Wednesday 19 March 2014

Volatility floors in the 13s

It would appear the VIX put in a key spike-floor (13.89), just ahead of the FOMC announcement, with the VIX settling +4.1% @ 15.12 (intraday high 15.95). Near term outlook is for VIX to climb into the weekend, first key target is last Friday's high in the low 18s.




The 13s were always just about viable, and it was not entirely surprising to see them hit this afternoon.

The snap higher into the upper 15s was a pretty impressive initial move for the equity bears, and bodes for a likely challenge of last Friday's high.

What about VIX 20s? It would seem very unlikely by this Friday close, but week.

more later..on the indexes

Closing Brief

US equities sold lower after the FOMC announcement, sp -11pts @ 1860. The two leaders - Trans/R2K, settled lower by -0.4% and -0.8% respectively. Near term outlook is offering a test of the key 1834 low, if that fails to hold, then 1800/1790 within 5-7 trading days.



*First, I should note, I'm not overly concerned at the spike candle to 1850, which itself is a soft bounce resistance zone.

The damage has been done, and so far...the H/S formation I've been touting, remains very much intact.

Fed days are rarely boring, and this afternoon certainly offers something for many traders to think about.

Having been stuck just under 1875 for almost two trading days, it would seem the 1875 has indeed been rejected..and the market is now vulnerable to much lower levels.

I hold heavy short overnight, with short-stops around 1875. Seeking an initial exit around 1840/35..perhaps as early as tomorrow morning, which might equate to VIX 17s.

more later..on the VIX.

3pm update - the 1875 line held

The market has seen some 'sell the news' reaction to the FOMC, although the VIX is still broadly flat. Metals are weak, with Gold having slipped -$23. We have an especially interesting closing hour ahead. Equity bears should be seeking <1860, with VIX 15s.



Unless we break (bizarrely) tomorrow, >1875, I'm holding to the H/S outlook.

Primary downside target for the formation is 1800/1790, by end of next week.


I am heavy short, primarily via SDS, with a short-stop around 1875.

...updates into the close

2.56pm... VIX hourly cycle...the setup is very much in favour of the bears...all the way into the weekend

Certainly, long VIX in the 14s, is hell of a lot better than the 18s from last Friday (although I'm not playing VIX in this cycle).

3.07pm   VIX 14.70s...and the 15s are now well within range by the close..along with sp'1850s.

On track..and it sets up tomorrow...very well.

3.12pm.. woah..............VIX soaring....the 16s are coming.

3.17pm... VIX 15.95.. intra high.. so far...but this is a great reversal from the failure to clear 1875.

Anyone think we'll be clearing >1875 tomorrow?

3.22pm..the Yellen keeps on talking..and the market is now borderline sig' declines.

Perhaps most importantly..we have the weekly index cycles...turning back to bearish.

Seeking a VIX in the 16s..with sp'1855/45..setting up more downside across Thurs/Friday.

3.29pm.. Battle continues...but the damage has been done. Equity bears have control..and from a purely cyclical perspective, they should be fine into the weekend.

Now its a case of when do we test the key low of 1834.

Trans/R2K, both set to close red..and this bodes well for those on the short side.

3.35pm...continued chop....but market looks exhausted...bears should be able to wrestle this lower into the close...

I'd settle for VIX >15.50 right now, along with sp'<1857

3.39pm... clown finance TV talking about the 'end of QE3'....I think the cheer leaders are starting to get twitchy.

3.43pm... Market trying to rally, but the damage has been done.

Metals weak, Gold -$25,  miners suffering,  GDX -3.7%

I will hold short overnight..seeking much lower levels than here.

3.49pm...VIX struggling to hold gains, but still...the 15s are viable.

All things considered...this was still a key day...

2pm update - here comes the Fed

It is that time again, time for another FOMC announcement. Market expects QE-taper'3 of $10bn, taking monthly payments down to $55bn a month. However, as ever, how the market interprets this the difficult part to judge.



*updates across this should be at least somewhat dynamic this hour, with the market likely responding in kind to how Yellen copes with her first FOMC press conference.

ANY break >1875...and I'll stay out...otherwise, I'll look for an entry soon after 2pm, will seek a rollover via the 15/5min index cycles - since hourly are already rolling over.


