Tuesday 18 March 2014

Volatility crushed again

With equities pushing higher for a second day, the VIX was again knocked lower, settling -7.2% @ 14.52. Near term outlook is for the VIX to remain in a tight 15/12 zone. However, if there is a key reversal at the Wednesday FOMC, first target is the big 20 threshold.




This two day pull back from the low 18s is a particularly strong one, and the question is whether the strong drop is indicative of a new multi-week equity up wave..or whether its just a sign of increased volatility in volatility itself!

How we close tomorrow afternoon will be pretty important.

Equity bears should probably look for a reversal (hollow red) candle on the VIX daily chart tomorrow.

A weekly close in the 16s is arguably the minimum the equity bears need, to have any hope of a break back <sp'1800 by end month.

more later..on the indexes

Closing Brief

US indexes closed higher for a second day, sp +13pts @ 1872. The two leaders - Trans/R2K, settled higher by 0.5% and 1.4% respectively. Near term outlook is very marginal, bulls merely need a break >1883 to completely invalidate all hopes of near term downside, whilst bears need to break <1834.



So, a break into the low 1870s..which is precisely what I was looking for last Friday. Now..the bears just have to hold the line, and stop any FOMC spike breaking into the 1880s..and new highs.

Considering last weeks close...I'm holding to the original outlook, and will strongly consider a major short of the US indexes, almost immediately after the FOMC announcement tomorrow at 2pm.

Got popcorn?

One thing is for sure, tomorrow will not be boring, and will probably offer clarity on where we will be headed for the rest of the month, and indeed across much of the early spring.

Regardless of which side you take....we have a dynamic Wednesday ahead!

Have a good evening.
more later..on the crushed VIX.

EARNINGS update...

Oracle (ORCL)...missed expectations..stock knocked lower by around 3%


It seems someone leaked the numbers a few minutes before the close.

3pm update - a few points of buffer left

Equity bears are on the edge of losing what is a fragile H/S scenario - not least one ahead of the FOMC. Even a brief break above sp'1875 will cause some critical damage, and instead be suggestive of the sp'1900s. VIX remains utterly crushed, -8% in the 14.30s.



The line is pretty clear. I guess a brief point or two higher to 1876/77 is just about acceptable, but this is already on the edge at 1872/73.

Daily index charts are offering new highs on ALL main indexes as early as tomorrow.

Again though, I'd dare highlight that last weeks close was a provisional warning of trouble.

So..place ya bets...

...new highs..or a break <1834...to at least 1800/1790.

I remain content to watch..and will assess tomorrow afternoon. Of course, ANY new highs in ANY of the indexes will arguably void any remaining  hopes of downside.

3.04pm.. Kinda interesting how we are stuck at the top of the target box though?

Arguably.. best scenario for the bears... open -5/10pts..rally back to the low 1870s on the FOMC announcement..and then roll over.

As ever..price action is EVERYTHING..and right now..its looking............. tired.

3.13pm... Who wants to buy >1875 ?     I don't see anyone yet..at least not ahead of the FOMC.

Hourly MACD cycle is high..and suggestive of a bearish cross in about 4-6 trading hours.

Notable strength: DRYs +4.4%, but still 10% below the levels of a week or two ago.

3.26pm.. micro 5/15min cycles look floored... a close around 1874/75....should keep everyone hanging overnight.

A Wed' gap down of 5/7pts....easily viable to 1865....not that is anything remotely significant!

Oil +1.3%...hmm..

3.35pm...  each hour we remain stuck in the 1865/75 zone..the better. It is a good setup for the bears, not least whilst the VIX has been whacked from 18 to the low 14s in just two days.

For those watching, front month option index puts have lost around 50% of their value since the Friday close. Certainly..a far better entry price than those holding across the weekend.

3.47pm... a few rats are cashing out for the day..and who can blame them..in the 1870s! A mere 0.6% from historic highs.

Bulls can tolerate a Wed open of 1865 or so.

3.51pm.... a daily close in the low 1870s...that will keep the majority guessing..and confused.

Mr Market sure does excel at that.   back at the close!

2pm update - Transports close to a new high

Whilst the sp' is holding the 1870s, the most notable action is in the transports, a mere 0.3% from breaking a new high (>7627). Metals remain somewhat weak, Gold -$6. VIX remains crushed as the market is utterly fearless of.... everything, -9% in the 14.10s.

Trans, daily


Well, we're sp'1872/73...and remain real close to the upper limit of what the bears can tolerate for the H/S scenario.

At least its not boring, right?

1pm update - hold the line

US equities are holding moderate gains, just below what is the upper limit for a RS of a H/S formation that stretches all the way back to mid February. Unless the bulls can break >1875, the bears have a prime opportunity to turn this market lower - after last weeks bearish weekly warning.



Not much to add....we're simply holding just a few pts shy of violating the H/S formation.

Price action looks toppy, and a return to the 1865/60 zone is viable by the close of today.

I would still expect another brief spike to 1870/75 tomorrow, at the time of the announcement.

(1978...yeah...the distant...fading past)

yours...waiting for the Yellen...

12pm update - building the RS

Equities continue to hold moderate gains, with the sp' making a play for the mid 1870s  - a mere 0.5% from a new high. Most notable, the Transports, which is closest to breaking a new high. Metals remain weak, Gold -$9. VIX remains crushed, -8% in the 14.30s.

sp'60min1c - H/S


Any move >1875...and the above scenario will get dropped.

We are unquestionably 'on the edge', not least with the Transports seemingly due to break a new historic high within the next hour or two.

