A different view of the Vix [Futures]

The only reason why the trendlines are on this chart are to show the rate of decline and the amount of time in terms of months from cycle bottom to top from the 2008 era and this current market cycle.

The lowest print (the cycle low for all the data given in this set) was put in place in December of 2007 at 10.1 total value of the futures contract, it then took 23 months to reach its peak for this cycle at 69.4 in October of 2008

So here we are now 11 years after December of 2006 with the lowest Vix value printed given the data available here and it has been 111 months which is 9.25 years with a 86% decline.  This is of course using the data from Vix index futures. 

I don't know if the bottom was put in, and I also don't know where it will be if its coming in the next year or 3 years but one thing this chart does tell me is that it has spent a long time coiling, consolidating, tightening before another suggested breakout, the direction could be much higher because the total range in every one of these past 7 months has been between 2.8 to 5.5 and chances are if it does lead to any type of bullish activity in the Vix underlying the ranges can expand to 3x or 4x what they have normally done in this endless quiet period

To express my opinion I thought I would leave it only as here is a value proposition and just that.  It is low, its so cheap!  It can continue going on in the same direction (down) until something changes that, but for now objectively speaking it can be on of the greatest trades going forward into 2018 and beyond. 

Dark Cloud Cover [Candlestick Formation]

I made this one extra large for today to show the ES e-Mini S&P 500 futures daily chart 

What brings me to this chart today is the formation of Dark Cloud Cover, it happens when the real body is long and placed high above the "indecision" candle and could be a reversal.  Bearish reversals almost always need a confirming element like following bearish candles and follow through


The chart examines the extend of this most recent facet of the rally the line measures everything from 9/26 to today's height at 2665.25 ES, the 6.75% advance came after this short contraction from 9/21 to 9/26 its the tightest range of slightly bearish action, from there the red candles were fewer and even some had a shallow amount of downside penetration. 

"Wave 5 Somewhere" denotes the levels where it appeared the trend was starting to end, but it was quickly overtaken by last week's daily ranges which varied from 9 to 46 points, but counting waves with the Elliott wave format has not been working well for most people over the years

The range in total was 31.5 points and was a commanding sell off where the gap overnight was clearly overtaken as if the pop never happened. 

The expectation if the sell off takes hold is that the range expansion would lead to similar price swings that happen with the same kind of magnitude and depth.  There sure are plenty of good buys to be uncovered if the market would only correct and discover value. 

Overdone in Short Volatility Shares - A Potential Scenario; 21 points

There are two charts which make up this post.  The first is of the XIV and its respective trading range for these past 4 daily sessions. The topping doji/congested candle printed on 11/28 was merely a pause in the uptrend before what looks like the beginnings of a major reversal

Here are some observations about what the charts saying

The measured range in light gray take into account the entire drop from top to bottom of this week's range

• The swing from 121.38 to today's intraday low of 102.82 is a massive decline of 18.56, that magnitude of decline only happened during brief moments in the summer and other fleeting declines in the equity markets.
• The powerful origins of the September rally coincide with where my projected target ends.  
• Gaps and their tendency of filling means that it may take longer than I think, but there is a chance that the downtrend can pause at just below $81

21 points is extreme, but XIV was trading at an extreme for this week and prices tend to mean revert.  They go back to their longer term moving averages.  

When put in perspective a bigger percentage decline is not so exaggerated when compared to the advance since early November 2016

The 9 to 16 Confinement of the Vix

The Vix Trading Range at Unprecedented Complacency

1. 

The first thing that would catch your eye about this chart is that the range highs and lows are subtle, as in saying the red rectangle above features some temporary highs where price might cross 15.5 and 16 and just break above for a few hours and then retreat.  Indeed that was the goal of this analysis to show that Vix in this era of massive complacency has a tendency of trading between a low of 9.5 (on average) and 16 height. 

Until the 16 barrier is broken we are still stuck in this confined area of lows and highs

There was a conventional belief years ago that the Vix normally would trade between a 20 where its very complacent and 40 and the Vix is overly cautious.  In this environment that is much different.  But here's what is different about this week, so far since it is only Tuesday the Vix has already printed some positive action.  

