Wednesday 1 August 2012

Volatility surprisingly muted

Considering it was a Fed day, the VIX closed essentially flat. Even the intra-day action was very narrow. So far, there is no fear at all in this market.

Only with a break over the recent high of 21.00 can the bears start to get a little curious about a possible VIX explosion into the 35/40 range later this month.


VIX' daily, rainbow


The rainbow (elder impulse) chart put in another green candle, and confirms that the underlying trend is currently up - even though it sure doesn't feel that way!

First target for the bears is 21..then 24/26

I remain holding to a weekly cycle target of 35/40 in August/early September.

With the FOMC out of the way, the bears again now have the opportunity to whack this market lower. However, as we saw last week, if Mr Dragi starts opening his mouth again, then maybe we'll see more disturbing huge gap ups.

We have the ECB tomorrow, and the big jobs data on Friday, so there is the chance the VIX can spike into the mid any point.

Closing Brief

I suppose some of the bears out there will be disappointed we're not closing dow-125pts or so. Frankly, considering the lunacy that is this market, an evens close will suffice.

What is clear, the daily cycles are highly suggestive of a rollover underway, as lead by both the transports and rus'2000 small cap.





Interesting little sell off in the closing minutes again - much like yesterday. Rus'2000 especially getting whacked lower.

Relatively small declines, it'll have to do. Was 1391 the high ? I suppose if the ECB pull a stunt tomorrow morning, then 1395/1400 is still well within range, but its looking less likely now that the fed have decided to do nothing.

VIX closed red, and shows no sign of even mild fear still.

At least the Fed is out of the way now for a while. The next thing is the 'jackson hole' nonsense where the Bernanke does a little public chat to his friends about how he will save the world, that is due in 4 weeks time.

More later

3pm update - closing hour weakness?

So....the Fed do nothing, as expected. Market drops 50 dow pts on the news...rallies to evens...but is slipping again. This is kinda muted action though, and the VIX sure ain't saying 'panic!'

The bears once again have a six week window until the next FOMC of Thur' Sept'13th. Even a mid-way target of sp'1225/00 is an awful long way down right now.




Most notable, the VIX remains very weak. There is ZERO sign of concern in the market this afternoon.

Lets see if we can at least close marginally red.

More after the close

2pm update - strap could get real bumpy

Mere minutes until the FOMC announcement at 2.15pm. There might not be any clear direction for a good 30/45 minutes though. Whether bullish or bearish, will need to give this nonsense some time to settle.

This could easily go either way...regardless, you might need some straps on your office chairs.




VIX is holding up reasonably well, but then clearly the market makers don't want to selling overly cheap index/stock puts ahead of the Fed.

..lets just see what the maniacs have decided.

1pm update - awaiting the FOMC

We're in the twilight zone hour of market trading. We remain clearly in a bull flag on the hourly index cycles, although IWM has broken below its hourly flag.

Transports are severely weak, a warning of trouble later today?


Tranports, daily


Everything is merely in a holding pattern..awaiting to see what the maniacs on the Fed board have decided.

12pm update - seeking a rollover within a day or so

The daily charts are pretty suggestive that we could see a definitive rollover within the next day or so. Of course, it will be highly dependent on what the FOMC announce later today, and the Friday jobs data.




Choppy trading likely until 2.15pm...when it will all go full-moon crazy until the close. We could easily ramp.with a quick fail...or just fall off a cliff.

Special point of note:

Lower channel on the daily is 1340 - by this Friday. So..if we can somehow magically close in the 1330s by the Friday close, that would be very exciting for the bears across the weekend.

A 43pt drop by the Friday close IS viable.

11am update - algo-bots gone wild

Many will be aware of the giant 'sell ES mini contracts' order at the close of yesterdays trading. Well, this morning it seems we have algo-bots going crazy again.

Zerohedge highlighting this mornings opening madness

sp'60min, rainbow


*VIX still holding over the hourly 10MA.


We remain in a clear bull flag. Far worse though for the bears, look at the MACD cycle, the cycle floored yesterday and we're already crawling back up.

Its gonna get real messy at 2.15pm today.

10am update - mixed open

The opening gains are starting to fade already, is a fed day, so nothing is even remotely reliable. Lets be clear, we are still holding in what is a bull flag. If Mr Market does like what the Fed has to say, a brief move to 1395/1400 is viable by the close.



VIX is already green..which is kinda important to note whilst market still holding onto small gains.
None of the intra-day action is to be trusted until after 3pm.

*notable moves so far... metals getting whacked lower, and FB..still on the slide.

Pre-Market Brief

Good morning. Its Fed day, at 2.15pm the FOMC announcement is made on interest rates and other policy measures. I'm not expecting QE3, although I sure expect them to overtly hint at it again.

Futures are moderately higher, sp+4pts, we're set to open 1383 or so. Market is pleased with the ADP jobs data, which came in at 163k vs 120k consensus. ADP remains highly uncorrelated though with the official govt. data.




An important day is ahead. Bears should seek a close in the 1360s, bulls will want to break to new highs of 1395/1400. I find the latter hard to envision, although its possible briefly.

As with any fed day, the swings around the time of the annoucement will be pretty severe.

*we have other econ-data at 10am, so market will be likely to make further swings at 10am.

So, get ya popcorn ready, a long day is ahead, and by the end of today, we should have a clear direction.

Good wishes for Wednesday!

Moving into August

July closed a little over 1% higher for the SP'500. This is not exactly inspiring for the bulls, but then its still valid follow through from the early June low of 1266.

Bulls will understandably be desperate to break the April peak of 1422. The daily charts would suggest that a break under 1325 would rule that out, and would open the door to an attempted break below the 1266 low.

Its time for an update on the scenario chart...

Sp, monthly 6yr


Best guess remains B. However, that is dependent upon a few things

1. Bernanke does QE3 before this year ends, at least 500/600bn, preferably 750/1000bn
2. No EU/Euro implosion
3. The US economy does not quickly slip into a GDP -2.0% recession in Q4.  I could still envision the market rallying from any Autumn low, so long as the economy is largely holding itself together.

As the last few months have ticked by, I'm increasingly more open to scenario C though, especially if the Fed's next QE fails to inspire all asset classes to ramp up into the end of this year. If the Fed does QE3, they better make sure its big enough to convince the mainstream that its significant enough to do 'something'. After all, perception is what its mostly about anyway.

So..lets see what the Fed does tomorrow. I personally don't expect QE3 tomorrow, but they may well overtly hint at it, and a brief post statement ramp could ensue for a few hours.

I still believe there is a very high likelihood we fall to at least 1225/00 in August, with VIX back in the mid 30s.

Goodnight from London

Daily Index Cycle update

A minor down day for the indexes, certainly nothing for the bears to get hyper about. Yet there are some hints that we are forming a top, and now have a chance at rolling over tomorrow - not least if the FOMC disappoints with no new QE.






Transports and Rus'2000 (see IWM chart) remain especially weak.

Sp' immediate downside is 1360/65 Anything in the 1350s by the end of this week should be seen as a bonus to the bears, I'd be very surprised if we can break into the 1330s at any point this week, even if the market gets seriously upset that Benny ain't giving out any new free money.

Bears should look for a tranny <5000 tomorrow afternoon if market is not pleased, it remains a massively important level.
If Mr Market is somehow pleased tomorrow with the FOMC statement/decision, then the bull flags on the hourly charts will play out, and first target will be the 1395/1400 zone. That might still be a post FOMC euphoria that quickly fades, but its something the bears should keep in mind.
A little more later...

ps...welcome to August. (how can it be August 2012 already?)