above 1294.26 the Maginot Line (i.e. 2/24 low). But if we see a strong short squeeze on the DXY it would represent a head wind that a weakened equities market may have a hard time fighting, and down we go – hard.

Bottom Line:

We are in an interesting and possibly very lucrative situation right now – it’s a setup that can swing either way but when it does it’s going to be mighty. I would recommend to keep watching that Zero signal and if it gains strength (or decreases strongly) to simply follow the path the tape is going. I know that sounds simplistic but we are at a knife’s edge right now and this is going to resolve itself by the end of the week. Which ever direction equities wind up picking will gain in velocity very rapidly, so I am planning to get positioned ahead of time. Scott has in the past offered various strategies that allow you to draw a line in the sand to the up and down side and then simply take the train that’s leaving the gate. Use them!

Cheers,

Mole