Daily Market Brief


“You’re an idiot”. 2 people said that to me yesterday. The first person was me. And fortunately I had Mella at my side to repeat it for emphasis. And if you have traded long enough I know you will have had similar moments of clarity.

Why am I an idiot? Basically because I saw this move coming, I should have seen this move coming, and traded it better. So you get a front row seat here to my exercise in self loathing. Sit back and enjoy and hopefully we can all learn from this.

Let’s recap my misery:

As far back as last Thursday I was talking about this decline being possibly just the regular Thursday/Friday decline before OPEX:


On Monday my gut already sensed a rat and I posted this in the member feed:


We even knew upside was coming and wanted to trade into the right shoulder build:


And top of all that I had Mella pointing the direction higher as well:


And this is what we got:


What an idiot.

So yes, I’m a little peeved at myself as I left money on the table and should’ve just waited for prices come to us. To be fair the parabolic run through any levels of resistance was just stunning. Again. Prices moving higher fast than they go down.

But it’s not a surprise and I, of all people, should have seen this coming. Why? Because I’m the one that has been posting this chart for months. The magic OPEX ramp chart:


9 times this year. Fool me once shame on you, fool me 8 times and I’m an idiot.

Besides OPEX, the other key driver behind yesterday’s action: $VIX futures roll-over. Wednesdays of OPEX week. What do they do? They crush the $VIX ahead of it:


Another idiot chart. By now it should have sunk in.

What else do we get? China cut its lending rate overnight and boom:


What’s the message? The same it has been all year long. It does not matter what the news is, OPEX will get ramped and $VIX will get crushed. Yes August was an exception, but that’s the general message.

The thing that I got in my head this week? Terrorism. Even here I knew of the London example (per Sunday’s post), but frankly I let Germany sidetrack me. The plot there spoke of a widening terror potential. But clearly nobody cares.

OPEX above all and this remains the key lesson here. Not to overthink and be highly aware under what structure we are operating at any given moment.

And this structure here now says further upside is possible and our heads & shoulders targets is close to dead and probably will be dead. Mella and I discussed this and our view is that if we close above 2085 on $SPX today it’s done. Ideally I want to see a reversal red and a close below $ES 2070 at minimum to consider it still a valid pattern:


$ES is up 90 handles since Sunday night, another insane move, and the DAX is up over 700 points and close to its 11.2 gap fill:


We have seen these type of moves before and eventually they retrace quite a bit, but we can’t know where it stops as the momentum is powerful. Buyers here all eventually get punished, but we can’t know when. It could happen today, Friday, next week or not until December.

Now again it all looks like a 2014 replay despite the negative MACD and MA divergences we observe this year versus last:


If this continues to play out then this week will close above last week’s highs and may poke above the 2117 $SPX level next before a 2020 retest in December. I won’t question the logic, but I’m pointing out the pattern. And if this is so then yes new highs are on the agenda before year end implying a record 7 years up in this bull market. Divergences be damned.

TRADE Plan: Risk is now moved toward upper gap fill on the $SPY. 2093 $SPX has been the overnight high at the time of this writing. It all “smells” like the algos want over $SPX 2,100. Only a reversal red would change the landscape here. As we are gapping up yet again the odds for at least gap fill have improved. While I see further upside possible I will not chase such a move higher with 90 handles up in 3.5 days. I aim to keep stop outs to a minimum and may simply await for the lower $VIX gap fill before making any further fade attempts:


This $VIX gap fill could come today or tomorrow. I’ll be watching closely.

Bottom line, we need to be extremely mindful of OPEX weeks. While we had our initial strategy right this week and expected upside for a right shoulder build, price was again taken to extremes. On a macro level I continue to view the set-up bearish into 2016. But sellers are running out of time to see a serious decline. My view is everything is now focused on trades for the remainder of the year. We still have a chance of a meaningful decline, but the time window is shrinking. I’m still giving this a shot here and who knows, we may get a surprise down day today. But I may just be an idiot for thinking that. A down day. Lol.


2 replies »


This site uses Akismet to reduce spam. Learn how your comment data is processed.