Just kidding - I have been following the tape on my iPhone mostly with sinister bemusement. Nice gap fill anyone? I’m sure a good number of trigger happy bulltards just got their dicks caught in that one. Yes, when it comes the banking coin those intrepid market makers are equal opportunity slammers - they’ll screw us bears as much as they screw the bulls.

Chart above is a very simple tidbit I wanted to point out today - as the title says: Just saying… but hey, maybe this time it’ll be different

Since I’m a damn yank now (since January 29th, 2009) I would like to wish everyone a Happy Veterans Day! While we are all sitting in the comfort of our home or office trading an admittedly rigged market the perceived pain and suffering we have to endure is minuscule compared with what those brave souls in that picture had to go through to capture that damn hill.

Right now as I’m typing this many of our soldiers (I hate to call them ‘troops’ as they are human beings) are on the battle front risking their life and limb for your country. And they don’t ask for anything in return. They all deserve our utmost gratitude and adoration for their continued courage and dedication, especially in the face of the failed leadership they had to endure in the past few years. Now, get your ass over to dav.org and donate some of your ill gotten gains to a disabled veteran. Since our country is letting them down they need YOUR help!

And our heartfelt gratitude and a huge Thank You to all active duty and reserve military, both past and present.

Berk here…

What happens when the high betas lag the low betas?

High Beta laggards...

1:07pm EDT: Mole here again. Funny Berk just put this chart up - although we have not spoken today - we seem to think alike:

Now, I’m not saying we are not pushing back towards the top today - but look at the subtle signs which are accruing. We all know by now that the Dollar carry trade has been fueling this rally - as evidenced by a left chart of the ES/6E left chart on any chart interval you care looking at. But when I see the Euro weaking while index futures are catching a bid, then I I take notice.

Maybe it’s nothing - but we were outside the 2.0 BB - and I do see interesting divergences all over the place. And I know it almost sounds comedic after another bear trap (which I identified early in the game btw) but this thing is coming apart at its seams. A few divergences here and there are fine but when you have the trannies, the utilities, the XLE, the REITS, the XRT, etc. all lag behind then you know this thing is running on vapor.

I’m thinking long term - I know I seem like a complete idiot right now doing this, but hey - I own my trade.

2:15pm EDT: Since we’re on the topic of the carry trade - Karl ‘No Slave To Fashion’ Denninger posted a very interesting piece which is a brilliant observation in its simplicity:

10 handles came off the S&P 500 in less than 30 minutes (a 1% move) when the dollar strengthened by about two tenths of 1%.

What would be the impact of the dollar moving higher by 10%?

This is the problem with the carry trade.  The leverage that gets deployed, once it gets going, is typically in the range of 5:1, 10:1 or even more compared to the equity markets.  (Absolute leverage in the FX markets is frequently 100:1 - in fact, even retail traders can run 100:1 leverage at most FX brokers!)

Of course none of that seems to matter right now as dip buyers keep swarming in to soak up any low bids - remember folks - a dropping equities market is unamerican!

The system:

• 4 200EMA Bollingers (0.50, 0.75, 1.00, 1.25) for entires and pyramiding
• 2 200EMA Bollingers (2.00, 2.40) for exits
• 30EMA and 200EMA for a filter

You go long on the system when the 30EMA is above the 200EMA, and price begins to push outside the BB.  Sometimes the filter will signal a trade after the first or second entry is missed.  I use discretion here, and either trade with the system adding single units, or will add double units to make up for missed entries.

You go short with the same approach when the 30EMA is below the 200EMA.

You exit trades for a loss or break-even when prices recrosses the entry Bollinger (i.e. 1st entry on 0.50 cross, exit when price is back inside 0.50).  There are three variations on an exit for the system.  1) Exit once price pushes outside the 2.0BB, and closes back inside (same with 2.4).  You will have to repeat this step a couple of times as there will be 4 untis on, and only 2 exit Bollingers.  2)  Exit 2 units on the push outside and back inside of either the 2.0BB or 2.4BB.  3)  Ignore the extreme move BBs (2.0 and 2.4) and wait until price closes back inside of the 1.25BB to begin shedding positions (in the examples with the QQQQ, this approach would have averaged out about 2 points lower on the major trend trade, but would have taken 4 more months).

