Reflections of Reality

Weekly TimeCycles, OptionFlows & Exhaustion highlights

2012-01-28T23:06:00.000-08:00

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

==========================================================

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

Weekly TimeCycles & Exhaustion highlights

2012-01-21T22:46:00.000-08:00

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

2012-01-21T22:33:00.000-08:00

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

2012-01-14T08:54:00.000-08:00

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

2012-01-12T01:44:00.000-08:00

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

Euro Bounce ?

2012-01-09T05:41:00.000-08:00

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

2012-01-07T14:47:00.000-08:00

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

2012-01-07T14:41:00.000-08:00

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

2012-01-07T01:43:00.000-08:00

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

2012-01-07T01:37:00.000-08:00

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

2012-01-04T23:47:00.000-08:00

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.....

2012-01-04T06:18:00.000-08:00

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......

Liquidity Rhymes in Gold

2011-12-24T01:50:00.000-08:00

The last 2 major corrections in Gold followed a (I)->(II)->(III) pattern. I looks like we are almost there if the Liquidity Index can turn around.,

Yearend Post

2011-12-24T00:11:00.000-08:00

We expect Santa to stay on for a couple of more days.

Gold should jive nicely with our Bradley outlook.

...although the picture looks slightly different in Euros.

The Small Caps had their yearend seasonal out-performance.

Silver will follow the risk trade.

The Euro is poised for some bounce in Q1.

Gold gets in position....

The Small Caps are getting rich....

The Skews seems to support the above.....

Gold is getting in position....

Small Caps might have some air left ....

The above fits also into the picture where our VIX_OSC is getting Overbought and seems readyfor some Jan. bear action....
Merry X-Mas and a Happy New Year!!

Do you believe in the Stars - Bradley Edition

2011-12-23T11:07:00.000-08:00

Being open to all sides is one of the most difficult things to do in a time of Info overload and plenty of 'EXPERTS' that seem to know better. One of the Gurus I like to listen to is Larry Peasvento, a Legend on his own. Larry is big into Astrology and one of the most famous models is the BRADLEY MODEL (see below or google yourself). Besides the fact that there are 10 good reasons to look the other way, the success ratio seems to defy plain chance or coincidence. So not knowing what makes it work we looked at the recent track record and more interesting we looked at the 2012 outlook.

The 2012 model predicts a very bullish blow off into the spring, followed by a massive sell down that will follow through all the way to the end of the year.

(Donald A. Bradley documented his research in 1948, "Stock Market Prediction -- The Planetary Barometer and How to Use It," on mass psychology and its impact on the U.S. stock market. His booklet, long since out of print, revealed his findings and exact computation methods underlying his discovery. Bradley's work illuminates the elusive powerful natural forces affecting men's minds and emotions behind the broad cycles in world economic and political trends sometimes with pinpoint accuracy. Bradley concluded that some 190 planetary aspects are the secret engine behind the cycles in mass psychology frequently occurring in the stock market.)

Option Skews: Methodology

2011-12-23T02:38:00.000-08:00

It's time to bring sth. new to the selected group of 'REFLECTIONISTAS' a.k.a my readers.

This time around we will look at optionskews and their symmetries. Below you will find de-trended Option premium term curves for puts and calls. We usually pick a strike that is close ITM-in the money- (proxy for ATM) and compare the option premiums along the future expirations. We do the same for Puts and Calls. In a perfect , read theoretically efficient market the Vola (and thus the premia) should look alike for puts and calls. Only if some big players bets one side in size will we see differences in premias. For visual reasons we decided to adjust & de-trend the data in order to highlight these speculative positions. Sometimes the differences are bigger than others => read stronger signals.

Dependent on the usage of the underlying as a direct speculation vehicle or as a simple hedging tool the 'Call'-bias (green line on top of the red line) has to be interpreted as bullish (spec. vehicle) or as bearish (hedging vehicle).

Below you find the analysis for the SPYDER which has clearly been a hedging vehicle and thus lets us interpret 'Put'-biases as bullish (and vice versa).

Each term curve is a snapshot of a certain pivot point in the market that relates to the pivotchart at the end (be guided by the numbers).

As of Dec. 19 we don't see any strong conviction towards a Santa rally and therefore will treat Santa with caution.

