Liquidity fades out of the Market - Tech edition

Correlations move together in a BEAR Market

All Asset classes move in sync or i.o.W. the correlations move all to ONE.

See the pairs below where the correlations grew over the last month. I don't see any order just a BEAR MARKET.

Pls notice that you only see pairs on the chart where there is already a significant correlation. Try to find your own rationalization from a fundamental angle why these pairs HAVE TO MOVE TOGETHER....I lack that kind of imagination.....

A good Bounce could run a couple of weeks from here....

The measures are so extreme that I would expect a bounce soon that could also trigger some correction in Gold and the long bond.

Which way will the Dollar go...

... or better when will it begin to strengthen..

...in SEPTEMBER....

...or will it start NOW....?

Buying Panic in Safehavens

Parabolic moves in the long bond and gold!!! "Be careful IKARUS not to get too close to the sun".

Remember Silver some month ago...expect the same here soon.

Crash or Bounce ?

The breadth levels are extreme that demand either a relief or a crash.....

Liquidity fades out of the Market

The last 2 times when our Liquidity Index reached these levels the market had a brief bounce on the search to the final low. The final low can come within weeks or months dependent on the re-appearance of liquidity.

Pls also observe that things usually get difficult when the LIQUIDITY INDEX breaks below -50.

Sentiment looks like a 3 PUNCH structure

I : first IMPULSE

II: 2nd IMPULSE

II: 3rd IMPULSE & POS. Divergence in the indicator and final LOW which could be in a couple of weeks

Could we see some quick and deep correction in the Precious Metals ?

Quo Vadis Mr. Market?

The market is extremely oversold, we saw real panic and a change in Character. Normally this market should rise.....

Our base case would expect some further upside action into next week. Longer forecast down the timeline would be pure speculation.....

And this is on top of the cross-currents in Bonds and Gold and Swissies....

Dollar still in a basing Pattern

Rising interst rates seems like a good bet

Bounce reaches first target

Mr. Market follows our ROADMAP with eerie precision. As a target along the way we expected the market to fall through the airpocket and pause at the 38% retracement of the move since march 2009 (click on the ROADMAP link to see).

The tumble was one of the steepest in history (pls see our VIX_OSC) and has changed the character of the market earmarked by 90% up & down days in a back to back sequence. This can only be explained by lots of High Frequency Trading and disappearing liquidity.

The bounce now has shaped up in a symmetrically fashion with 2 x 71point rallies that carried the bounce right to the 38% Fibo level of the initial impulse down and also back up to the MAY 2011 High (see ROADMAP).

Next targets could be 1225 and 1250 or we could flip right here......

Fractal Perspective: Short-Covering is a trait of a Volatility Compression

Last week make me remember what I read from Benoit Mandelbrot that "time runs faster in Volatility compressions". I re-did one of my earlier analysis from 2008 when I used his concept to show that something had changed in the structure of the market.

Seeing last week was a prime example of this where we had wide range days back to back, with gut wrenching moves that lacked liquidity and screamed panic.

Above you see True daily ranges of the DOW in % showing a positive reading when the market closed up and vice versa. We define a short squeeze when the market goes through a range of 6% from bottom to the top in a single day.

We observe that when the ranges stay within a +/-4% Range the market is in healthy state of mind. Only when the ranges move into the 6% area like after a panic sell down we know it is a squeeze.

We picked some relevant periods in history to convey our point as you see above.

KEY MESSAGE:

• 6% Range Short-Coverings usually point to a lower low later in the future. Meaning once the bounces are done the 6% range moves demand re-tests of the low and tend to go lower.......
• -6% Range down days tend to kick off bear raids
• WE HAD BOTH !!
  

the bounce has arrived....

Silver Top coming next week ?

It could come next week the SILVER Top...

...or is already in.
We will find out next week.

Spyder is Oversold with a medium term eye on September

Dollar aims at September

Correlations converge when the BEAR comes...

SPYDER ROADMAP 2011/2- Airpocket UPDATE

On Sunday, June 12, 2011 we said:

OBSERVATIONs:

1. AIR-POCKET: the market cut through this zone with low volume meaning we can expect the same on the downside due to the fact that only a minority of participants have entered in positions around there - THIS IS WHAT HAPPENED THIS WEEK!!
2. BREAKDOWN: we broke the trendline of the entire up move from 03/2009
3. SUMMER HIGH 2010: the beginning of the airpocket and the summer high 2010 align
4. Fibonacci Zone: The Fibs align with the correction levels of the late summer 2010 correction
5. BEARZONE: A change of character needs to show a shift of the RSI into the 20-65 RSI BEARZONE to confirm the BEAR - HAS OCCURED
6. medium term MACD: neg. Divergence & break

CONCLUSIONs:

1. We have entered the airpocket with a material breakdown - DONE
2. expect a test of the 200d SMA & the March 2011 LOW - DONE
3. ...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
4. ...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) - WE ARE HERE RIGHT NOW
5. ...if we break through the summer LOW of 2011 expect more than a medium term correction

• Each successful test can be the beginning of a continuation of the BULL (Think QE3)

Breadth confirms the kick off theme

Both degrees of Breadth measurement confirm the kick off theme which will lead to a retest of the low (or lower low) after a brief relief interlude.

It's bounce time

We have reached a good oversold level and should bounce from here.

The CBOE data goes beyond the BOUNCE notion by showing the traces of a potential bear kick off. (ISE data does not confirm, so pls take with caution.)

Nobody was prepared for the brutal liquidation..except you

....because you were wondering "Is this the exception to the rule...?" against the backdrop that a high was forming.

All this in an environment where the dollar was seeking for a low and oil for a High.

What's next?

...maybe a 1 week bounce on the way to an intermediate September low....