Friday, September 28, 2012

BTFD: Fool Me Five Times - Shame on Me

Back in early 2008, the VIX (options fear gauge) was in an uptrend and I said that if it breaks out above the triple top, then Wall Street will shit a brick.  We know what happened next.

Bernanke and Draghi, the new Cheech and Chong
Today, we face a similar yet far more ominous scenario, instead of uptrending - indicating increasing investor anxiety - the VIX has been downtrending to multi-year lows indicating increasing investor complacency in the face of far greater risk than what we faced in 2008 i.e. systemic, sovereign failure v.s. bank failure.  All due, I might again add, to Central Banks' unrelenting injections of monetary dopium that have literally stoned the markets into oblivion - the markets have been "hot boxed" by Bernanke and Draghi.  And need I state the obvious point that when the breakout occurs above that downtrend line, there will be a lot more stained underwear and bricks for the patio:

Meanwhile, this was an important day for Wall Street, because it's the last day of the third quarter and therefore the last chance for large investors to notify hedge funds of redemptions before end of year.  No surprise, it was an up day as funds tried to squeeze out the last few pennies to mark-up the quarter.  And given the oft-cited massive underperformance of hedge funds this year, you can expect that not a small amount of money will be flowing out of stock market-oriented funds into "alternative strategies" like perhaps selling VIX option premia, as some morons illustrated above have been doing ad infinitum - which as we saw in 2008, worked great until they walked away leaving all of us holding the bag.  

So, it's a key juncture for the market because the remaining surviving hedge funds appear to have gone all in after the QE3 announcement, yet they will be facing off against their less fortunate hedge fund brethren who right about now will be getting notified that their new job is as night manager at Arby's, thereby requiring them to liquidate their remaining stock inventory into a low volume, overbought market.  

All In
Below is the ISE call/put ratio showing a major reach for upside call options coinciding with Bernanke's latest shock and awe.  The 10 day moving average (yellow line) reached a multi-year high - Booyah Skidaddy !:

Speaking of low volume, below is an update on our picture perfect bearish rising wedge, which now meets all of the "ideal" specifications - reversal of prior trend, three touches of upper trend line, two reaction lows, converging trend lines, low volume, overlapping waves etc.  As we see in the lower pane, volume had been trending ever lower to multi-year lows, but then recently it spiked up again.  Unfortunately for the little piggies on Wall Street it's increasing on the downside, which is not a good sign for hedge funds and skynet computer bots who now have to figure out who gets out the door first...and let's face it, these types are not known for their civility...

p.s. It's not just the markets that are stoned at this juncture.  The overwhelming preoccupation of the typical man-boy into this inferno is who won the fucking game last night.  Present company excepted of course...unless, you are reading this after the fact...