Another intense aspect of these declines is that they generally tend to fizzle out (the slide stops) between 40 and 47%

The steeper angle of this second image shows the opportunity still here in Vix.  It is always good to prepare.  The rises higher only happen less often but when they do, it typically lasts 5-7 days and the result is a much highly pointed angle with fewer days in its range.  

Zetetic Philosophy

Dimensions of the Rally - Dow Jones Industrial Average

Many traders have been climbing this wall of worry, that there would be a reason to fear an imminent sell off, but its a good thing we have technical analysis

1. The contraction from 11/9 to 11/17 [contained in the green shaded surge higher] was not enough to trigger its own frame in my model

• For example, the two swift slides from the late summer into mid September were just 3-4 day events which had no staying power, but they were deep enough to cause a more dramatic series of lower low price prints
• In our more recent example of price action, the decline from 11/6 to 11/17 was just shallow and impotent

 The current rally state changed dimensions from 22,250 to 23,847, a whopping 1,597 points

• Before today's long candlestick the highs were still contained slightly above 23,500 but were well overtaken by the charge higher regarding tax reform and other news related optimism.  

The greed machine has leveled up and for our sake complacency [Vix index] become even more out of balance.  Time will tell what this will bring, but if totday's action is any indication of the state of the rally it is still fully intact and resumed its winning position for the time being

Vix Attempts

What I would say is most unique about this Vix daily chart is that a hammer candlestick formation formed the day after Thanksgiving.  This stand alone bullish reversal did well on the weekly candle too, to make things even more stark, it was the only hammer printed and its lower wick is 5-6x the height of the body!

What I have done with this daily chart is I have superimposed descending trendlines along each of the downwaves to note time and magnitude

•  I have taken this chart and went from peak to trough as opposed to trough to peak, the 16.5 or near 17 to 9.5 [High to Low] range normally lasts between 20 or 23 days give or take a few churning or chopping days or when the market does put in minor tops it takes time before the bears can accelerate their plans.  A down market leads to a higher Vix.  
• This "completes" one of the longest down cycles in the Vix for this part of record for 2017; highlighting the off the charts complacency,  I am not saying it could get better or worse, but its powerful 
• The discount typically has lasted 40 to 46% that goal was met Friday with a the greater amount happening in the last few moments of trade
• I am not sure if the Vix matters anymore, the convention was that a low Vix was a warning sign, and not good for whatever record level of optimism that has set in

Normally the next 7-8 trading days are when the Vix takes off tremendously after the reversal and following slide in the S&P 500

This second chart of rising price but falling volume does not always end well or confirm that a move has staying power

Dollar Index Damage

Daily Chart of the US-Dollar Index

I have been using the 50 period simple (moving average) to gauge trend and one of the clearest forms of trend change came 9/27/2017 when it sliced through the 50 decisively and then continued marching higher until 12,097 about a week ago and then spend more time declining

The first arrow in yellow points out how fast price pulled back at the test of 11,900 and it was just the signal the dollar bulls needed to drive it to its price objective of approx. 12,100 there were plenty of sellers ready and willing to acquire Euros, Aussies, anything anti-dollar

The green rectangle acts as a buffer inbetween range points to tell whether levels are working as support or resistance and in our case right now its supportive at the upper border of the box at 11,962 that is also in close proximity to the second mean reversion [today's touch of the moving average]

Today's powerful bearish candle is exciting and somewhat climactic for the low volume trading environment of the Thanksgiving week, but it could be seen as a warning given what has happened to the dollar for most of this year.  

The Ebb and Flow

It may appear wonky on this daily chart that the Euro just acts the way it wants and can seem unpredictable in how it ranges and "breaks out" that if it does decide to trend in a particular direction the snap backs are vicious and it would appear to lack respect for support and resist points. 