Sentiment sets up for bearish shake out

2011-12-21T23:20:00.000-08:00

There haven't been that many instances in 20 yrs where the VIX_OSC has reached this extreme level and had had not followed through with a tradeable correction. Maybe the market will carry this over into the new year but then the excess of the indicator should be even worse.

Santa has a week left bring us gifts....

Weekly TimeCycles & OptionFlows highlights: Where has Santa gone ?

2011-12-18T07:20:00.000-08:00

Silver is Oversold but still needs more time to heal.

Gold has a bullish mediumterm outlook.

Gold is oversold which should limit the downside for the remainder of the year.

Nonetheless Gold needs still some more time to heal.

Silver might be along a bit further down the road.

Small Caps seem to skip the Santa rally....

...same as the Spyder

FlowMomo confirms that view.

..as do the OptionFlows for HOT MONEY...

Small Caps

and SPYDER.

The Dollar goes into the same direction hinting at more EURO WEAKNESS = RISK OFF = Dollar Strengthg for the immediate future....

...with arisk to evolve into a 1995 kind of scenario which could be morph into something even worse.

Bottom line:

watch the Dollar, maybe it can take a brief break and allow Santa to return for 2+ weeks. If not, i.e. folks try to lock in year-end P&L's then things could turn painful.
Precious Metals look promising after the liquidations of the last 2 weeks.

Interim Low in Gold and Stocks ?

2011-12-15T00:26:00.000-08:00

The Liquidity Index gives no clear guidance. 2 Cases seem possible.

The Gold Breadth chart indicates a potential interim LOW in Gold might be close. This can be seen by the extent of the fall of the Liq. Index and by the length of the timing window.

The Vix_Osc is still overbought and needs some more pressure relief.

Weekly TimeCycles & OptionFlows highlights: SANTA has arrived

2011-12-04T02:58:00.001-08:00

SUMMARY:

Santa has arrived
Santa could run into 01/2012
...but he brings less gifts as in the past, thus we expect some Santa breather in december

Gold and the Prec. Metals looks good for the next 2 weeks and also medium term.

Hot Money has played Santa fairly well so far is taking off some risk trades shortly before their bonuses will be determined (year end). Better to have realised gains than unrealised ones.

Spyder and BANKS timing:

The QQQ's ask exactly the right question at this stage: Is this just a quicky....or are the good times back ?

APPLE:

BANKS:

SMALL CAPS show no conviction:

SPYDER:

20 yr Treasury will give us more guidance soon:

OIL seems to tag along with the SANTA theme:

There will be no posts next weekend due to other commitments.

Market is exploding upwards with deteriorating Liquidity

2011-12-02T23:04:00.001-08:00

The Liquidity picture of 2011 is now officially worse than it EVER was.

(We measure liquidity by simply counting the 90% breadth days in the S&P500 in a certain time window. When the market has only buyers and no sellers or vice versa then the market is illiquid)

The VIX_OSC seems rich already which comes from the 'too much, too fast' syndrome which is NORMAL in illiquid markets.

Indicator 2 has already flipped.

We knew that sth exceptional was in the making last week and so it happened.

Weekly TimeCycles & OptionFlows highlights: Time for SANTA

2011-11-26T23:58:00.001-08:00

The markets has taken a serious beating and is solidly oversold thus a temporary relief really in the upcoming time window a.k.a. "SANTA CLAUSE RALLY" seems possible.

SPYDER is oversold.

Hot Money is getting ready.

MOMO is Oversold.

...but the TLT seems to question SANTA ...!

...whereby the small caps are putting their shoes out for SANTA.

...as do the Corp. Bonds.

..as do the BANKS (which could be an amazing bounce trade.....)

Even the Gold/Silver ratio expects SANTA.

Gold is in a good seasonality anyway.

The Nature of the BEAR: no rules, just liquidations

2011-11-26T23:57:00.000-08:00

Breadth sport EXtremes that usually lead to upcoming LOWS

2011-11-26T03:18:00.000-08:00

Liquidity speaks for itsself!!

The following Breadth charts show some extreme levels that have led to upcoming, read LATER in time, lows.

...and then there is the Breadth chart for the European shares which looks even worse...

Sentiment shows 2 paths

2011-11-25T23:49:00.000-08:00

A truely unique set up in the VIX_FV Indicator warns that sth unique is about to happen : UP or DOWN ...?

....and 2 path story in the VIX_OSC indicator seem to show the way.

