Weekly TimeCycles, OptionFlows & Exhaustion highlights

The US$ is still the ALPHAdog. We should expect the $ to rally again somewhere around Feb. The 1. chance for the Low will be next week.

The early Feb FibTime spike occurrs in in OIL, GOLD, Dollar and Stocks (IWM) at the same time which gives you and idea how aligned the markets are with King DOLLAR.

 The Euro looks similar which we called on Jan 9.

We made a bullish case for Gold on Jan 4 and this has worked out nicely. Gold will be affected by KING Dollar and should see some intermediate Top next month.

 The Small Cap Stocks hint at chance to see this Top more towards the end of Feb. - maybe after a brief relief breather on the downside. What supports this case is the fact that Mr. Market has refused to correct which he was supposed to do over the last weeks. The Market is fairly overbought with a reluctance to correct which lets me expect some upside SPIKE!!

 That OIL is going into some bullish Sesonal timewindow should support the above.

 The Exhaustion picture on the IWM tells a similar story. We are HOT but not there yet.

 When we look at the MOMO (momentum) charts we see the same in the EURO and Gold. We need to see a bearish crossover in the Price & the Flow MOMO to call that the Top is in. The Moneyflow MOMO usually reacts faster so we will monitor this closely.

 Optionflows (here on the GLD) confirm the above. <=> Overbought but still too much complacency

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It also looks like we follow the Bradley model very closely. The stars seem to show the way......

Weekly TimeCycles & Exhaustion highlights

In line with our 'melt up' scenario we see GOLD...

 and Stock like the Small Caps...

 We also see US$ interest rates rising which should support the Dollar later on....

 ...after the EURO went through some healthy bounce to relief some of the pressure resulting from extreme 'shorting' of the Euro.

Bottom line:
A bounce in the Euro (6-8 weeks) can lead to some Euphoria in the Risk Trade.

Mr. Market seen through the lens of Apple

Apple is the ultimate Alphadog in this market. Apple dominates the Tech sector, the optionflows and should lead the market either way. So waht has Apple to tell us....

Medium term: 

Expect some painful correction in a couple of weeks (6-8 ?). The Structure seems developped and probably only needs some final push to mature.

Short term:
we could expect a pause/correction or see a case where the overbought situation leads to a upside break out and thus to some action on the upside. This could develop another neg. Divergence which would eventually trigger the medium term scenario.

Further hints for a short term 'melt up' can be found in the OptionSkews over time. As of now the downside is already priced in which should be bullish.

When we look at the Skews over time we see that a correction started to be priced in over the last weeks. We had a similar situation after x-mas when a small correction was also priced in and run over. This time it is even more pronounced because we find the same structure in the 1 month skews and in the 3 months (bottom chart).

Bottom line:

• maybe a short pause.....
• followed by a potential melt up....
• which will turn out to be a fake upside breakout.....
• that will lead into deeper correction

Weekly TimeCycles & OptionFlows highlights

This market wants to correct.......so don't be surprised to see some EURO strength and weakness within all Risk Assets. The medium term outlook into the end of Q1 could be bullish within a longer term bearish picture.....

Our VIX Oscilators are still staying with their correction warning

Mid Jan to early Feb seems like an opportune correction window.

Euro Bounce ?

The Euro is completing a Weekly Tom DeMark Sequential set up which needs a flip above 1.30 this week to trigger the signal.

The Euro and the Prec. Metals sector seem the most prone for a bounce here.

If the Euro flips above 1.30 this week, then 1.34 - 1.38 could develop a reasonable target. March-April should be our first timingwindow. 

Bullish OptionPremium for ATM Options hint at a similar outcome.

As does the timing chart on the DXY.

How will this affect the rest of the market?

Weekly TimeCycles & OptionFlows highlights

Small Caps look for a shortterm correction....

 ...as do the Q's

...,more medium term we should expect a bounce in the Euro which will lift all boats of the risk trade

 ...but only after a short bearish interlude.

CallSkew vs. PutSkew

As of friday night the Spyder Optionchain for options expiring in 43CD we find the following distribution of paid option premia over a range of historic standard deviations.

Each point on the graph depicts a data pair with a price (as % of underlying, ie how much does it cost to buy the option in %) and the amount of standard deviations the market has to move in order to make the bet profitable (before cost, a.k.a. 'getting in the money').

The peak of the chart is the price at which the market only has to marginally move into my desired direction in order to get in the money.

As of friday we do notice that the distribution is skewed to the downside, meaning players have paid more to get hedged. This works as a contrary indicator where you asuume a hedged position to be bullish. I define the hedged case as the 'PutSkew' (or the reverse as the 'CallSkew').

This has to be seen in a dynamic context where we monitor the day by day developments of the Put- & CallSkews. In this current case we observe a deterioration of the PutSkews which indicates a foreseeablee exhaustion of the bullish case, which in turn supports our overall assessment. 

The Bradley Model expects an interim Top right here

Check out the Bradley Chart and you will find an interim HIGH for mid Jan followed by a interim LOW towards the end of Jan which will kick off the 'crazy' phase into mid March. 

Sentiment and Breadth sport topping patterns

The Sentiment workhorse Indicator is Overbought and has entered a topping Pattern, which will flip here or gor for some fake breakout and kill everyone once people start trusting the breakout.

 Our Vix fair Value says that we are either at the bring of a bullish acceleration or close to an interim top.

Breadth blows into the same horn which the additional info that the recent rally did not lift all boats in the tech space and was more driven by large cap household names.
We also have reached a level of BUYING PRESSURE at the IM portfolio that either happens at breakouts or at interim tops.

Golden5 at Work: Why I'm bullish on Gold

 Remember our key guiding principle : "The Golden 5"

Golden5: Context:

• DXY looks prone to correct, 
• Correlation to Treasuries seem to break
• GLD looks ready to move up,
• QE3 around the door
• FED Swaplines indirectly through the ECB bail out the european banks without a limit set

 Golden5: Breadth:

• Breadth of the Miners indicated exhaution

Golden5: MOMO/ Golden5: Volume:

• Momo is oversold
• MoneyFlow is oversold and has already flipped
• Daily Exhaution floor must hold and could offer a good springboard

 Golden5: Sentiment:

• Silver/Gold ratios are oversold and held their support levels
• OptionFlows show no conviction to either side meaning the bear has been exhausted and the bull is not yet on board
• The PO OSC (bottom right chart) has reached a level from which we observed bounces in the past
  (PO OSC: Cash Premiums over OFEP, pls see here for explanantion)

GLD

SLV 

The DXY is showing the way.....

It looks like that the Dollar again is hinting at what is to expect over the next quarter.

Phase 1: Risk On, Dollar weakness, Turn Of the Year Seasonality
Phase 2: Risk Off into the end of the Quarter

So enjoy the next 4-5 weeks, watch Gold ,Stocks etc. rise and listen to the talking heads claiming that the worst ist behind......