If this is a H/S formation..then the bears have to draw the line around 1875.

Best guess....we will go no further.

VIX update from Mr T

time for tea.

12.29pm... we're holding the line...so far.  The news from the Crimea is not exactly bullish, but still...Mr Market doesn't much care.

11am update - in the magic box

US equities are moderately higher, with the sp' probably having maxed out at 1872, ahead of tomorrow's FOMC. Metals remain weak, Gold -$9, Silver -1.6%. VIX is reflecting a market will zero concern about anything, -8% in the 14.30s.



So..we have broken into the 1870s..and we're now in my target box for a right shoulder.

Kinda interesting, yes?

I am now seeking price chop all the way into tomorrow afternoon. We could easily drop to the low 1860s, before a brief FOMC spike back to 1870/75.

11.34am.. Transports close to breaking a new high..and that would be a problem.

10am update - continued gains

US equities open moderately higher into the mid sp'1860s, and the only issue now is whether 1870s are hit today..or tomorrow. Bears still lack any downside power, and if Yellen can talk up the market tomorrow...to new highs >1883, then bears are going to need to wait some more.


GLD, daily


*Metals are lower, but Gold is holding within a broader up trend. Most important..a golden cross is due at the end of this week. No doubt, many others will highlight this bullish aspect at that time.

It is kinda quiet out there, and in many ways, I'd look for minor price chop all the way into Wednesday afternoon.

Best guess...market goes no higher than 1875 tomorrow.. before rolling lower again.

10.01am.. Well, we're coming up to the my pretty yellow box of sp'1865/75.

Yet..I think it is overly risky to short ahead of the FOMC announcement.

I ain't doing anything. Lets see the market chop now.

10.22am.. VIX getting crushed again..-7%, which even I'm somewhat surprised at. The 13s look due, whether today or tomorrow..doesn't much matter.

Notable strength, DRYS +3.5%, but its still 10% down on just over a week ago.

10.33am.. If we go much above 1875..then my primary outlook will be on the edge of getting trashed.

Pre-Market Brief

Good morning. Futures are moderately higher, sp +6pts, we're set to open around 1864 - a mere 19pts (1.1%) shy of a new high. Precious metals are lower, Gold -$7, Silver -1.1%. Equity bulls look set to remain in control until at least the FOMC of Wednesday afternoon.



*awaiting econ-data: CPI, housing

So...we're set to open higher in the mid 1860s, and it remains disturbing that we'll be barely 1% from breaking a new high.

What have all the doomers who were touting 'big gap down on Monday' to say about that?

Video update from Oscar

As for Oscar's 2014 projection (see video, I ain't spoiling it!), I could agree with it, but if we see a multi-month roll over this spring/summer, it'll be tough to hit Oscar's target before end year. Of course, if Yellen goes nuclear with QE (>$100bn a month), then the sky is the limit.

re: Oscar's target


Kinda interesting that a natural Fib' extrap... gives that zone, although I was thinking it would be far more likely in late 2015, than this year.

As ever..updates across the day.

8.32am  CPI +0.1%..although of course, some will dismiss such Govt data.

Metals are sliding, Gold -$13, sp' holding gains +6pts @ 1864.

Not much longer to wait

US equities started the week on a positive note, but last week saw some notable damage to the multi-week up wave from sp'1737. Equity bears just need to hold the market from breaking new highs (>1883), and break under the recent low of 1834, then the fun can begin.



The above scenario remains a particularly attractive one, but it is just one of a number of outlooks I am keeping in mind.

I'm seeking not just a multi-week cycle peak..but a multi-month peak - stretching back all the way back to Oct'2011. Even if sp'1883 was a key high, we won't likely know for at least 6-8 weeks, and that would require both a break <1737, along with a subsequent lower high <1883.

In theory we could be in the 1600s, and still not really have any justification to call a top via standard chart theory. That is of course the problem with much of this chart stuff, if waiting for a clear break, by the time there is a clear move...half of the drop (or rally) will probably have already occurred!

Needing a monthly close <10 MA

The following is a simple chart, but I think it does highlight how the 10MA sure is an important MA of support/resistance.

sp'monthly'3, rainbow

Equity bears need a March close under the 10MA - currently 1751, to break the grand up wave from Oct'2011. With 10 trading days left of the month, I find it difficult to believe we'll drop 107pts, although that is only 5.7% lower.

Looking ahead

We have CPI and housing starts, and if those come in 'reasonable'..market should be able to break into the 1860s..if not also a brief break into the 1870s.

*next sig' QE-pomo is not until Thursday

Just a few more days to wait.

Having decided to throw in the towel, wave the white flag - or whatever you want to call it, last summer, I'm finally now open to shorting the market, once the next FOMC announcement is out of the way.

If we have a simple H/S (see hourly index cycle), then we shouldn't break into the 1880s again. For those who do decide to short any FOMC bounce/spike, trading short-stops are pretty clear - in the 1875/85 zone.

If we see the 1890s..then clearly the 1900s are coming, and equity bears would again have to bail and reassess.

At T-2 days..and counting...this is your resident permabear...

Goodnight from London

Daily Index Cycle update

US equities started the week on a positive note, sp +17pts @ 1858. The two leaders - Trans/R2K, settled with gains of 0.9% and 0.6% respectively. Near term outlook is for further gains into the 1870s, before a sharp wave lower after the next FOMC is out of the way.





The two leaders do look especially tired, despite today's gains.

New highs... >1883, look pretty unlikely, as supported by the weakening weekly index cycles.

Closing update from Mr Riley

a little more later...