ISE Options date is inconclusive.

...where the CBOE is in line with the 2 path theme.

Weekly TimeCycles & OptionFlows highlights: CROSSROADS

2011-11-19T23:15:00.001-08:00

The Spyder started to correct and doesn't seem finished.

The Hot Money is out of the game.

The Banks have already taken a beating and could see some more.

The longer term Exhaustion chart shows that we are at a crossroads where Mr. Market has to decide whether he wants to rhyme with 2007, 2000 or whether the Central Banks can buy some more time.

Oil takes side for the bearish case after this beautiful last exhaustive move up (assuming no war in the Middle East).

The precious metals show 2 potential paths: One with more downside action and the other where we could see some neg. Divergence developping and thus more bullish price action.

Rare Pattern in the VIX_Fair_Value Indicator

2011-11-19T04:51:00.000-08:00

How often do you find a situation where the market tends to go down and insurance gets cheaper ??

There is a word for it: COMPLACENCY!

....needless to say that this is not bullish....

Weekly Close below key Fib Ratio for the Spyder

2011-11-19T04:50:00.000-08:00

Weekly TimeCycles & OptionFlows highlights

2011-11-12T23:10:00.001-08:00

The Euro looks overbought, which is bearish for the risk trade...

The Spyder is Overbought....

...the Hot Money sits on the sidelines...

...because they sit on good unrealized profits and have begun to take some money off the table...

...which all jives with Gold topping out....

We don't know what will happen in Europe but the data shows some caution for the next week. View this against the backdrop of the disappearing liquidity and you will get more wild rides.

Maybe we can get a SANTA CLAUSE rally later in december after we have seem some kind of correction.

ISE and CBOE Options data sport low readings for a 20% in October

2011-11-12T09:09:00.000-08:00

The data series are short and there is no significant amount of reference cases, where we came from some oversold extreme, entered into a quick & sharp rally and flipped with relatively low Indicator readings...... 2008 is all I found.....

Liquidity_Index reached a deterioration level as in 2008

2011-11-12T00:51:00.000-08:00

The Liquidity drain has been as bad as in 2008 !! Pls compare 2008 to today and you will notice that the bear rally at this stage is normally propelled by lopsided breadth days (90% of all shares go up no selling a.k.a. buying panics!).

In 2008 we reached point (A) after a -210 tumble in the index, this time it is (A').

Will history rhyme? We don't know but we do expect lots of Vola.

Small Caps COULD develop a major Head & Shoulders

2011-11-11T22:39:00.000-08:00

There is nothing more then a hunch at this point, but this could materialize and should be worth to monitor.

Picture Italy falling....banks stop lending to small caps.....recession.....small caps are also a good correlation proxy for High Yield Bonds...so this could become contagious

Bull or Bear kick off ??

2011-11-11T22:19:00.001-08:00

Our VIX_OSC indicators a.k.a. our 'Workhorses' have not made up their mind with a light bias towards the bear case.

Weekly TimeCycles & OptionFlows highlights

2011-11-05T23:39:00.001-07:00

The Hot Money had a good run and is taking money off the table.

The Spyder is solidly overbought....

...and the timing model hints at 2 scenarios, both with bearish views on November.

The QQQ's paint a similar picture where we could have a early run up next week in a broader bearish picture.

The Gold/Silver Ratio wants to rise, i.e. which is bearish for the RISK ON trade.

Gold seems here in sync with the risk trade and should see a break here with a potential early run up.

...SAME HERE

The a.m. contradicts to some extends the bearish look of the TLT which normally acts as safehaven......let's see.

Liquidity Index sends continuing warning signals

2011-11-05T23:09:00.001-07:00

Dollar recaptures the former Break-Down level

2011-10-31T22:26:00.000-07:00

So the Dollar recaptured the break-down and critical Fib level. This is right in line with our mid/late November correction theme.

This all feels like a looming panic into the next couple of weeks and when the pain seems unbearable the Germans will give in (or will be ignored and nonetheless...) and allow the ECB to do what everyone wants them to do.....print, print, print....and then ....VOILA.....the year end rally magically emerges.....

Warning: Liquidity is vanishing !!

