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Friday, June 23, 2017


“Go ahead and ask the Ace of Spades … gravity is a B. I. Itch!”

Sooner or later it had to happen; central banks read the proverbial “handwriting on the wall” [The Holy Bible – Chapter 5, Book of Daniel, the last night of the neo-Babylonian empire] and back away from the market. Remember, the “Plunge Protection Team” [PPT] will absolutely not soak up the selling on the way down … they are not there to be your bid when you sell and take the indices lower … no, the PPT is there to “punish the bat excrement” out of you on the way back up when you are done … that’s what they do, that’s how they operate.

The PPT isn’t going to sit there and get “gob smacked” by institution after institution and get their bids whacked to provide liquidity to a bunch of fund managers for easy money on the downside. These people, while clueless Twits who have no idea how markets work or what their function is, simply aren’t “stupid”; what they are, though, is vengeful , and when you and your fund buddies get through selling billions of dollars of stocks via either futures or some kind of options strategy, they will get word from their bank sycophant partners in crime [JPM, Vampire Squid, Citi, MS, Barclays, and a host of others sometimes] that the selling has just “dried up”, at which point they spring into action and proceed to shove the market up your donkey so far, you need to see a dentist the next day cuz your teeth still hurt. And it doesn’t matter the reason, and they don’t care about profit like everybody else does; what they care about is hurting accounts that sell, and then hurting those that wait too long to buy and learn what the word “slippage” means on the way back up. In the process, they make your decision to “sell” look like a foolish one; one in which you eventually have to explain to fund clients why you sold billions on the low … it’s a place fund managers and traders of all stripes have learned they don’t want to be.

So here this morning, if I didn’t know better, seems somebody read my post yesterday about where have the overnight “ramps” disappeared to, and all of a sudden gotten religion and gotten a case of the “shakes”; cuz the dirty little secret is that outside of Sunday night, there hasn’t been “zip, zilch, zero, & nada” of central bank “vapors” to the upside this week during the “wee hours”. In coordinated fashion [of course], the G-3 [FED, ECB, & BOJ] have simply backed away. This has most definitely spooked a few folks on the institutional side of the equation, notwithstanding the fact that every single piece of economic statistic you can dream of has been simply horrible, and left plenty of people wondering how long can the “fairy tale” rally go before common sense prevails and we get some kind of correction to the downside.

And as I have said before many times, “he who panics first, gets to panic again later”. So, after a monstrous run up in the indices, don’t expect these guys to sit around and wait for an email telling them price may be headed lower some cuz the central banks have backed away for a while … instead, they’ll sell first and ask questions later. And that is exactly where we are at this morning, as the world rediscovers for the umpteenth million time that, “yes Virginia, stock indices can in fact go down, and yes little Sally there is such a thing as “overnight risk”, and yes little Johnny central banks aren’t there to make sure you make money”.

Turning to today’s market action … well, that escalated quickly didn’t it? … somebody got the “shakes” around 6 A.M. and started hitting the sell button in the indices, most notably the Dow30 and the DAX30, with the SP500 hardly budging but just a couple of index points. This exaggerated weakness in the Dow30 versus the SP500 can be directly attributed to the TBTF banks in the Dow30, which are getting crushed as every segment of the treasury yield curve is getting crushed [2 vs. 30, 10 vs. 30, etc.] lower. What that means, of course, is lower profitability on free QE money, which means lower earnings, which means lower stock prices for the group. And while the yield curve is screaming “RECESSION” on the immediate horizon, the FED Twits sit in the faculty lounge and ponder the word “transitory”, and wonder among each other what the world looks like outside their bubble when SHTF. I’m pretty sure, they won’t have long to wait for the answer if their current policies of higher interest rates aren’t curtailed back.

There is a body of thought, though, that thinks the FED is “engineering” a recession on purpose, cuz they think it is inevitable anyway, and that they want rates to be high so they can then “cut them” and have some ammo to fight the recession. That’s all great and good faculty lounge talk, but what makes you think it can only be a “recession”; why can’t it be a “depression”? And then when you cut rates to zero again, nothing happens; WTF do you Twits do then? And I’m thinking, there are more than a few managers around the world with hundreds of billions with AUM [assets under management], that are wondering if everything financial is in the “eye of the hurricane”, cuz at these levels in the indices, if the central banks are pausing in their financial asset purchases, 1) why now, what do they see I don’t see?, and 2) who’s gonna prop this crap up? Every single large asset manager on earth knows, that they have to be “early” to the exit gate, cuz if you wait and the scenario plays out, and you’re forced to sell [redemptions, liquidations, whatever], you get to sell into a falling market and will become your own worst enemy. Musical chairs is a B. I. Itch when the music stops and you’re a mile away from a chair.