So if any pattern can be gleaned off the charts here the price action points out how its been acting since 9/11/17 and by this we are talking about how it acts on the daily chart

• The mini peak at 1.20804  allowed for reversals and continuations to the downside which were longer in height and intensity (more powerful sell offs)
• The throw backs to the upside retraced 50 to 65% of the dominant move down, so it would give the impression that the path of least resistance was to the upside, ESPECIALLY on the bullish candle we printed on 11/14/2017 last week's push was slightly deceiving 

The swings have been one way or another, so in my view it doesn't act well in the sense that it wonks around and has more of a bulky and rectangular action, which is ok with excellent setups and a good feel for where we are at this point in trend

This sell the rally and buy the LOWER dip is still a good practice to have when the dollar index lurches higher here and there.  

Ideas on Trend Change Confirmation

I am throwing this back to when I was measuring the Dow 30 in terms of its geometric and area based facts.  It made its way all the way up to 23,619 and since then attempted to reclaim that level once at 23,565

The two shaded ovals denote where there is some buying action, meaning the discount of the yearly highs was quickly bought up; they sopped up the low prices with a decent amount of deman

Being that the price was tarnished already: 23,247 it could be relatively stale going forward should we decide to claw through that level and continue trending to the downside [descending trend line captures most of this pullback]

I don't know how fast or how much lower things can go but on the daily chart the pattern is beginning to emerge. 

• We have undercut several lows
• The highs are being wiped out by a bigger amount of sellers

The confidence in short selling will return at least that is how the charts are acting.  

Scalping Counter Trend AUD related pair

Reason for Buying Aussie Dollar AUD/USD

1. Bullish reversal candlestick: Hammering in a potential bottom for the short term

* could prove to be a weak Bullish Candle

1. Climactic excitement on the two hour time frame of a 60 pip drop from a opening candle of 0.76310 to 0.75739, possible short squeeze 
2. Pre-set targets hit for low prices sought out, I was looking at these levels before as in buying near 75, bottom fishing at the lower points, dollar continued trading weaker for other parts of this morning 

I don't see much reward in this trade but it will be interesting to see how it acts along with the Dollar Index.  

Points of Exit and Hitting Targets

For the times that I have flirted with VXX and had profitable trades they were mainly on closing a big portion of shares like 50% and 75% in that day.  So in the end of this post I will discuss targets and the strategy for getting out at optimized levels.  

• This type of trade needs to be hedged with XIV or other short volatility instruments for the longer holding periods
• Opportunities are very short lived because of how quickly it changes in a reaction greater than the broad market

At first glance its really obvious this is a negative and bearish chart pattern.  But, I feel as though there is an opportunity here.  These are the technical reasons

• The exhaustion from short sellers of volatility has reached a semi-climax (not absolute) but there is reason for them to pause and the amount of time gone by has been tremendous, there is going to come a time when price reach equilibrium and now its so low on the curve its about time for another phase of the cycle to kick-in where volatility turns higher
• The inverted dome:  the price pattern shown here shows two main turning points 33.67 and 33.19 with 33.19 being the most recent, the tightness of its trading range is another clue as to why price ranges should begin expanding again 
•   In spite of the color of today's daily candle, it still turned much higher at the end of the day and made for a lot of excitement and bullish price action so the CLOSERS ended up driving it higher than yesterdays close [higher highs and higher lows]
• 10/25/2017 the entire range was 3.37 with the quick burn out from the days highs, this type of movement can repeat itself but with how well coiled price is I expect more of a 3.8 or 4.0 point move
• Volume is terribly low, non-confirming for the volatility bears

Points of Exit for long positions

• 40, or just a few notches higher
• Absolutely 47.5 - 50 and these are for the next few weeks
• Lastly if it moves so much faster than I can anticipate then I would look for the previous price spikes from August 8/10 and 8/16 and the mid June levels if they could be revisited

2017 Juggernaut more than most people thought possible, the Top or Not?

The way I would like to organize the data regarding trend is I have a tendency of framing price action [for bullish continuations] in terms of Rally-Consolidation- Rally where it spends time basing inbetween before the next rally

Intra-day high printed at 23,177

I also would favor trading a bearish scenario where price drops quickly, tries to hang on to some gains, rallies back, bases and drops again.

But since most of the spring, summer and fall of this year, the pattern has been very consistent.  So I shaded the "character" of the underlying move.  That is to say that each of the rallies are boxed in with mainly bullish (daily) closing candlesticks and the corrective waves are mostly red and longer bodied bearish closes. 