A couple of charts:

QQQQ from the top

QQQQ on the trend

QQQQ on this bull-shit rally

As you can see, the extreme exit bands (2.0 and 2.4) come into play on wave 3s, but likely not too much other times.  You can also see that there are a large number of sideways trades (if these were stock, many would be winners, however, with options the majority will likely be B/E or small losses).  The large number of sideways trades is somewhat common in a trend-trading system as the trend is in the process of changing.

I apologize for not being able to find my actual back-testing results, or having the time to even get exact entries on the charts above.  When trading a system like this (with options, like I do) you will carefully have to consider your strike price and, more importantly, your expiration.  You will likely need to buy options with at least 6 months, and possibly more time.  I usually buy my first unit about 6 months out, 2nd and 3rd units about 9 months out, and the final unit 4-6 months out.  This helps me maximize my gains by having a variety of expirations.

A few more examples…

BIDU:

BIDU during the decline

BIDU on the rally.

BIDU total…  One major trade on the decline averaging about 125 points per unit (+500).  Several modest trades on the rally, toaling around 150 points so far (not counting the first unit that will be stopped out for at least 120 point gain).  That would net us about 770 points worth of move in BIDU.  In total, BIDU has moved about 550 points in that time frame (in total of both directions).  As you can see, the few winners DEFINITELY take care of the numerous sideways losers.

Jing is killing me today, and I am running out of time, so I will post this up and let you guys shower me with questions and thoughts, and will get some more examples up when my comp starts behaving.

Berk out!

Zero activity (pun intended) today - everything flatlined as if the boys ran a West Coast style hit & run yesterday and then disappeared again. After the futures touched VWAP on the ES and the NQ at the close the usual suspects are driving it higher after the bell. Rinse, lather, repeat.

As I said in my previous post - not a great day for the bears - we really needed a bit of sell off here and this leaves us with not much to work with. And as trend traders will tell anyone willing to listen: Unless the trend changes ther is nothing to talk about.

Program Trading Update:

geronimo/ES: +5

Eric and I had a little chat today and now that we got things stabilized and migrated to a new platform we are planning to add a VIX filter to our rule set, which will help us identify sell off days. Either we don’t trigger long trades during those sessions or we might actually go short. We’ll have to thoroughly back test things on our end before we would implement the latter however.

Berk actually wrote a new part in his trend trading series and it’s great stuff. So I’ll let this post sit for an hour or so and then publish his, so stay tuned.

Careful, this is more painful than today’s tape.

Cheers,

Mole

Across our four food groups I do see a ratio of 2:1.5 - the DJI and the NDX are leading the market while the SPX is lagging behind - worse performer are the small caps, which undoubtedly gives the bears a bit of hope. But again, I have to play devil’s advocate here and point out that in a period of frivolous sector rotation this probably does not mean too much. Yes, traditional TA has become a lot more difficult these days.

Same story on the trannies and the utilities - a bit of a divergence. Yes, they are limping behind but I wouldn’t really bet money on all that. Well, I am already short this tape, so I guess it doesn’t matter - LOL

It’s like this my intrepid stainless steel rats - Primary corrective waves can be extremely complex and difficult to navigate, which is why I said last year that I was NOT looking forward to this period. But what’s even worse are the roll over periods. The bulls won’t simply drop everything and run for the hills - there’s much back/forth, head fakes, sideways action, etc. It takes a lot of nerves, patience, and brass balls to survive this kind of tape.

Do I know where we are swinging next? No clue! All I know is that we are not giving up much territory and the Dollar is still not catching a bid. Yes, yes - Dollar bulls are a rare commodity but the past two months taught me that the currency market is easily tampered with and that oversold conditions can sustain for much longer than I had ever hoped.

So, this is kind of period in the tape where I won’t really say much until one of two events have occured:

1. We either run up, make new highs and finally run out of steam.
2. We drop through the recent lows and don’t stop.

As I am typing this the futures are busting higher and it’s not even 3:30pm EDT yet - so I guess we all know where this is going. If you are still short I recommend you either go into cash, or if you have decided to sit out the storm then turn off your profit/loss panel and just take some time off until this tape has resolved itself.

3:20pm EDT: There she goes - ES futures are on a rip again. Quick update on the wave count:

As you can see I’m slowly fading out the bearish count. I don’t see much indication of a reversal today, which is what the bears would have needed to see in order to sustain a short/medium term barish stance. The Zero Lite is flatlining and in the past that often was an early signal of a looming a trend reversal. But lately it’s been mostly a precursor to a surprise rip, thus I don’t want to give it too much credence today.

