Market at Extremes not seen in over a year!

The following PICs are from our Call/Put Ratio Series and from our OI (Open Interest Positioning) series. They underline the chracteristics of the unique juncture we are at through the lens of the Option Market (Smart Money).

We also looked at resembling Extremes and the nature of the entailing correction to provide you with a context.

It should also not be surprising that we find these Extremes in the core of the RISK TRADE:
TECH, EURO, BANKS, OIL, MINERS.

Red Alerts all over the place!

The Trend picture at Apple calls for caution....

 The Dollar seems exhausted to the downside.

 Gold in Euros looks prone to flip down.

 Goole feels like Apple.

 The Small caps are the same.

 Silve had a fantastic run, but....

The aggregated Flow-Momentum of the lev. ETFs shows weakness.

 TLT (20 yr TSY) is falling apart.

 Like Silver so is OIL.

We had a fantasctic 'post Olympic rally', which towards the end was driven by Hope and Centralbanks and plenty of Short-Covering.
This has the feel of a major Headfake into the weak season of the year. 

Gold and the Silver could take a break here

The recent Optionflows hint at the risk of a break or pause....

The aggregated Open Interest Position looks the same.

 The TimeCycles confirm the view of a pause.

Sentiment Warning !

Return of King Dollar II

History in the making!Over the last decade we looked for situations where the RSI hit around 80 while the price moved beyond the 3 Stan. Dev. 50d Bollinger Band and we find only 4 occasions (2006,2008,today).
Then we looked at situations where the RSI went from extreme oversold to extreme overbought and found 3 occasions (2003,2008,today).

Bottom line:
The recent move is of a very rare and special nature and the odds favor at least a 50% Retacement (Euro 1.25) if not much more....

Time to get cautious on the Euro - The return of King Dollar

Mid September is still on

Gold, Euro, Miners, they all seem to target mid september, what would give further signs that we are in the middle of a major 'SUPER MARIO HEADFAKE'!!!.

Dangerous Short Covering

The one representative Chart that says it all: The detailed Q's Trend Chart.

We can see that we are in another phase of short covering, where the Participants are positioned in a bearish way and the market goes up. This can last for months, but normally it is an affair that should not run that long. In a day an age where the Bots and Algos run the shop it is hard to argue with the word 'normal'.

For me this all looks like a gigantic HEADFAKE, where the market takes out the recent March/April highs while cleansing the market from the bearish market positions before giving it the axe.

This is a very dangerous environment.

The bigger picture seems to play out

We called for this Rally , aka the post 'OLYMPIC RALLY' into mid September (here on Sep 1, here on Aug 11, here on Aug 11).

...but now things seem to mature and could be ready to expire.

Confirming this view does King Dollar's Sentiment picture that has reached an oversold reading - thx MARIO- and that could restart the run on the 90 area.

(source: http://www.sentimentrader.com/)

Bearish Confirmation ?

Mid September could become a crucial fork in the road

King Dollar who dominates or better leads the Risk Trade could give the Markets a boost for the next week or two....

 ....the Euro confirms 'tha' King...

 The Gold Miners would certainly try to capitalize on some sun on the risk trade....

....as would Gold, after the Monster Breakout.

 Silver follows Gold and should actually outperform the shiny metal for that period.

 Crude will follow the herd. (I'm not quite sure of we see that boost in October which tends to be a weaker period for Oil..)

.....but beware of the big bad wolf. The risk trade needs the VixOsc to regain the positive zone otherwise all bullish bets are off. Chances favor the bullish case but confirmation is required.

The most successfull models in our stable follow the VixOsc and all of them went short given the wiggle into the bear zone we observe below which reiterates the above that the bull case needs the bearish wiggle to be a fake out.

Trend Indicator hints at a topping formation

Gold has established a bullish trend.

QQQ's, SPYDER and VXX all seem to be in a resembling pattern that looks like a topping formation. This can run another week or 2 or flip right here......
Occasionally the TREND Indicator can lead up to 2 months (see SPY) which seems also now be the case. This would also lead to am mid +/- September timeframe.

Monster Breakout in Gold (GLD)

On Aug 22 we noted the first breakout in the prec. metals and on friday we got an encore.

Most chances are on the bullish side allthough we should not ignore the possibility of a fake out.

Also the fact that an intermediate overbought market breaks out to the upside rather than mean reverting has to be interpreted in a bullish way. 

September is the month the shiny metal loves most even more than August. August went up approx. 5% , so let's see if Gold can continue on this path.

1700-1800 should be the target zone for Gold this September with a bias towards the 1800 level.

Sentiment is neutral

There is no conviction to either side at the CBOE and the ISE Equity Options market.

 Our VixOsc also portrays a more neutral picture where both outcomes seems reasonable.

The Risk On trade seems ripe for a correction, but the below Indicator could swings between being coincident and/or leading (by a bouple of months).

The next week(s) have will bring more clarity.