Thursday 12 July 2012

Volatility still weak

With the sp @1325 this morning, the VIX was +9%, and showing a breakout on the daily charts, yet the close was weak, very weak. The VIX remains very low, and as noted many times, until we see VIX  20+, the bears can not get excited about more 'interesting' index moves lower.


VIX, daily

VIX, weekly


A weak close on the daily chart. The bigger weekly cycle outlook is still fine, and I'm looking for mid 30s within 3 weeks.

More later....

Closing Brief - bulls battle back

The bears managed to quickly drop the market to sp'1325 - with the VIX +9%, but we certainly saw a very reasonable recovery by the bulls.

Despite the recovery, the broad up channel that has endured since the early June low of sp' over. It is a moderately uncertain guess, but I think the wave'2 top was indeed 1374, and we've just seen micro-wave'1 complete - that forms part of the big wave3 that many of the doomsters out there are looking for.

By definition, if that is correct, we're now due a micro-wave'2 higher, that could easily take us back to around 1350/60 by the middle of next week. If we then see a rollover, it will be putting in a critical lower high...and then some real entertainment can begin.

The closing hourly charts...





The closing 20minutes or so was a little weak, but still, we're closing 10pts higher on the SP' from the morning low.

Baring some 'news' tomorrow, I'm not expecting much, other than low volume algo-churn, probably to the moderate upside.

Regardless, my target is now a re-short next Tuesday - ahead of the Bernanke who speaks next Wednesday.

more later...

3pm update - closing hour gains?

The bulls have already achieved a sizeable recovery, and if we start to slip back to the low 1330s, they still can't complain. With the VIX set to go red by the close...this is very likely a turn day.

Hard to guess if we close marginally green on some indexes - the 15min cycle is pretty high, so it would be kinda easy is we slip lower. Regardless, we are a long way up from the 1325 this morning!



Looks like a failed breakout, the black candle is a clear warning of VIX downside Friday. The black 'doom' candles don't always work out, but more often that not.



I remain on the sidelines. I sure ain't hitting buttons to go long, and with the hourly MACD cycle suggestive of going +cycle this closing hour....I can't be short either.

Actually, today is arguably a victory for both sides. Bulls saw a sizeable bounce - with the hope of a multi-day rally back to the 1350/60s...and bears saw the primary up trend/channel of wave'2 broken.

As it is, I don't expect to re-short now until next Mon/Tuesday.  The one upside of not trading...the guarantee that I'm not going to lose money!

More after the close

2pm update - its all there, black and white, clear as crystal

Okay, well its been an interesting day so far. Things are starting to become a little clearer I believe.

We're seeing pretty strong bounce, and the hourly cycle is VERY suggesting that we could close green. This of course will confuse..and annoy many bears beyond belief.

However, whats important is that we did break the key uptrend - that has held since the June'1266 low. I would argue what we've seen today is the floor of micro-wave'1, that forms part of wave'3. If that is correct, we're set to see a multi-day 2-5 day bounce...but one that puts in a lower high.

I think the following two updated charts clarify what I'm trying to explain...

Sp'60min - bearish outlook



So, I think the floor is in for a few days. I did not chase the market lower at 1330/25, and I no longer think we're going any lower until later next week.

The VIX has FAILED completely to show any serious attempt to push into the kind of area - mid'20s, where I might consider some seriously big down moves in the indexes are viable.

So..I'm sitting it out. I sure won't go long. There is the risk I'm simply wrong, and we'll just flip lower at any point.

For those bulls out there, simple stops at 1324...and those 'big money' bears - who are playing on a multi-month cycle,..can probably tighten any stops to 1375.

JPM results tomorrow, I had considered it a possible short, but not now. If it closes marginally higher, that won't be a good sign for the financial bears tomorrow.

yours...hearing the words of Mr Wonka again

1pm update - Mr Market still..fearless

Even though the market declined reasonably this morning - and indeed broke the uptrend on the daily index cycles, the VIX is still not able to hold onto any significant gains.

VIX is only marginally higher right now, +3/4%, in the mid 18s. This is NOT good confirmation for the bears


The downtrend was broken this morning, but that black candle sure ain't a great sign! Bears need to see those earlier gains of 9% reclaimed!




Daily index cycles are clearly under the broad new highs are not written off in my view. However, we could still bounce higher from here...a fair bit. I sure wasn't going to chase it lower from 1325 this morning, and right now, I'm going to wait some more.

Lets see how high the maniacs want to kick this market up.

Look at the MACD cycle on the 60min chart, we could go positive cycle near the end of today, a close over 1340 is viable.

12pm update - bounce underway

The morning low of 1325 looks indeed like the floor - possibly for the day, and we're now seeing the understandable bounce.

Bulls would need to break - and hold over, sp'1340 for me to wonder if they can maybe kick it as high as 1350 - which is the top of the daily down trend channel.

I think the best the bulls can get today, is a brief spike to 1337/40.




I am standing by to re-short anywhere over 1335, probably after 1-2pm.

With the break under 1330, I am pretty confident now about the days to come. Also, the weekly charts are now warning of a severe move lower next week.