Don’t get your hopes up rats, after nine continuous (and very orderly) up candles the bulltards need a dip to load up on new long positions. Wake me up when/if we close yesterday’s opening gap - until then it’s business as usual. Dip buyers are already waiting around ES 1088.

Yes, yes - I know - sarcastic quibs are not exactly productive - but they do make us feel better. As the old saying goes: Sarcasm - it’s anger’s ugly brother

Seriously now - I have been seeing truck loads of capitulation, frustration, anger, and sarcasm all over the bearish blogosphere. As a contrarian I would under normal circumstances suggest that a big drop must be looming just becaus a majority of the bears were throwing in the towel. However, I have seen this type of sentiment for months now - thus it really does not serve me well as a contrarian indicator.

(your friend) Michael Davey again…

Conviction is a bitch, eh?

Bears hate life again tonight - heads hanging low (those not rolling on the floor); eyes reddened and bleary; shouts of could’ve, would’ve and should’ve murmuring in the midnight air.

So boring.

Still, I can’t help but think I should lend a hand. It’s been a long and hard struggle and no one should fight this forever. Let me have a swing with that axe Eugene.

Yes, it may be early (snort!) and indeed, it may be just a little trade for the time being. But by a simple process of elimination I’ve been green-lit to take a walk now on the short-side.

1.) There is an ugly divergence at present. The back-of-the-coaster DJIA (the only major index to reach new highs today) is out-performing leadership; which is clearly lagging. The daily charts of the NDX (a leading index), the Russell 2000 (a broad index of smaller, growth and financial companies), GS and AAPL (two bellwether generals which have led the market higher with Swiss-watch precision up until this last advance) all tell the sordid story when compared to the 30-stock Dow.

2.) Because of #1, I am not allowed to increase longside exposure (indeed, leadership growth in general and everywhere, is flashing the same negative divergence). And…

3.) I’m not really interested in a vacation just now (which is what I’d be in store for if I was not willing to get a little in front of this trade).

If P, then Q = I’m going to take a stab short (for relevant accounts).

I know it’s sick, but I know so little. I can’t say it’s perfect, but now seems like a dandy time (what with you drooling incontinent). For the moment at least, let me hold your position and you can catch your bearings.

While I won’t make any Kondratieff predictions here, I have that much on my side. Further, when the market turned lower the week of October 19th, I had no substance to predict any terrible downside, but I wasn’t any genius to interpret momentum had topped (for the intermediate-term at least). Prices may or may not see higher highs following such an occasion, but the shift in momentum generally means that selling strength is +EV going forward.

Now we see momentum at lower highs (no shock there), while the Dow-30 diverges as the only index at new price highs. In other words, we have a top in momentum, combined with a rather daunting divergence.

Beartards who study the history will find the good old Dow is commonly the only index to snap-back to higher price highs following an initial break in price and a top in market momentum. True for both major and intermediate-term tops; commonly.

If P, then Q.

Easy game.

Note: SPX and NDX closes at higher-highs will be my benchmark for failure (intraday highs are okay, depending, but closing above previous, October highs will mandate my exit and put me to shame for coming on here and suggesting such foolishness).

12:20am EDT: Thought in the spirit of Michael’s post I offer a little ‘Zugabe’:

Now remember - this is a weekly chart and a weekly stochastic. But it rarely lies and based on what I’m seeing this rally is in its final throws. Of course until this bitch resolves there will be more pain - if you are not prepared to endure this go into cash.

BTW, it has occurred to me that some of you might not get my constant references to the movie ‘300′. Well, there’s more to it than just the gory and nobody describes it better than Matt Tiabbi in his latest piece.

The counterfeit nature of our economy is troubling enough, given that financial power is concentrated in the hands of a few key players — “300 white guys in Manhattan,” as a former high-placed executive puts it. But over the course of the past year, that group of insiders has also proved itself brilliantly capable of enlisting the power of the state to help along the process of concentrating economic might — making it less and less likely that the financial markets will ever be policed, since the state is increasingly the captive of these interests.

I finally took the time to update my TYX-BAA spread chart again - which as you know I have to do manually. And it pains me to say that the data makes complete sense now as it supports what the daily zero has been screaming at us throughout the past week.

During none of the past drops did the spread bother to budge by a millimeter - on the contrary it keeps pushing towards the 2.0% mark.

My NYSE observer Bruno stationed in Manhattan just confirmed to me that ‘risk ist in und bearish ist aus’. There you have it, rats - Bruno is focused like laser on the Wall Street fashion world.

