Blow Off or Blow Up

Ok, we had our relief rally and we had our overbought volatility condition satisfied on the fake debt/shutdown crisis being averted.  Now what?  We did not get the sell the news I expected, maybe waiting for GOOG to jump $1,000 or APPL's earnings this week, but we are close.  Close enough for me to start taking shots short, especially the Russell.  I went short TQQQ, and recommended a stop, well it blew through that stop, but I personally held on.  I am holding the November 85's.  In two weeks I will roll to December.  Remember the CME and IBB are raising margins, and some news will emerge to justify a nice and strong sell off.  These ultras melt when that happens, we just need to be patient.  I am also short oil through UCO puts (November 33's), and it is weak, looks like the next level of support is coming out of it.  Near term target is 98, but I am expecting a round trip back to $91 by the time it is said and done.  This puts UCO in the mid to high 20's.

I also shorted GASL, as I think it is ahead of itself in the short run,  and seasonally entering a weak period.

I will hedge my positions if need be with crude mini's, NG mini's and ES mini's futures or UVXY puts, or sold calls (weekly).

Also, I am in the process of upgrading my trading signal service to start offering three automated trade bots (ES mini, Crude Mini, and XIV) via a 24/5 Twitter alert, and also giving direct access via Go To Meeting to my charting programs, ask me a question live, and my standard trade signals display as they fire off, both buy and sell signals from my 45 stock focus list. I have been manually trading the future signals to great success, and my programmer back tested it running continuously, and the results have been astoundingly good. We are in the process of gauging interest, writing the programs and infrastructure to deliver it, finalizing our investment, and determining a price.  If interested in learning more send me an email at info@realtimetradingsignals.com.


Good trading everyone.

The Cow Has Been Milked

Last week played out nearly to a tee for me.  Perfection would have been the rally coming one day earlier.  I knew this because volatility levels told me so.  As I wrote last week, we are in for a four to six week period of higher volatility, per my weekly trade signals, but we needed to relieve an expected, extremely overbought level first. A 20% drop did the trick.  Vol may drift a little lower as the last of the wrong way bets are unwound, but then expect a strong move higher in volatility.

Bob, how can you possibly know this?  I have help.  They are IBB and CME.  We are now getting nearly daily announcements of margin increases, and these increases are coming because margin levels are at historically high levels and this last bout of volatility forced them to reevaluate value at risk, ergo margin increases to match expected higher levels of volatility.

Just like Fed rate moves, and eating potato chips, you don't get one or a few.  They keep coming, and they start to form their own weather.  Higher margins cause higher selling, which causes higher desire for protection, which causes higher volatility, which causes, ok you get the picture.

We are also near the point of a singularity called the Sornette bubble.  It is a fractal based calculation that measures the point of exhaustion in a bubble.  That chart (shown below, reproduced from Dr. Hussman's newsletter in September) shows a blowoff by Mid November at about 1850 on the SPY.  Ironically, I calculated the same number six months ago (ad posted on my blog) by extrapolating out the correlation between the Fed asset growth level one year forward  with SPY price growth.  We are also reaching a singularity of of money velocity and bank reserves.  QE has the effect of driving velocity toward zero.  That obviously can't be allowed to happen, as the economy will collapse.

So, if you are a trader continue to play your small ball and ride the waves.  If you are a Momo chaser, take a vacation, you are being targeted, and if you are an investor thank God for this latest melt up and get out for awhile.

For me, I had a fantastic week shorting gold and volatility, and am now pretty lite.  For next week, I am short gold, crude, emerging markets and banks (all November OTM puts) and will re short with TQQQ November puts next week.  Have a great trading week.

I offer a trading signal service that is doing quite well.  WWW.realtimetradingsignals.com.  I also give out free trade ideas during the week.  Just click the follow me area top right and sign up on Twitter.

Give me a V

Volatility selling over the past four years have been extremely profitable, as the banks, the Fed and the hedge funds sell it to drive prices of risk assets higher.  I have a very good friend who is bank auditor, and over dinner we discussed how having  low and falling volatility allows the banks to justify to him why their value at risk is what it is (justify higher risk).  This works the same way in the stock market, when volatility is sold, algos recalculate the risk equation, and they buy. But volatility can go up too, and usually 3-4 time a year we get a spike, and once a year it is a super spike.  I think the latter is at hand.

Looking at my charts, the VIX-X, relative strength on the weekly made a higher low, as did price.  This is important as usually VIX-X trades in a range, and resets the RSI at a oversold level for the next push higher. This signals for me 4-6 weeks of higher volatility.

The daily charts tell me though, we may get a short rally in the stock market, and some more selling in volatility, but once that plays out or the signal fails, I will be an aggressive buyer of volatility.