2011-10-28T23:12:00.000-07:00

Weekly TimeCycles & OptionFlows highlights

2011-10-28T22:43:00.000-07:00

So they 'fixed' Europe (for a week, a month....?) and the Dollar collapsed and all correlations begun to work... (....or was it something completely different like a gigantic liquidation an MF )

and the Treasury Bond got hammered....

and the RISK ON trade begun to fly.......

This IKARUS question still stays meaning how fast can you approach the sun without getting burned ? For us it looks like Mr. Market needs a break before rallying into yearend.

WE said last week that the EUROPE Rally could run another week which it has but the Market looks rich....

VIX Fair Value has already flipped.....

2011-10-28T22:38:00.001-07:00

We find the same in the OptionFlows of OIL...

...and of our Institutional Portfolio OptioFlows that are dominated by AAPL, GOOG, Banks ...aka HOT MONEY....

Bear Rallys usually end on good news

2011-10-27T21:46:00.000-07:00

Don't be mistaken, this is not a healthy normal bull market situation. It more feels like the opposite.

Weekly TimeCycles & OptionFlows highlights

2011-10-22T22:57:00.000-07:00

This week we have a lot of charts so let's dive just right into it.

20yr Treasury looks like a classical Double Top which means higher Interest Rates and a stronger Dollar...

OIL looks overbought and complacent which makes it prone to a correction.

...same as the SPYDER

and the Institutional Money portfolio where the hot money is playing AAPL, GOOG, XOM, CAT...

The Momentum tells the same for the Spyder..

Oil seems topping...

the Tech sector could run another week.....

and now the PREC. METALS which see positive money flows.

...and also could find support be it in EUROS...

..or in Dollars

...but expect the correction to linger on a couple of more DAYS...

...also for Gold in Euros

...and for Gold in Commodities...

whereby Gold in Dollars could bottom right here....

Muddy Waters in BREADTH-Land

2011-10-21T23:01:00.001-07:00

The trend has turned up but we take the emerging divergences as warning signs. This rally doesn't seem to have the broad support we want to see.

(No surprise here at a time when AAPL, GOOG, C, BAC, JPM through the Options and Futures market dominate the tape.)

King Dollar is still retesting the old BREAK-OUT level of 76.60

2011-10-21T22:53:00.000-07:00

This will be the key tell whether the Europeans overcome their challenges or whether the FED silently starts QE3 in the MBS space.

Buy the rumor ...sell the news

2011-10-21T22:44:00.000-07:00

They're supposed to find the final solution in Europe over the next week. The Rosetta stone that does it all. Technically we have an extremely overbought market with a neg divergence emerging right into the news event.

Let's see whether it is different this time.

VIX Fair Value has reached a critical level

2011-10-18T21:48:00.000-07:00

The last times we'd reached that level Mr. Market decided to dive for 2weeks+......

Weekly TimeCycles & OptionFlows highlights

2011-10-15T23:40:00.001-07:00

When we look at the SPYDER Optionspicture we see not much FLOW into speculative Positions in a pretty much over-bought market. The Option chain structure indicates (RGW, bottom right) a risk of Volatiliy.

The QQQ's mirror that statement.

But when you look at the key Volume/ Trading vehicles of the BIG BOYS you see they liked to play AAPL (as always) and GOOG. No real touching of materials or banks.

You see who pushed the monster rally of the last 2 weeks, not real investment but hot AAPL and GOOG lottery tickets.

Expect the PRO's to take some money off the table.....i.a.W. expect Vola!

The also get confirmed by some of our MOMO and TimeCycles work that you will find below.

....expect all risk assets to be pulled into the cooling off period which will also include the precious metals. Mid November could become a good timing target.

Classical Retest in the DOLLAR

2011-10-14T23:48:00.000-07:00

Now things get exciting!

If the Retest holds the break-out then we should see some correction in the Asset markets. If not........then we are back in dreamland where downgrades are interpreted as 'good news'.

Good SHORT set up in the S&P500

2011-10-14T23:37:00.000-07:00

Wait for the break and see where it takes you ...

Wonder-Rally in the Sentiment Gage

2011-10-13T22:12:00.000-07:00

On the bottom you see our VIX_OSC and how the gage has taken off like a rocket crossing the zeroline and becoming overbought (following our last base case scenario).

We looked at similar instances and found 4.