And here right before the open, we see once again how the PPT showed up after whoever it was that sold this stuff lower, and once they were done it has been literally straight up the wall with not a break in sight; congrats to the fund manager who now, as I write, is sitting somewhere saying, “WTF” and is pondering “idiothood” and wondering if the circus is hiring. Folks, it can’t get any clearer their motives, intentions, and their actions; if you trade your own account learn “the game”.

Chipmunks, of course, get to buy the high open, and the market falls to a new low when they are done… throw in some more disaster economic stats like PMI [which of course means nothing] and a normal “non-trading” human being would come to the conclusion that this stuff is headed lower … and you are wrong … cuz now, when the sell orders “dry up”, who shows up in force to say to shorts, “please, let me make your day a complete disaster by bidding this crap higher … you’re welcome. Come again”! Thank you PPT for all you do … first trade of the day directly below … not the prettiest of bottoms off of the open, but a “hammer” & “three white soldiers” for a double confirmation short term low gets us long … and then our buds at the PPT show up and bust it higher for us. Same old thing, different day thank you version 4 volatility algorithm, which as I said yesterday absolutely “nails” long initiations into the market for profit.

An hour into this [so far] clusterfark “Flying Wedge of Death” [FWD] Dow30, and the PPT, not content to let an opportunity slip to completely make shorts bleed from every orifice, has once again come in off of a 21384 low bid and screamed it up to 21428 [44 points] in 13 minutes, just a hair short of the upper plum SDEV exhaustion line.

Now, since I know people are thinkin’ it, I’m gonna answer it, the question being why not hang on to my long and wait for the giant move up? 1) hindsight is wonderful isn’t it?, and more importantly 2) the low I got long from was the first leg down after the open, and first legs down underneath the aqua New York open the algorithm calls for a scalp; meaning, let it ride up and at the first hint of selling pressure or a large spike up, liquidate and come back later. What happened before in the pre-market is not a factor or consideration in the trade … only what is happening now that the cash market is open and trading. Second and third legs down, and believe me they will come, usually are deeper in length and scope and are the ones where volume goes up and it usually pays to hang on for the PPT to show up later. As I have stated before, lately we haven’t seen many of these, but that doesn’t mean I ignore the algorithm, it’s simply an anomaly. Part of the process that makes you consistent money in the market is doing what you are supposed to do when it’s time for you to do it, and then when you liquidate, not caring what happens next. If they take it higher, so what? … all that matters is the “setup”, not anything else … it is the “setup” that is statistically significant and has an almost 98% profitability performance, and not anything else you can dream up and/or implement. Over time it makes you a millionaire!

For other traders, it looks and feels like a big glob of confusion, cuz you had the pre-market get clobbered, we open and get clobbered, and then it’s off to the races up to almost the high of the day, and now it’s selling off again back towards the middle … welcome to the FWD, which is kryptonite to traders, cuz it whipsaws them around and the momentum neither way continues but reverses and catches them in the wrong direction. Now, how do you make back your losses in this stuff as it slows down if your short going down and got long too late? SHORT ANSWER: “you don’t, and can’t cuz the market isn’t going to [most likely] give you the necessary intraday volatility you need to make it back. Instead, you get the glacial drifts to nowhere and you’ll be lucky to make 7 Dow30 points going forward on a Friday. Good luck with that”.

In so many ways, trading presents traders with a series of dominos, which when they start falling, leave you with no idea where they can go … and trying to figure things out on “the fly” is a stone-cold recipe for a ticket back to the Pudding Business, cuz the universe doesn’t work that way. What we know about the stock indices gives us [me] a tremendous advantage when it comes to trading … which, quite frankly, means it’s the only way I trade this stuff.