1.59pm ... VIX gets the kick lower ..13s.

2.01pm.. Fed cut expected... market so far..unable to clear 1875.

2.07pm... Am short from sp'1867....   my short-stop is around sp'1876.  I have little interest in holding short above there.

2.16pm... picked up a secondary short-block.. SPY, puts, from sp'1867.

2.20pm.. Metals sure are weak,  Gold -$ danger of losing the primary up trend.

2.28pm... minor they battle it out.    VIX remains red, equity bears need a daily close in the 15s to clarify a clear turn.

2.36pm... The Yellen speaketh..... sp'1868....not exactly a ramp > it?

A moderately red close...will suffice, especially in the R2K/Trans.

2.40pm.. Hourly index/VIX cycles remain in favour of the bears....with the first sig' market downside tomorrow.

First key target is the key low of 1834, but I realise that is a fair way lower.

2.44pm.. VIX turns green.....looking for the 15s...that'd really clarify things.

2.46pm.. It is just about possible the bears will get some important bearish crosses in the closing hour.. which would equate to a close in the sp'1850s...and might even turn the weekly candles back to provisional bearish.

Looking okay so far....and the 1875 line is now a good 9pts higher!

2.48pm.. the question now is...who wants to go long, having been stuck <1875 for almost two full days?

A potentially exciting closing hour..seeking a break <1860.

1pm update - quietly waiting

Mr Market remains quietly waiting for the FOMC announcement at 2pm. Market consensus remains for QE-taper'3, $10bn $55bn. Metals are having a second rough day, Gold -$15. VIX is broadly back to flat.



Little to add....its just a case of waiting to see the style of price action we get after 2pm.

I have programmed trades...ready to execute this long as we don't break >1875.

Primarily.. SDS, a 2x short ETF. Stop loss would be a mere 0.5-1.0%.

Are we excited yet?  ;)

Yellen will of course have her little talk with the media...some time after 2.15pm.

1.32pm...minor chop..and we're a mere 2pts from a breakout..with open air to 1883..and the low 1900s.

We'll know soon enough..which way this is headed.

12pm update - continued minor chop

US equities remain in a clear holding pattern ahead of the FOMC announcement at 2pm. Precious metals remain weak, Gold -$14. VIX is a touch lower, -1%, in the 14.30s. We have an interesting afternoon ahead!



Little to add...

The only notable aspect is that the R2K/Trans have still not broken a new high...bulls are losing momentum

VIX update from Mr T.

Certainly, the May VIX blocks will cover a fair bit of time, and should at least result in capturing one spike higher this spring.

time for tea :)

12.10pm... Trans/R2K...both slightly red....if they close red.. it bodes well for the bears into the weekend.

12.37pm.. the weak chop continues.

Personally, I'd like to see 1867/65...and then a brief spike to 1870/75 by 2.15pm.... that would make things easier.

11am update - the two leaders are weak

Whilst the headline sp'/Dow indexes are broadly flat, there is some interesting weakness in the two market leaders - Trans/R2K, which have both been slightly lower this morning. Metals are weak, Gold -$15, with Silver -1.1%

R2k, daily

Trans, daily


So far at least..the two leading indexes have not broken new highs, and if Mon/Tuesday was indeed just a rally into the FOMC...then we're primed to break much lower into this weekend.

I remain on standby mode, will consider an index short AFTER the announcement at 2pm.

11.31am.. the minor chop continues.

Understandably..few want to do anything right now.

Notable weakness: TSLA -1.5%

10am update - opening chop

Equities open with some minor weak chop, ahead of the FOMC announcement at 2pm. Metals are weak, Gold -$10. VIX is a touch higher, +1% in the 14.60s. How we close today will likely give clarity on where we are headed for the next few weeks.



Little reason to get overly interested in any minor moves before 2pm.

Four hours until the Fed press release....

Equity bulls really need to break the VIX <14, or they have..a problem. Any break into the 16s..would be a provisional warning that we do have a H/S formation, and that we'll break <sp'1834 within days.

10.04am.. sp' trying to break a new high..but the trans pulling back....