Characteristics of the 4:

1998 kicked of the final leg of the NEW ECONOMY rally
all other recent instances where short covering events that led to at least one more re-test

Sentiment still hints at a short covering rally

2011-10-07T21:58:00.000-07:00

The Spyder scenario turned into the base case

2011-10-06T21:36:00.000-07:00

last weekend we were torn btw 2 scenarios and it turned out we have a clear winner.

We had expected a continuation into this week (MONDAY's drop), followed by a rally.

Now we expect the rally to continue into next week....

(Notice to the readers: There will be no posts this weekend)

Breadth in the Miners indicate a bottoming in GOLD

2011-10-05T11:26:00.000-07:00

...chances are good for a bottoming process unless we are in 2008 kind of world.

Europe has been saved again .....by rumor ...for how long?

2011-10-04T21:48:00.000-07:00

Dollar Strength pull the market down

2011-10-02T23:27:00.000-07:00

It's October, it's Monday and the EURO breaks.

...and this is how our Correlation Analysis looks for last week. We notice a clear pattern with a strengthening Dollar triggering the RISK OFF trade.

Weekly TimeCycles & OptionFlows highlights

2011-10-01T22:42:00.000-07:00

The Spyder paints a muddy picture, which seem to suggest that a bounce could arrive soon on the heels of another quick exhaustion event in early October.

The SPYDER TimeCycles show the same ambivalence with respect to the first week of October. It really is a 50:50 bet. Interestingly the Spyder just expects a bounce into the middle of October.....

....whereby the QQQ's go into the opposite direction.

The TLT still are in a topping process and is moving from one extreme to another.

Gold & Silver show the opposite in a sense that they seem to work on a bottom. (Could we see another downdraft in early Oct....sure).

Bottom line:

Equities: high degree of uncertainty -> Vola !
Long Bond: topping
Prec. Metals: bottoming
FX: no clear picture from a TimeCycles & OptionFlow perspective

Is the Gold correction over

2011-10-01T09:28:00.001-07:00

Something changed on Wednesday when you look at last week .......

DOLLAR BULL is alive

2011-10-01T08:51:00.001-07:00

We have been bullish on the Dollar for quite some time. Looks like we are now aiming at the next resistance and Fib50% level.

ISE and CBOE Options data confirms the bearish VIX_OSC view......cont'd

2011-10-01T08:49:00.001-07:00

Similar structure in the ISE and CBOE Options data like in 2008.

Sentiment and Liquidity have kept us honest

2011-09-30T23:57:00.000-07:00

The current fall in Liquidity is only comparable to 2008.

The VIS_OSC2 shows weakness that could lead to an exhaustion event in October.

Our VIX Fair Value seems to support that notion.

Algo Madness

2011-09-25T21:31:00.000-07:00

If you ever want to understand where the crazy volatility of the last years' is coming from or where the liquidity has gone over the last decade or why we had a Flash Crash, then you need to look at the chart below. The Machines have taken over the trading.....

Nanex: Incremental build-up over the last few years of superfluous quote traffic over the course of the day. That is to say, quotes which are entered into markets systems but are never actually transacted, hence they are Spam.

(found on the BIG PICTURE)

GOLD-TLT Correlation broke as promised

2011-09-25T06:57:00.000-07:00

The Correlation broke but this time Gold left the Safehaven story before the now tremendeously

overbought TLT...

...but when you look at last times when we had these kind of correlation extremes we observe that usually one Safehaven leads down (=> correlations go down) and that when both have corrected the correlation turns up again and both Safehavens start to rise again.

So this would jive well with our TLT view where we could expect the US Long Bond to follow Gold into a severe correction, followed by a joint upturn again. How long will they part ways and when will they reunite, only Mr. Market knows.

The extreme oversold Gold market and the extreme overbought TLT could indicate that this could happen sooner than later. On the hand the correlation has just turned down and could go longer.....

watch the space !!

Contrarion Trade of the Year: SHORT the LONG BOND

2011-09-24T21:57:00.000-07:00

Last week we showed the GARTLEY pattern which the TLT blew apart....but the case gets stronger and stronger. When this starts to tumble then think in terms like SILVER or COPPER last week.

Precious Metals and Institutional Money update

2011-09-24T12:21:00.000-07:00

Silver took a material beating and could bounce from here. How far ...we don't know, but probably into mid OCTOBER.

The GOLD OPTIONFLOWS tell a similar story. We had the beating, the pressure relief....now what's next...?

