However his question dealt with accumulation via my 3C indicator and the largest open interest contract at $45, the VIX is currently at $21.99. Apparently options expiration will be Friday the 17th of September, next week. A move up this high and fast in the VIX would fit perfectly with our "malicious bounce" and the consequential "Judo Concept".
For newer members, we saw the bounce accumulation as early as August 25th, by the 30th I was detailing that I thought this was not a simple oversold bounce because of the institutional accumulation 3C was showing, but a malicious bounce used to throw traders off, to squeeze shorts which would propel the market higher. Eventually the longs (as human nature is optimistic in the market) would soon buy the bounce as it made higher highs. There's a lot of talk of this inverse head and shoulders bottom pattern which is really part of the larger head and shoulders top. Volume confirmation is more important for a H&S bottom then a top and it's not there, it is there perfectly for a H&S top though.
So the "malicious bounce concept is to squeeze shorts, pushing the market higher, then to inspire longs to enter the market. Finally we were looking for a new high and we still may get one more higher high, but what we have now and Thursday's intraday highs will do. The bounce is malicious because of the intent.
Which brings us to the "Judo Concept" in which you use your opponents energy against them. So the first major crack in the bounce will see some longs sell, as they sell prices fall, which puts more longs at a greater loss and the snowball effect takes over, this is very typical of false breakouts. As prices continue to fall due to more supply then demand, the shorts enter the market with further selling and before you know it, our bounce has created a snowball effect sell-off.
Last week 3C showed us institutional money selling and shorting into higher prices, so they are set for a sell-off and the VIX chart is another piece of the puzzle that increases the probabilities. We Trade the probabilities and objective market data, not gut feelings or speculation.
So here's the VIX chart showing accumulation. If it does what it did in April, we should see on heck of a sell-off.
6 comments:
might make for a good trade as well, if this plays out.
Could be a big 'sell-off' excuse next week:
SEC May Move To Prevent Companies From Hiding Debt
http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201009111435dowjonesdjonline000330&title=sec-may-move-to-prevent-companies-from-hiding-debt
As i have proposed previously (a couple of days ago), the market is primed (set up) for a sell-off but just beware one last malicious spike. There is a heck of alot of Elliot wave adherents who are short unless 1130 on the S&P is taken out. THAT stop-loss spike would be worth 20 or so points. Anyway, do not wish to be alarmist, just advocating that 'discretion is the better part of valour' and that position sizes should be kept at prudent levels to accommodate the malice out there.
Hi Brandt,
What do you think of the following article on zerohedge:
http://www.zerohedge.com/article/trading-against-90-lose-contrarian-cot-index-and-retail-positioning-analysis
It suggests that the 'smart money' is long (and that retail is short):
"e-mini S&P 500: Optimism in the S&P COT has remained and has been strengthened further. Commercial traders as a group are net long by the highest amount in 6 months. Large and Retail traders on the flip side, seem to be affirming their short positions, overall Bullish strength remains strong. This view is further compounded by the Nasdaq COT which is also very bullish. Get Long, Stay Long! Says the COT
Signal: Bullish"
Seems to contradict 3C outlook on the smart money?
** Also, as i type futures have just opened with the DOW up over 50 points, the S&P up over 5 points. Whereas the european market futures have hardly changed. Fun and games.
I think we definitely need to see a strong turn downwards this week as the multitude of indicators have indicated:
1. Low closing TRIN values for a week (while the market got stronger).
2. Low VIX value, with 3C suggesting accumulation.
3. 3C suggesting accumulation in the $dollar.
4. 3C suggesting distribution/short selling by the smart money in the equity markets.
5. We've had various charting technical reversal signals recently (i.e. the hangman formation on the SPY)
6. We've had higher equity prices on the lighter and lighter volume.
7. September historically is the worse month for equities.
8 Anymore?
... Based on the severity of the 'bounce' thus far and the above signals, i'd start to be concerned if we don't start seeing the downturn by end of play Wednesday. Do you agree Brandt?
look how high the put/call ratios were friday for index and equity. it is weird to see equity high considering that is the dumb money.
Risk management is always prudent, especially at times of higher volatility like now.
I can't account for other people analysis, just what I see. I do have increasing respect for Bill Cara, Read the post close report about the IBD rankings, so you can find contradictory info everywhere. I think the VIX apears to be showing a sell-off via accumulation in 3C, last time we saw accumulation in 3C there, that's what happened and the highest VIX open interest on Calls is $45, that would be a big move so I'd say Friday would be a more appropriate worst case scenario deadline, but it can be anytime. Futures don't mean much, they are heavily manipulated and I keep seeing blogs talking about an inverse H&S bottom so they seem bullish.
I can tell you from experience, anything YOU WANT TO SEE, you can find in the market. Objectivity is key to success and building an objective case. This VIX chart is just the latest in a long string of occurrences and with the Jewish new year, I'm not sure they'd want to make a big move last week with a lot of empty trading desks.
Here's the Car link -I haven't seen this IBD indicator before.
http://caracommunity.com/content/bill-cara’s-blog-sept-10-2010
Here's the text I was talking about, but there's more
"Investors Business Daily (IBD) gives letter ratings (A to E) measuring the quality of rallies based on volume patterns. If institutional demand is elevated (A), large players transact most of their business on the offer, confident the market will march higher over time. If daily downside volume is consistently higher than upside volume, IBD rates the volume characteristics as negative (D or E), concluding sustained upside price movement is improbable.
Amazingly, during the entire first leg off the early July lows IBD accumulation/distribution ratings remained at E for the S&P, Dow, and NYSE composite, the lowest rating possible and a reading one would expect to see when prices were cascading lower.
The readings for the latest advance from the August 31 low are still mired in the D- or D range for the indexes, telling us institutional participation is negligible during this +6% advance.
Black box strategies can influence market direction in the short term, but multi-month advances need institutional buying power to keep the rally rolling. Unless upside volume increases dramatically the odds of this rally moving appreciably higher are exceedingly low.
Also disconcerting is the action in the semis (SMH-0.87%). The group is clearly telegraphing that a double dip recession is a strong possibility. The sector has gotten hammered since the end of July, dropping almost -15% while the S&P is nearly unchanged, only down -1%.
Something has got to give – if semis tell the real truth of the tape, the broad market is in deep trouble."
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