I won't cite each date from start to finish, but the color-coding should do the trick.  The uptrend here is definitely in tact, so I would react differently in coding a way of trading things in an environment where falling prices yields profits.  That is not the case yet, even though corrections are a natural function of the stock market. 

The Expansive Thread

Focus of a series of videos - this one should be very long, and it has to do with a positive, neutral, and negative market cycle.  How these things affect market price behavior

1. Time and Volume 
2. Direction and Duration (how much time it spends in said direction)
3. The fractal nature of how things change; and the internals of how the buyers dictate the market

That image is one of the DJIA - Dow Jones Industrial Average and it captures a snapshot of the kind of comparison studies we are doing.  It is a visual guide to how price behavior acts during uptrends [its geometry] and how effective downtrends are in their swift actions

-Damian Richardson 

The British Pound Lash back - Daily Chart of GBP/USD

(1) The zone shaded in red is the point on the chart where I was being stopped out and selling short the GBP/USD

(2) The horizontal arrows denote sell short entry filled orders with the two locations at 1.360 and 1.34789

(3) I have averaged with enough size to over-take the levels where I was stopped out in the middle of the British pound rally, or dollar sell off

The horizontal lines above and below price shaded in grey and green are stop losses and exits.  I plan on exiting this trade near 1.32, but with a pyramiding strategy I could see myself add the same amount of size with 40, to 60 points in length.  Meaning if the pair continues trading down I will add to it with the same amount per trade.  This is scaling in, at its best!

Owning Your Mistakes

By the indications I drew on the charts it may have sounded like I was growing more bearish and inferring that the market would collapse and that the trendline would hold and that the target at 21,469 will be met but it turns out that did not come to pass and newer highs are already printed and you can see with the caption that says break it was the break of the all-time highs from August 8

It is not savory to make mistakes like calling the all-time tops but there are cases when a collection of different factors work together like seasonality and lower volume trading to that end those facts shaped some of my opinion going into the end of August of a lower market but is always a good idea to have a positive outlook and reframe the situation as something to learn from rather than be ashamed about it.

On the other hand a sign of strength is and how distribution days have been falling off account and they have been fading away with time when distribution becomes less powerful the market just tends to grind higher and the Bears need a cluster of those distribution days with higher volume to prove that they have a presence and that they are going to be selling at the peaks of every rally (counter-trend rally in this case we are not in a bear-market) also when I do a triple screen analysis I would be interested in checking every time frame to confirm a prices point on the curve or trend and whether it is at the high side or low side of the range.  And these types of conditions make it challenging because there are no other references for previous highs that can hold as resist points

The surge higher has been relentless that even though these are eight hour candles the stock market has yet to open for Monday's trading and it has already gapped higher (these candlesticks are continuous but ETFs and other equity markets have not yet stareted trading)

So it is early to be very bullish or think that the market go to 22,500 because there are a lot of political headlines coming and this week has an important driver which is the Federal Reserve decision, it is in my interest to see the markets down but I would entertain projecting prices at higher levels in spite of other factors working against it like not having a correction and the amount of time the rally has run its course.

Zoom Out then Zoom In

Hi Everyone

This first image is one of the yearly candlestick of the SPY which goes back to 1997.  Here is a description of what happened.  The market rallied for the five years after the technology bubble of 2000-2002, and then topped out in 2007 and had one negative year, the gigantic plunge in 2008 was contained to one year.

• Each year volume declined making it non-confirmatory

The drawing tool retraces the fibonacci levels from the March 2009 lows at 60 to today's high of 250

The 78.6% mark at $208.73 coincides with many of the orders that were filled in the 2015 and 2016 yearly lows and should be attractive again when mean reversion sets in.

Comparing candlestick chart patterns when price consolidates and then breaks out.  The larger view includes a 20 year history of the monthly candlesticks in red and white and the shorter term picture is this year which exhibits congestion that is occurring this week

The 20 year chart of SPY has a declining dotted yellow trendline in which each of the volume bars are respecting the decline very well.  The price and volume relationship has been a powerful indicator re: trend changes but in this market there are an infinite amount of possibilities.