Here a little after Noon in NY, the Dow30 is caught in drift mode, wandering about with some traders trying to “goose it” above the 21439 high bid to set off some sell stops … so far unsuccessful, but even if they do manage to pull it off, I can’t see any kind of sustained rally going forward [until it does]. It’s Friday afternoon in summer, and about 99.99% of every trader doesn’t want or care about this stuff this afternoon … simply put, trade flow has died for the day, and we got over 3 hours of this crap left. It’s hard to see anything happening, but who knows?

They don’t call it the FWD for nothin’; and today is a perfect example of why you have to be very careful every frickin’ day you trade, that you don’t fall into the trap and get eaten up alive; new lows twice [once from the pre-market], then a move [thank you PPT] up to the high, and then the rollover and die back to the middle … all-in-all, every MoMo player on the planet looking for the pony ride gets bucked cuz there ain’t any MoMo [momentum for you Newbies] except the continuing losses from positions expecting some. And as I can attest from more years trading the stock indices than I want to admit, more stock index traders have been taken out back and “shot” from this phenomenon, than any other market event or scenario combined. At the end of the day, you add it all up, and you sold the low twice, bought the high twice and can’t believe the losses from a day where the market is exactly where it was when the “fun & games” started in the pre-market about 7 hours ago … and you either learn from it the first [or maybe second if your slow] time, or they eventually carry you out on a stretcher. All on a day where nothing happens really, and explaining it to those who haven’t lived through it, is like explaining calculus to a cat; he looks at you and thinks, “that’s nice, get me something to eat” and then walks away without a clue as to what you just said.

The good news from this week, though, is that the stock indices have been reintroduced to gravity; granted, not as sharp down as I’d like to see it, but enough to set doubts into the minds of those who think 2 M1’s in a row down 7 Dow30 points is a “break” and can be bought with impunity. That sets up more trading opportunities in the days and weeks ahead, which hopefully will provide us more opportunities for profitable trades from the algorithm.

Currently, both historical, realized, and implied volatility in the Dow30 & SP500 sits at 50+ year lows; simply put, I don’t care what the central planners think they can do, it simply cannot go much lower and of course history tells us it can go a hell of lot higher and ultimately will. I’m not looking for the VIX to go orbital, but even a return to a normal low volatility period would put Dow30 ranges back up into the 120 – 130 point range, and anything remotely going back to historical norms would put the daily Dow30 range between 150 – 170 points. At either of these two levels, not only would the PAMM be looking at a lot more trades, profitability would go through the roof. JP Morgan’s chief “quant” argues today over on ZH for much higher volatilities in the weeks and months ahead, and it’s hard to deny his logic; in any event, the central bankers aren’t going to abandon the markets nor is the PPT just going to disappear into the shadows and let traders have their way with the indices, and therefore it’s the reason I’m only expecting a modest increase in volatility over the rest of the year into 2018.

It’s about a half hour to the close, and you’d probably make more money selling ice cream cones at the beach than sitting at a trading screen … this stuff has been dead for hours … since before Noon really … a little song, a little dance, a little seltzer down your pants if you’ve hung around and tried to do anything. And, in FWD fashion, the market is picking up steam to the downside towards the 21370 - 80 area. Guess what? The PPT ain’t here to help the longs from above and they’re hitting the exit gate. Oh, if you’re up there, aliens that control human trading in the 26th dimension, how about new lows on the close? And the answer I get back is, “go to the beach dummy”!

And in retrospect, the little voices were right … the PPT shows up for the 30 point rally on “vapors” here a couple of minutes to the close and saves the longs. “Damn it’s good to be a banksta”! Onward & Upward.

PAMM spreadsheet directly below.

Beach beckons … the dog, I swear, is gonna need an “intervention” cuz he’s now hooked on ice cream. Yesterday we stopped at the DQ for some soft serve vanilla [his favorite] before hitting the beach, and after devouring his in like 5 seconds, played beggar to every single soul in the joint wanting theirs as well, all the while anchoring his porky behind like a cement block on the floor cuz he wants more … I ended up carrying him out, and he acts like I’m taking him to the Vet to get fixed … “man, the prima donnas I got to deal with” … so we are gonna hit the DQ first again today and see what happens… we are soooooo outta here … until Monday mi amigos.

Have a great weekend everybody!



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