10.12am.. Trans and R2K turn red.....

Kinda interesting...for the equity bears out there...the two leaders will be key. So long as no new highs are hit today...the H/S scenario remains a valid outlook.

Pre-Market Brief

Good morning. Futures are a touch higher, sp +2pts, we're set to open at 1874. Equity bears need to hold the line around 1875, or the H/S scenario should get dropped. Metals are weak, Gold -$9. Today's market close should give clarity on where we are headed into early April.



So..we're going to open right on the threshold, and I sure can't be the only one considering this scenario. No doubt the algo-bots are sure aware of it!

Clearly, if we see new highs in the Trans/R2K, that will be a primary reason to drop any downside outlook, and instead look to the sp'1900s. We'll know soon enough.

Best guess...1875 holds..and we'll trundle lower in late morning to 1865...before a spike back to 1870/75 on the announcement at 2pm....

..and then down we go..sub '1800 within 3-5 trading days.

Morning doom from Hunter and Orlov

Interesting to hear from Orlov, although I realise some will dismiss much of what he has to say. 

I will remain a watcher until 2.05/2.10pm.. and see how the price action is then. As it is, unlike the last FOMC, the cycles are lined up for the bears.

Good wishes for fed day!

9.38am.. minor down one wants to buy > they?

First support 1865...a break <1860 seems highly unlikely ahead of the FOMC. 

Trading the FOMC... perhaps

Most US indexes are close to breaking new historic highs, not least the Trans 'old leader'. However, last weeks close was a provisional warning of trouble, and a rally into the FOMC (despite the Crimea concerns) was expected. From a trading perspective...the break/snap lines are clear.



So... a second day for the bull maniacs, and understandably, they are pretty confident, with new historic highs seemingly viable for all indexes.

Yet..last weeks closing candle was a provisional warning, and it should not be dismissed..despite the recent two day rally. Indeed, a rally was exactly what I was seeking - to form a right shoulder - in the 1865/75 zone (see hourly chart in earlier post).

Critical issue: bears need a weekly close <1830, although it is not necessary this week.

The threshold for blue/green candle this week is sp'1858, and most certainly, bears should at least aim under that.

Looking ahead

Tomorrow will of course be focused on the FOMC. The announcement is due at 2pm. Yellen is due to host her first FOMC press conference, sometime around 2.30..and that will likely last an hour.

Market consensus (and I agree with), QE-taper'3, $10bn, lowering monthly QE to $55bn a month, beginning Monday, March'31st.

*next sig' Qe-pomo is not until Thursday.

Permabear...standing by

So..just what am I going to do tomorrow?

As I have been planning for weeks, a major short at the FOMC of March'19, was always a tempting trade. I will wait to see what kind of price action we have after the announcement at 2pm.

If the market breaks >sp'1875... the H/S scenario will need to be ditched (unless its a bizarre spike..that completely fails intra-hour).

My primary concern with shorting the market right now is that the daily MACD cycles are ticking higher, and that IS a problem. However, the weekly cycles outgun the daily..and last week was a I will keep in mind for the remainder of this week.

If I do start hitting buttons tomorrow, you'll hear it here..within a minute or two. If shorting the indexes, the obvious stop-losses will be somewhere in the 1875/85 zone. Above that is empty air into the sp'1900s, and clearly..there is no point holding short for weeks into the low/mid 1900s.

One thing is for sure, Wednesday will be busy!

Goodnight from London

Daily Index Cycle update

US equities closed higher for the second consecutive day, sp +13pts @ 1872. The two leaders - Trans/R2K, settled with gains of 0.5% and 1.4% respectively. Near term outlook is marginal, with the threat of new highs, but also a significant reversal tomorrow afternoon.





The strength in the R2K is especially notable, and both the two leaders are within 0.3% of breaking new historic highs.

Unquestionably, if the Trans/R2K break new highs tomorrow, it will wreck the near term bearish case, with immediate upside to the sp'1900s.

Tomorrow should offer some clarity, based on the weekly charts, I'm still calling for a wave lower, but we are probably only talking about 5/6% lower..not exactly the big one most bears are looking for.

a little more later...dealing with how I will approach tomorrow