Silver looks deeply oversold. Last time we had those oversold level....yeah you know....

...same for GOLD...

The INSTITUTIONAL MONEY Optionflows look weird as if we have too many players hoping for a supercharged upside bounce .......?!

The TimeCycles are bearish into mid October (same as Silver with opposite signs ?!)

Sentiment: BAIR RAID is not over yet

2011-09-24T12:04:00.000-07:00

Vix seems fairly valued at these levels and could allow for more downside action.

The VIX_OSC has no clear opinion....

...but his bigger sibling the VIX_SUMMATION which takes the path of the VIX_OSC into account looks to paint another re-test into late OCTOBER.

Liquidity still deteriorating

2011-09-23T22:28:00.000-07:00

We have reached last years degree of deterioration. Will we stop here...?

On the other side our index foretold us of the coming re-test!!

Gold Correction could halt here

2011-09-23T22:24:00.000-07:00

Reasons why...

weekly RSI at the 50 area
current correction at the FIB 23.6 % level
at Trendline
at or close the EMA150
resembles in size most correction since 1999

Silver got whacked again...and today even more...

2011-09-23T12:40:00.001-07:00

From a technical perspective this is as good as it can get...

extreme RSI reading
double Fib Cluster
medium term support
Volume resistance area
symmetrical A-B-C pattern

Silver got whacked almost 10%....

2011-09-22T21:41:00.000-07:00

...exactly into the time window where we expected it. (chart is from EOD Wednesday !)

1998

2011-09-21T10:55:00.001-07:00

1998 looks like a good pattern for the market from a seasonality perspective. It also fits with our view thatwe could see more bearish action into October.

.....this Rhyme also looks at some fairly bullish action out of the October low!

Did u see the GARTLEY Pattern in the TLT ?

2011-09-18T01:54:00.000-07:00

(a) A beautiful GARTLEY Pattern which needs a breakdown as confirmation. Once we see the breakdown and bear in mind that we are right on the FIB 76.4 level then we should see some solid bear action. (CONFIRMATION is key !!)

(b) The weekly RSI is at a level where it usually confines further up-moves.

Relative Strength

2011-09-18T01:40:00.000-07:00

Nasdaq & Semiconductor stocks were extremely strong during the bounce.

As long as we find the Banks and the BRIC stocks on the right side of the chart and the safehavens and marterials on the left side, we have to assume an impaired and unhealthy market structure .

....and then there is Dr. Copper

2011-09-17T15:03:00.001-07:00

...and he seems not to be too optimistic about the nearterm outlook.

The Precious Metals are torn btw. a rock and a hard place

2011-09-17T14:46:00.000-07:00

The Option picture is muddled right after the OPEX (Option Expiration)

The Momentum side looks like the complete opposite where when bearish indicators cannot trigger a bearish move we have to assume a bullish outcome.

...and the same must be said about the timing model where we experienced a perfect cycle inversion (meaning the turning dates were right but an expected low turned into a high and vice versa). If this continues then we should see a rapid move into the potential volatility month of October.

We could also see an end of the inversion with the Prec. Metals diving into mid October......

Institutional Money Portfolio seems neutral with downside risk into late October

2011-09-17T14:42:00.000-07:00

The Optionflows Indicators all are on neutral which can cut both ways.

The TimeCycles model on the otherside hints at another re-test with the potential of a tradable Low in late October.

Mr. Market follows our ROADMAP /Episode 3

2011-09-17T07:37:00.000-07:00

We posted on June 12 the following ROADMAP:

We posted on June 16 the follow up to our ROADMAP:

JUNE CONCLUSIONs:

We have entered the airpocket with a material breakdown - DONE !
expect a test of the 200d SMA & the March 2011 LOW - DONE !
...if the 200d SMA does NOT hold then expect a tumble though the airpocket and a subsequent test of the May 2010 in late July (August) seems likely - DONE !
...if the MAY 2010 HIGH does NOT hold then plan for the FIBs (expect some sideways action around those levels given the Volume cluster in this price area) - DONE !
...if we break through the summer LOW of 2011 expect more than a medium term correction - DONE !
(SEP 17, 2011)...now that 1-5 have materialized we have to add chapters to our story. After testing the 38% Fib level Mr. Market consolidated n a textbook Flag Pattern up into the Airpocket again right around the Option Expiration and close to the Month & Quarter End (window dressing). The correction took place with decreasing volumes. The next target should be the 2010 LOW which coincides with the 50% Fib level. This could happen all the way through October.
...if 6 occurs anything can happen from there. A waterfall down or a monsterrally up.....bear in mind that every politician and centralbanker around the world will pull all stops to intervene at that stage.....

