Good morning trading world, there is a lot of stuff coming into play. The biggest item is a flush. A flush is a bout of all-out sell side activity or the type of angry market we haven’t seen in a long time. Flush just kind of lets me know that most of the big wigs or professionals have sold enough of their positions to be satisfied for a while. This week we have a lot of ammunition to bring about a flush. Most professionals don’t like to sell at lows, they will dynamically hedge into lows but exit positions at lows is a no no. We have seen a lot of rotations and that has kind of been the safety pin holding the market together but recently I noticed a lot of big wigs headed for the exits. You ever wonder how to tell the difference between rotations and mass exits? Let me show you. Value like energy is never really destroyed it just moves. Value in the market is always moving between 4 places, equities(stocks) , Commodities, Bonds and Cash. Value is usually moving back and forth between at least 2 out of the 4. However, when you see all three down and cash up like we have been since Aprill 9th we are looking at a mass exit.
In order for things to equalize and somewhat go back to normal we will have to get a big flush. I have also mentioned to look for a bounce coming soon that I probably won’t go long with. I am not going to get long because I don’t think I have seen enough sell side activity yet. Which leads me into thinking we could get a bounce this week but only to get sold into again just when you think we are about to take off. With all the Earnings activity this week, we could see plenty of big pushes up met with equally of bigger pushes down. Another thing that tells me the real flush may happen next week is Vix. We are to close to backwardation and the levels i see in vol futres haven’t expanded enough yet. I kind of feel like we prime the vol pump a little more this week to flush right as we hit the end of the month for a black Monday type set up.
Jack support is 4941, queen support is 4927 and king support area is 4905 down to 4889. Jack resistance is 5080, queen resistance is 5094 and king resistance is 5116 up to 5132. Anything between 4983-5035 is a dangerous chop zone to avoid. The important battle area or no man’s land to hold is 4983-4941. In this no man’s land the more time we spend below 4963 more it speaks to a bearish continuation. The more time we spend above 4963 the more likely we are to consolidate or chop back and forth until enough traders get long and take the bait before getting washed out later in the week or early next week. In Premarket between 5am and 9am I will update with my reaction levels for future entry trades.
Remember we are right on the edge of an all-out volatility run. The moment the /vxk24 goes above the /vxm24 we will see the market turn angry and sell off, so keep watch over this backwardation to occur.
Remember: Your most important job as a trader is to protect the capital you already have. You do this by knowing and understanding the risk you face in each position and in the current market conditions. We manage that risk in accordance with our account size. I hope this helps, wishing you a positive trading day, let’s make it a great one.