Setting The Trap

With all the talk about the weakness in the dollar today, one sure would have thought it was pushing through to new lows. Instead, $75 holds firm...

I still expect an upside breakout on the greenback and today's noise did very little to change my perspective.

The 30 day, 30 min chart on the S&P shows prices above a declining 5 day moving average. This often occurs as part of the short term topping process and I highlighted the last time we saw this type of action...

The same chart parameters as above, but this one is the Nasdaq and you can see how the 5 dma acted as support late in the session. Of note, the 5 dma is declining and there's very little room for downside tomorrow before that support turns into resistance. Remember, price moves above a declining moving average should be considered false (or traps) until the average line turns up...

Luckily for the bears, the bulls couldn't control their "late to the party" emotions and were once again piling into calls near the top today. Note the $CPC at one of the lowest reading we've seen over the past several months. This ratio is usually corrected very quickly with a bout of nasty selling...

Speaking of emotions, I've learned that one of the most emotional patterns in all of trading is the broadening triangle. This pattern is known to frustrate both bulls and bears by swinging the fear and greed factors to extremes before finally confirming a direction. Most often seen marking the tops of long bull runs, this pattern typically signals a reversal and is sometimes referred to as the megaphone pattern. I have a feeling the $VIX is beginning to shout through that megaphone and I'm all ears...

Click Any Chart To Enlarge

I know, I know... another bearish post! Have I gone permabear the way of Evil, Slope, & Xtrenders? Not exactly, but there's some serious conviction behind this post (for better or worse). While I enjoyed profiting from the ride up, I will admit to being the most bearish on the market that I've been in quite some time. Now, I'm not one to typically make big, bold calls and try to be a hero, but I feel like I've read this book before. While I can't tell you all the details of each and every chapter... and I can't quite tell you how long it will take to finish... I can tell you exactly how this story ends! It's ugly and it's coming very soon!!