Today’s session is probably one of the most unnatural looking ones I have ever seen in my trading career - that perfectly geometric channel up should be referenced in a TA chapter on channels - it’s a rare find. It’s also one that cost me a shitload of coin as my bearish stance was tested to the breaking point. Short story is - I have committed myself to letting my puts expire - no matter what. This is however something I do not recommend to any of you rats - if you cannot afford to lose the money you got sitting in puts then just stay in cash until this tape confirms a trend change. I know - I keep harping on that but based on the desperate and frustrated comments I keep coming across a lot of you guys seem to be way too over exposed.

Wave count - well, I really don’t have to put up another chart - bottomline is that blue is in and orange is almost out, UNLESS we see a strong snap back tomorrow. Which probably is what many bears are hoping for, which is I don’t think it’ll happen. Today was extremely bullish with NYSE A/D ratio closing at a solid 4.84.

Program Trading Update:

geronimo/ES: +5

That’s my one consolation - geronimo loves a dropping VIX, which is an observation that will soon be implemented as a new rule. Also, since Thursday morning geronimo has been running via MultiCharts - so guess what - no more empty alerts! Wohooo! Thanks again to Eric who’s been busting his butt to make this happen in record time. He’s now working on instant message alerts as well - which are coming soon

A final thought: Many of you have had a lousy day and I’m going to ask you for a favor. Go out there and hit the gym or take a walk around the block. Don’t go home and let your frustration out on your wife/girlfriend, your dog, your children, or that damn neighbor of yours who keeps using your green trashcan when clearing his lawn. In the end it’s just money - I know this sounds a bit silly but simmer over it. You decided to trade an obvious erratic and manipulated market - and particular the latter is something we know but accept as a fact, thus we don’t blame our losses on it. So, you made your choice, so don’t fret if the big boys just took your lunch money. You own your trades and it’s not someone else’s fault - either you are smart enough or connected enough to survive this tape, or you are not and today had to pay your dues. I am one of the losers today but I knew that we would get a rip 10 days ago and I warned all of you about it. The difference is that I am long term positioned and that I don’t care if my puts expire worthless. But again, I’m completely crackers, and I encourage you to not trade the way I trade because I don’t want to see you get wiped out.

Cheers,

Mole

AngryWetCat’s broker was found dead in his Queens apartment early this morning. Officials investigating the case insist that there currently is no evidence of foul play, with the exception of a suspicious trail of moist cat litter leading to the chair.

Well, it’s officially bad fur day for the bears (yup, that’s me) and the orange scenario is now in code red mode. We have breached the 78.6 retracement line and I expect a spike up EOD as weak hands are going to cover positions as odds for new highs are now quickly gaining in probability.

2:21pm EDT: Berk seems MIA today - maybe he’s taking the week off - I can’t really blame him. He did however send me a chart a little while ago:

I really want to believe it - just don’t know if I can! LOL

As you know I expected a spike up but this is a bit silly. What should make the bears very very nervous is that gap up, which might be a small degree ‘point of recognition’, indicating a third wave up. Not something I would expect inside a completing flat - no sirreee! It’s not looking good for the bears this morning. I just checked the Zero Lite and we saw massive positive signal at the open.

I’ll be back after I collect a few more charts.

11:48am EDT: I just checked the Periodic Table of Finance Bloggers again and it seems that Joshua still has not put us on his list:

Of course this is unacceptable and must be remedied immediately. I had written Joshua last week, informing him that this site gets more traffic/eyeballs than probably half of his list combined. For some reason however he has not replied and we still don’t exist. If you are unhappy about being relegated to a non-existent status you might want to write him - perhaps if he gets a few more emails he might change his mind.

Yes, evil is as evil does

12:05pm EDT: Boy that was quick. Here’s Joshua’s response:

Hey Mole,
I have made 3 major oversights in my Periodic Table, and as I’ve commented, Evil Speculator was one of them.  That said, I just began reading you, several of your loyal followers have urged (threatened) me to do so!

Mea culpa for missing Evil Speculator, It certainly won’t happen in the next iteration.

Thanks for reaching out, btw.  I’m adding you to the blogroll and my reader.

Thanks!

Josh

Alright, let’s give the kid a break - seems like he got the ‘message’ and is eager to change his wayward ways.