More Liquidity drains out of the Market

2011-09-16T22:49:00.000-07:00

Liquidity is further deteriorating
we have taken out last year's LOW in the Index
previous moves went further (210,160)
when previous moves had reached sililar levels around -150 and were at a strage where the market had just experienced a short-covering rally the market tended to go for one more re-test of the price low.

Sentiment update: Short-Covering relieved the excess pressure....

2011-09-16T22:31:00.000-07:00

....and once the OPEX (yesterday) and the month end and quarter end (window dressing) is behind us we could expect more turbulences.

This also reconciles with the FLAG (correction) Pattern Mr. Market has painted and has clearly some bearish bearings.

Expect the SHORTS to re-load.

DOLLAR aims at 80

2011-09-16T22:15:00.000-07:00

Textbook action in the DXY. After taking out the 1. Fib level we saw a re-test that held. This indicates the DOLLAR wants to test another stair-step up to test 78 and eventually 81.

Remenber that strength in the DXY is highly correlated to the RISK OFF trade.

SAFEHAVEN GOLD-Lond BOND angle: Short term correction in Gold

2011-09-11T07:36:00.001-07:00

Our 2 Safehavens have reached a 1yr Correlation extreme which in the past decade led to short breaks/ pauses/ corrections in both hiding places.

Don't expect less over the next month or two into October.

Dollar Strength actually is good for GOLD

2011-09-11T06:51:00.000-07:00

We looked at the Dollar-Gold 1yr Correlation since the 70ties and found that with one exception a rising Dollar and a rising Correlation coming from negative correlation levels of below -80% usually seem to act as jetfuel for gold.

To better understand the pattern imagine the following sequence of events...

Gold rises ,
Dollar tumbles ,
"end of the Dollar" seems approaching
inflation expectations rise
asset prices begin to fall
dollar rises from deleveraging and reserve currency status and certainly from EURO weakness ( <=> ".....dollar is the least bad currency out of a basket of bad choices")
Safehaven SWISSFRANC disappears
QE3, QE4 ... and European equivalents and all sorts of "fiscal and monetary fixes and programs" are expected
inflation expectations rise again (in an actually deflationary environment)
Gold is extremely overbought but doesn't really put in a deeper correction and simply corrects sideways (over time)
BUYING PANIC in GOLD arrives !!

There is a chance that we are in stage 9 and/or 10. If Gold just buys time over the next weeks and the stock market falls another x% and the political class opts for "fixes" then better start moving into Gold, Cash or the Dollar (or all of them).

Gold Correlation Rhymes

2011-09-11T05:39:00.001-07:00

There were a couple of Safehaven episodes with falling stock markets and rising gold prices.

They usually got really exciting when the stock markets began to bottom (think QE3+).

Look at this innocent Rhyme which resembles today quite a bit. Notice the extrem negative correlation and how it led to a correction of the gold price. The stock market fell some 20%. Eventually stocks started to rise again and took gold with it for the ride ....

.and gold rose and rose....and the rest is history.

Conclusion:

If the stock market falls too far, the ensuing money printing could trigger a replay of the late 70ties.

The vagaries of September

2011-09-10T23:13:00.000-07:00

The Market needs to fix the performance of the Materials and the Banks. These 2 sectors are key!!!

The Materials don't look good and they were former leaders

The next MOMO chart bring home the key message fro september:

IF A OVERSOLD MARKET

CAN NOT BOUNCE IT WILL CRASH!!

BANKS look like more pain...

...as does the Spyder

Safehaven Outlook for September

2011-09-10T22:59:00.000-07:00

The 2 key safehavens are Gold and the Long Treasury Bond (TLT).

TLT's optionflows paint a mixed picture within a severely overbought market for the TLT.

The Exhaustion chart shows a neg. Div in a highly oversold market which normally should halt, pause or correct the move to some extent.

On the Gold side, I'd like to bring your attention to the GDX (Goldminers) that have broken out this week with the risk of painting a fake break out move given the extreme Optionflows!

If the miners fail then Gold should feel the affect.....