Objectives Met

I thought these images would speak for themselves so I am going to be light on  the commentary today.  But here are three images: the weekly, daily and 4 hour chart in the EUR/USD.

Rough rejection of the dotted green line at 1.20583





Topping wicks proved strong enough to drive it down to 1.18762, and it also broke through the ascending trendline

Display of the most important resist point in the red shaded zone and a possible area of covering and resetting a strategy of buying the dip and selling the rip.  

The Quadruple Screen

Analyzing the technicals for the EUR/USD on 4 Time Frames Today

Weekly 1.20583 and 1.22639

• Resist point at 1.22639 was the "generator" for the sell off in terms of exacerbating the sell-off into the 1.10 and below territory, I would highlight this area as a much more potent target than how 1.20+ has held up so far as resistance for recent weeks
• Important week of 7/21/2012 it was a point of origin of one of the most powerful 2 year rallies in the currency pair.  It also denotes the effect of "former support becoming resistance" 
• The other inference from this chart is 12/27/2014 the first crossover of the dotted green line at 1.20583
• Price is 1679 pips away from the yearly trough

Daily: the break of 1.19284

• Breakaway gap created in April spurred on a long and powerful rally to reach our objective at 1.20+ but in the past 2 weeks there have been minute sell-offs that are shaded in orange (circles)
• The trendline in green captures a majority of the price movement and price has been flirting with a subtle break of it 
• For a true reversal with staying power price needs to consolidate and congest before finding overhead supply that sticks

 4 Hour

• Enhanced definition of psychological hit-points yet still maintains the uptrend
• the two negative days from the daily chart cast an overhead "seller" yet price is making an attempt to come back and try to smash through the over-head box  shaded in red at at 1.20546 and 1.20948

 1 Hour time frames

• More pronounced display of the difficulty of challenging the 1.20
• Appearance of "bounces" in each of the grey shaded supportive areas act as speed bumps in slowing price down when it gets to that location: 1.18445 and 1.18264 and the other two support points below

The Low Risk Peak and Probabilities of Success

What did I do right?

1. Scaled back risk
2. Waited for optimal entries 

What did I do wrong?

1. I did not let the profits run longer in this AUD/USD 

How can I improve?

1. Continue to trade like this in GBP/USD

I removed risk by elminiating some of this AUD/USD short over the weekend.  There was not telling what could happen over night, however by removing the trade it cuts my profits by 100% and I am waiting for another chance to re-enter, its on a pop higher.  By the time I closed out the trade I was in the money by 10 pips but I am watching it move FURTHER in my favor, this trade will be updated sooner.  

EUR/USD; I am nursing this losing position here but its only a few candlesticks away from breaking even, today's change was significant regarding direction and possible pattern relevance

The supply pattern came into effect, and the perception I had in entering this trade was to get short at the same level as the "departure" of that sell zone between Aug 1st and Aug 3rd

This image above was the first time I entered the USD/JPY short, it was time for a possible rebound in the Yen and it was right in line with another potent area of resistance

An updated view of the trade and its progress, I can show further details re: the stop placement and logic for unwinding this trade

1. On September 7th

Excitement to be short the Dollar index by the length and speed of this real body with solid bearish close

1. On September 8th

Bottoming tail displaying tremendous buying pressure and it is followed by a bullish candle on Monday's open

1. On September 11th - STRENGTH 

Bullish follow-through with a degree of excitement relating to the size, momentum and departure out of 11,794

1. On September 12th 

Indecision; yet is is as of now the second bullish day, in this next series of a rally attempt and "follow through" 

Trend Following

These are the charts that I will share that included Japanese yen over six timeframes  I had a hunch that the yen would be strong but I did not act on it fully up until now and the trend is beginning to pick up a lot of steam so onward to the monthly point of view

It is below the prior month's bottoming until at 108.295, and getting to 107 is definitely within reach so far for the month it did move 317 pips

Now regarding the weekly candlestick charts the 107 50 helps temporarily because it was a prior area of resistance but 105 is more of the midrange target for an area of congestion weekly timeframe