11am update - bulls being routed

With the break of sp'1330 the bulls are being routed. The VIX is showing a good breakout into the mid 19s. The bigger weekly and monthly cycles are now all starting to sync up for a major move lower.



sp, daily5


Its viable we get a little bounce across a few hours, so there is no hurry to chase this market lower at this moment. A bounce to 1335 would be a fair level to re-short later.

With the break of 1330, the fear of further highs is almost fully gone. Once we break the recent 1310/05 zone, then its arguably 'free money' down to 1266, probably 1225/00.

10am update - daily up trend....busted.

The broad up trend since the June sp'1266 low is over. It would be highly suggestive that we won't put in one final higher high.

The SP, NYSE, Nasdaq, and Dow are all below the lower channel. Only the transports and the hyper-ramp Rus'2000 small cap index are yet to break below their channel

Baring some truly bizarre intra-day ramp, with a green close, this market is going to break the recent 1310 resistance, then 1300..and quickly break 1266.


VIX daily


VIX is still only showing a moderate gain, but the SP' has broken 1330..and is now arguably a giant red warning flag to traders.

We will doubtless get little micro-bounces along the way, but in the bigger does look like 'its all over bulls'.
I am now looking to re-short via the 15min cycle later in the day.

Pre-Market Brief

Good morning. Well, overnight micro-gains of 2-3pts have flipped to somewhat significant declines. Futures are sp-9pts , we're set to open around 1332  - a touch lower than yesterdays low.

So we're still not decisively below the 1330 level I've been mentioning, but we are real close this time. It looks like the bulls are going to fail to hold things together.

Jobless claims: 350k vs 376k (previous) , something of a significant improvement!


I suppose from the 60min chart you could say the floor is 1325, but the daily chart is tighter, and anything under 1330 violates the broader up trend since the June 1266 low.



An interesting day ahead. A close in the sp'1320s would be very bearish for next week. Without question it'd be suggestive of a move <1300, and opens the door to breaking a new low of <1266.

My plan today? Well, lets see how the first few hours shake out, I might re-short at the top of the next 15min cycle, probably after 2pm. I also have my eyes on JPM.

More across the day.

Late Night Closure

How will Thursday play out? If you only knew the hourly index cycle, and had a look at the MACD histogram, you'd surely say we're going up.

The bigger picture still looks promising, with some dramatic moves lower seemingly likely in the weeks ahead. However, bears are going to probably need a real catalyst to get a decline started. Where are all those black swans?



Look at that hourly MACD cycle, its ready to go positive tomorrow morning, there is a very viable 4-6 hours UP, easily - and that's just in the first wave. That could get us to 1355/65 by Friday, and then a few more positive days early next week.

Just a little reminder on something from last year...that ties in with my overall outlook...

July/August 2011 collapse wave

I realise many would argue over the count on the above chart, but I don't think that's the important issue here. What matters is to be reminded of the style of what was a very impressive 12 day decline.

Now, consider where we are..and one of the 'doomster' outlooks that I am looking for

Sp, daily9c

We're clearly still holding within a large bear flag*, and its just a matter of when we break, not if. Downside should at least be to around 1225/00. I've seen a few people suggest 1250, but that just doesn't make sense to me for what should be a significantly stronger wave. I'm also well aware of some VERY key trendline support at the 1200 level - which goes back to the 2009 lows.

*Note how the current bear flag is almost twice as big as the bear flag/wave'2 of blue wave'1. So, wave'2 (black) in Sept/Nov time frame, maybe that'll be twice the size of the current flag, something around 10-14 weeks.
It does make me wonder,that if we somehow take a long time to get down into the 1100s, (when the Bernanke will likely appear), we could very much see a near mirror to 2011, with a big wave higher from late Autumn into Spring 2013.

Anyway, that's all for today....Goodnight !

Daily Index Cycle update

I don't normally cover all the main indexes every day, but since we're close to important trend/channel levels, lets look at all the main six indexes.

IWM (representing rus'2000 small cap)

Still the strongest index out there, and not that close to breaking what remains a broad up-channel.

Nasdaq comp


The first index to break the bear flag, next downside target would be the lower bol' line around 12479 - around 130pts lower.

NYSE comp

The master index closed comfortably above the lower channel line, and even closed a touch higher!


If you look at the MACD (blue bar histogram), maybe we should look for a third - and smaller tower, which might take 3-5 days to form. So, we could be looking at a peak as late as next Tue/Wednesday.



So..the Dow'30 is the first index to break below (and close) under the bear flag/wave'2. Yet, all other indexes are holding over..just.

For the moment, we can still argue that the bear flag is largely intact, and there remains a significant threat of a final (fifth) minor wave higher to around sp'1375/90.

If we somehow gap..or decline lower through the sp'1330 level tomorrow..or Friday, then those bears not already short, will probably have to assume the larger down trend is already underway, and will need to look for their next entry via one of the smaller 15/60min cycles.

Right now, my best guess is that we did 'hold the line' today at 1333, and that we could somehow magically battle our way back upward...and put in a slightly higher high in the 1375/90 zone.

Lets be clear though, I'm still looking for a major move lower, first target 1225/00, although the monthly cycle still calls for sp'1150/00 sometime in the next few months.

A little more later...