The Timing chart point into the same direction

The Gold Optionflows still need to be interpreted in a bearish way.

The Exhaustion picture needs no comments.

The week of the SAFEHAVENS

2011-09-10T01:11:00.000-07:00

Safehaven dynamics

2011-09-09T23:06:00.000-07:00

I stumbled across an idea at zerohedge.com which I looked into and found the following 'Safehaven Dynamic Pattern':

PATTERN

look for extreme negative 3m correlation btw. Gold and the SPY (A) which indicated a panic flight into Gold
observe how the stock market tanks and gold launches up to the moon (B) & (C)...
where the almost perfect negative correlation indicated the turning point into a correction of the safehaven (D), because massive liquidations eventually catch up with gold

3 OBSERVATIONS

Spring 2008
Summer 2010
Fall 2011

Conclusion:

If history is any guide we could see a correction in GOLD. We want to monitor the next 1-2 month in order to decide whether gold will just correct (2010) or follow the market (2008).

In either case we should expect that gold will correlate more positively with the market ...be it down or up....

ISE and CBOE Options data confirms the bearish VIX_OSC view......

2011-09-09T22:42:00.000-07:00

The one Chart that summarizes the story of the day

2011-09-09T16:11:00.000-07:00

Liquidity and Sentiment is indicating more bearish action...as expected

2011-09-09T15:58:00.000-07:00

Our Liquidity Index of our INSTITUTIONAL 'must hold large cap' Portfolio is deteriorating at a 2008 pace.

Add the flipping down of the TRUE VALUE VIX gage here smells like a re-test of the latest low....

...with a Summation VIX_OSC taking on a even more bearish posture...

...with the original VIX_OSC also asking for a re-test.

We could be in for a solid exhaustion move to the downside. Let's monitor this closely in order to a watch whether this can snowball into a panic.

Liquidity Index sends warning signals

2011-09-04T10:51:00.000-07:00

Observe worst Indicator readings since 2008 in Europe and in Tech-land!!!

VIX Summation Index- Success Ratio

2011-09-04T10:48:00.000-07:00

Whe this Indicator flips then expect at least some decent trade (30d+).

Quick Overview

2011-09-04T08:35:00.000-07:00

Gold is doing the expected Re-test of the highs.

When we look at Gold , SIlver and Miners combined we see the two headed flame-out that started with SIlver in May, continues with Gold with more euphoria and should take some abrupt ending ....but who knows what happens next week...right now anything is possible, so it is worthwhile to have a roadmap.

SPYDER is not looking too healthy either....

Sentiment is indicating more bearish action....

2011-09-03T12:55:00.000-07:00

The big brother of the VIX_OSC has turned down some time ago. This reliable Indicator can ONLY turn up if the VIX_OSC prints positive values.....

...as you can see it is far away from doing.

RESPECT THE SEPTEMPER RISK !!!

No real relief on the Sentiment side of things....

2011-08-31T21:44:00.000-07:00

Expect at least a RE-TEST of the LOW

2011-08-31T11:57:00.000-07:00

The Institutional Portfolio still needs some bounce to relieve the extreme OVERSOLD condition

2011-08-28T11:49:00.000-07:00

Gold Flame-Out

2011-08-28T11:42:00.000-07:00

Gold has the flameout in progress with still extreme values in all gages. Gold might have a retest in the works but we saw similar ones with Silver earlier in the year.

Silver actually once it entered into the flame-out in mayhad to tumble as long as all the excesses were out of the Optionflows (bottom left chart). Compare this with Gold above and you get the picture what could expect Gold and for the same token the USD long Bond and the SWISSIE...

MOMO still has way to go on the downside....

...and the timing model seems to paint a more negative picture too.

CONCLUSION:

It aint't over until it is over !!

Unhealthy Rally could continue

2011-08-26T22:51:00.001-07:00

The VIX_OSC still has some room to go up....

...but see this in the context of a NOT improving Liquidity Index.

In summary it means that the final bottom is not in yet.

Spyder upside correction could morph into a TRIANGLE

2011-08-25T09:45:00.000-07:00

...which would not be very encouraging for Sept/Oct.......

Silver seems not done yet

2011-08-25T09:35:00.000-07:00

...and seems GOLD.

VIX Fair Value still needs more relief => temporary Rally

2011-08-24T23:39:00.000-07:00