12:24pm EDT: Okay, you rats need a bit of a cheer up:

I just checked the Dollar chart and lo and behold - we busted a new low on the DXY:

NOT looking good at all for the bears. I doubt that this is the end of this push down, but heck what do I know. Let’s check 2sweeties’ RL calc:

Based on the huge shoe that just dropped on the ole’ buck Monty Python style I set the 100% odds at 74.08. Based on that I see an 86.5% chance we turn at 74.74 and a 69.1% chance that we turn right here and now.

The highest frequency of reversals was actually at 75.4 and we busted though that this morning and never looked back. 74.74 has reasonable odds plus a reasonable frequency, so if we keep plunging here this would be my next level to anticipate a possible reversal.

Now, as evidence everyone points to a different cocktail of magic TA brew to quickly slip back into the bull costume - I’ve seen it all this weekend. Let’s have a quick role call:

• A three drives pattern (a.k.a. we stay locked in the long term channel)
• This was only another X wave (popular among Elliotticians).
• Evil VIX broke through it’s upper trend line, so the world is ending.
• Market sentiment is too bearish again (same excuse we had for months now). Admittedly however the AAII reading was the most negative since the conclusion of Primary {1}. This is the only one that worries me.
• Greedy MMs are pushing the tape up for Nov OPX.
• A ’seasonal strong period’ (conveniently forgetting that the ’seasonal weak period’ has been AWOL this year).
• Bernanke’s Revenge.
• Turn cycle wave of your choice.
• [fill in bullish argument of your liking]

I personally see some bullish evidence on the horizon but I don’t think this is where everyone should throw in the towel. At this point at the very worst the evidence is still mixed - let me show you:

Yes, we got that snap back rally I expected over a week ago but apparently the P/E ratio has not budged. Very strange behavior and it bodes the question of whether or not we might break that channel the 10-day MA has been trapped in for about a year now.

And yes, the VIX did close below that long term trend line which had three touches in the last year. Wow - I’ll alert the media. Two touches is nothing but a line, three touches maybe is a trend line but not one I would base my entire long term outlook on. Alright, so even if we keep pushing lower here - great - which will get us to below 20 potentially (50% mark of channel), which would be this bear’s wet dream.

My wave count has not changed at this point - plus I don’t really enjoy putting up CYA postings. Of course it’s possible we push higher tomorrow and the next day and the next day but as of right now we have not even touched the fucking 61.8% fib line. If we were close to the 78.6% fib line I’d understand that ya’ll getting cold feet and I’d probably be cursing like Popeye. But let’s give this tape a chance to complete this correction:

We might have a developing fractal in the works again - yes, it seems to be painting the same pattern over and over again.

Or is it? Kindly compare the down trend signal on the PZI (i.e. left side) with the up trend signal. This thing was running on very thin fumes and it’s possible we are seeing a distribution pattern. Which is also supported by the Zero Lite’s flatline throughout the majority of last week.

A higher close on the SPX, the DJI, and the NDX on Friday - not supported by the small caps btw, as the Russell 2000 closed down for the day. Meanwhile the NYSE A/D ratio was barely above 1.0 and there was a clear divergence in comparison with Thursday’s readings at the close.

All eyes right now are on the Euro - and rightfully so. It’s getting a strong bid this evening and most likely we’re going to open higher tomorrow. But are we going to bust higher on steroids? Frankly - I don’t know - but I choose to not freak out unless the tape tells me so.

Emotions are running very thin these days, and I frankly can’t blame you guys. But whatever you do and whoever you listen to - make sure your trades are based on your system and that your system is based on your own solid technical analysis. There are a million ways to peel this onion folks and most everyone is confused right now - some of the toughest tape I can remember. So, get a clue or get out - otherwise you might as well book a Vegas flight over at Southwest - at least Vegas offers hot babes with anatomically impossible curves willing to separate you from your money the good old fashion way

But hey, what do I know - participation on this blog has shrunk to basically nothing (just look at the prior thread which was up most of the day) and it’s completely understandable as I’m nothing but some loon spouting charting platitudes and exotic wave counts. Doesn’t really mean much unless we can turn all this into some real coin. And that has been tough lately for the bears, thus the sweet smell of capitulation is still hovering in the air. Seems being a bear for more than a week has become quite unfashionable these days - and hey, that’s just fine with me - I am enjoying the solitude.

BTW, big kudos to the Stainless Steel Hamster, who’s been keeping this place from falling into a coma for quite a while now. I won’t forget this, mate - Mole and Berk have elephant memories.

Cheers,

Mole