The finer aspects of the trend are in plain view it how the ranges play out day-to-day but 106 even is so much more critical from this point of view that a move down to 107 trigger off more buyers that I anticipate on the weekly timeframe

The details of the hammer formation are more clear here and a possible supply at 108 this frame has a finer perspective of the overhead supply and it gives color as far as entry points to so short and the inherent risk of the trade that may not be visible when zooming out so much on the higher time frames

The unique thing about this frequency is that three hours displays a trendline much better for entry and exit for the trade and where to sell an exhaust point for the buyers in other words where the short-term trend has run out of steam.  The crests on the three hour chart are not absolute but they are also good selling points

This is the shortest timeframe available and it does not give us a big picture as far as location of trend but assist more with order entry and exit been anything else if I should need to tighten a stop or change a limit order would be using this time frame and it would aid in the precision of scaling back size or would give me confirmation of where to increase the size of the winning trade.

Resetting Everything

What did I do right?

What did I do wrong?

What did I learn?

How can I improve?

I ask myself these questions often, and find that the longer I stick to my own process of trading the more I learn and can adapt to whatever level of strength the overall trend has to offer, the pay when it comes to going with the flow is generous.


Set up potential for tomorrow USD/JPY

Confirmation of a continued move on the break through the shaded circle.

In this chart of the Aussie I was floating a small loss, shaved off half of my risk and then reset the stop to accodate to the smaller sized position, I would be happy with a break even or a small gain, and I can tighten stop accordingly 

21,955 was the key level I mentioned for the Dow 30, it has since proven a strong area of distribution of US equity shares

Euro acting well and reaching higher highs, yet still below the stronger resist point at 1.20997

Turning a losing trade into a winning trade, patient enough to allow the price to consolidate before taking action > strong Euro but much stronger Yen

USD/CAD following through with powerful momentum.   

Masterpiece

This daily chart resonates with today's low which happened at 1.21452

And with the Bank of Canada suggesting they won't be raising rates for a while supports the argument a temporary bottom may be in place for USD/CAD.  

Ongoing themes in Technical Analysis

These posts are dedicated to Forex for the most part but I tend to diversify my domains of attention to these ideas when making observations

• EUR/USD
• The Dollar Index
• S&P 500 [SPX or ES futures]
• Dow 30 
• CBOE Vix Index, which includes VXX, TVIX and XIV
• The Carry Trade and its swaps [collecting interest everday]
• AAPL - getting income from AAPL 

AAPL is in a current state of unwinding its uptrend for the year.  It is inbetween a sell and a short term swing buy.  What looks best in terms of risk/reward for options income is a 162/158 bearish put spread to profit on the downswing from today's closing price and its bottoming formation at 158 or slightly above.  

The daily chart shown below features bollinger bands with a central band indicating the mean at $160.15, and the upper and lower bands at $164.95 and $155.6; price departed from its highs at 164 in quick fashion today and Friday of last week, that type of price action is favorable to the bears who were even able to drive it to within pennies of the mean.  

What does this tell us?

Interim lows, and deeper price retracements are still income generating opportunities and should we get some momentum to the downside the lashes back (counter trend bounces) will be profitable set ups.  

Specifically for this time frame reaching and staying near $160 for tomorrow is highly likely.  From there price has a good probability of getting to the lower end of the summer trading range at 155.0, its very interesting to see how each levels of the band are coming together at these price points:  the upper band is near 165, the mean is at 160, and the lower band is at roughly 155.00.  These conditions could change in a heartbeat, but from my point of view I favor 155 and 150 as potential set ups for options income when it involves verticals and bullish put spreads.  

Note also that the gap fill would be compelte at $150.27 which sits right above the bullish candle put in place on 8/1/2017 [Earnings Gap]

This one covers the risk to reward set up in this trade.  It is writing a bearish call spread with a strike price of $163.50 by $166 to receive credit and it makes money as the stock price goes sideways or down, so any movement in the dark yellow rectangle is a good location to make money on the call options expiring worthless.  Also, The green zone highlighted from 162 to 155 makes money on the entire height of the green zone.  This trade makes more money the faster it goes down.  The losses are also contained or maxed out at the high end of 164+