Sornette or Bayonet

Some weeks back I reposted work by Sornette regarding the fractal expression of a bubble.  Apparently Fed economists can't see them but mathematicians, and just about everyone else can.  This market is following this expression to a tee.  Their work looked at two possibilities, 1850 by mid November or 2200 by mid January.

There is a case for both, and it just depends on the powers driving this market are hoping for. The taper drumbeat, deflation breaking out, political animosity, employment stalling, may give these investors an incentive to try to get what they can, as fast as they can.  But Friday Vix has nearly hit multi-year support/lows, the dollar failed to breakout, oil nearly broke out, natural gas is breaking out, and SPY crashed the BB bands to the high side.  Next week is a slow week, so not sure what if anything will happen.

But the following weeks get very interesting.  My view is with the lying and uproar over ObamaCare, and the move by Reid to end filibusters, the next budget meetings are not going to be fun.  If the Republicans grow a pair, and can actually articulate what they believe, this battle and 2014 is going to be a rocky year politically. Naming Christie the President of the Republican Governors Association is a tell that the GOP wants to win, and push forward someone who can turn a phrase and blunt rhetoric.

I think we squeeze higher the next few days and and December is a disaster.  High beta is already faltering, and banks are extremely stretched over their 200 MA, some of them are 40% over.  For me I am long oil, long vix, long gold, and long miners.  Enjoy the charts and turkey Day.

PS, the Iranian deal maybe short term positive for the market and negative for oil.

I Am in Awe of the Fed

Wow, the train rolls on.  Based on the now widely known correlation between the Feds balance sheet and the broad market, the slope suggests a 1/2% rise in the market every week until the market decides that amount of stimulus the Fed will inject changes.

Based on the Yellen's testimony we can deduce with some degree of confidence that December is off the table, and seeing the deflation taking hold in Europe, and always in Japan, we can expect the 85 Billion is the low number for at least the next six months.

That now moves my number over 2000 for SPY in the next six months with at least a 5% correction to reset the channel and to re energize the VIX to allow vol selling to drive the low volume pumps.  The obvious catalyst is the budget showdown in mid January.  The Republicans are now in a much stronger position now that Obamacare is showing the American people what it really does, and most don't like it.  so I expect some incredible end of the world rhetoric that will drive Vix and push on the market.

I think this should manifest itself no later than the second week of December, and we will see it in XIV.  XIV is optimizing at thirty days in the future and any weakness will tell us that people are starting to protect themselve from this fight.  also by that time the Vix will be at all time lows again, meaning no more blood in that rock to short it.

In the meantime, we are coming up on Thanksgiving week which is normally bullish, and the commodities are resisting going down, so we may have a three week commodity buy area, and I have buys on JO, UGAZ, precious metals, and miners.  I am also watching oil as we had a sharp reversal on Thursday.  Below are my charts and further explanations.  Enjoy.

Call me Sybil

Last week went pretty much as I expected except Thursday was pushed further down than I thought, and Friday's surge has me rethinking next week.  It could still be a volatility play caused by the market makers trying to settle their books after a one way move higher last month, or the ECB move can be interpreted as a currency war initiation vs a move to stave off deflation.  The strength in miners, materials, drillers, and banks has me thinking maybe it is the former.

A strong dollar and higher commodity costs are good for the above sectors, and these input costs punishes the emerging markets which is good for EDZ (Which I bought last week).  Now waiting to see if gold and silver signal if there is more to this move from an inflation standpoint

I am am very profitably out of all but one (TQQQ) of my triple long puts, thanks to the Thursday, and Friday morning weakness, and I am still scaling in and out of NUGT (still underwater).  The reversal in NUGT, and the juniors surprised and heartened me.  I hold PPP and NUGT, and am going to watch ANV, SLW, and AG next week if this move looks promising, and my signal flash buy.

What else looks good is POT, KOG, and SGY.  Let's see what Monday brings

Calm Before The Storm

Two weeks ago I posted on do we blow up or off. We got a little pop and then some selling, but now the market is digesting what is next, and judging from the Fed's comments and the bond and commodity markets it doesn't look promising.

But knowing the market, I think they will try to push the broad market up to test the Fed week highs before succumbing to the market makers during OPEX week.  Looking at the chart below, the triples have been embedded, but are now cracking, and the the broad market is finally showing signs of fatigue.  I am holding TQQQ puts, SDS, and TWM.

It also appears that the volatility index is resisting falling further, but no one is bidding up protection in a meaningful way yet.  A calm Vix means we may still get UVXY puts and XIV to continue to work for us. Still holding UVXY puts, and closed my XIV Friday, but will buy back on my signal.

The metals and miners have whip sawed a bit, but if the RSI moves back into the upper channel, I think we move higher in both next week.  I am building a position in NUGT, and will scale in and out as necessary to achieve my 10% gain in invested capital by the end of November.

Energy; had my best trades shorting oil, and I closed my UCO puts for now.  Still holding GASL November puts. OIH and UGAZ are telling me this party in natural gas is over for a bit, and longer term energy looks like it is in trouble (oil and nat gas).

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.