Knock Out Gaps

It’s Monday morning and I am trying to think of any insights I may be able to offer beyond what I already delivered in much detail over the course of the past week. To be honest there isn’t much but I managed to scrape together a few highlights you will find interesting. What goes without saying is that we are all tired of being knocked all over the place. Plus the incessant opening gaps make holding equities overnight, let alone over a weekend, tantamount to playing Russian Roulette.

Clearly as long as the series of lower highs and lower lows remains unbroken the bears pretty much run the show here. The occasional lottery ticket is a possibility but why think long when the tape is pointing down? Contrarianism on a whim can be hazardous to your account.

There was an attempt to break the cycle on Friday but it ran out of juice before the close of the session without producing enough distance to sufficiently shift the dynamics. I really hope you didn’t get trapped over the weekend or you’ll be feeling it this morning.

At this point a breach of ES 2890 would be needed in order to give the bulls a snowball’s chance of staving off a decline toward ES 2800 or perhaps even lower. Not a pleasant proposition but I say ‘git ‘er done’ as I prefer the  bandaid to ripped off quickly so we can all move on.

And by the way if you are holding short – congrats and I suggest you let your trailing stop handle your campaign. Meaning, ride your winners to the max – they happen rarely enough on the bearish side.

Here’s a perspective I wanted to share with you guys as it relates to the volatility signatures produced by both bearish and bullish cycles. The former obviously shows us a steady increase in realized volatility (RV) – at the same time the SQN bubble widened significantly.

That’s a bit counter intuitive for some – after all why would the SQN bubble expand in a down moving market? Because the swings in relative change on a per day basis are wider on both ends. Which is what makes bear cycles so difficult to traverse.

Now let’s look at the tape in January when we were blessed with a smooth bullish advance:


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