Essential Charts and Market Update

Published 28 October, 2011, 09:00, CEST+1 | By the trader

Yesterday we saw a real short capitulation move. It took the market almost 50 days to fall from 1290 to 1090, and only 18 days to go from 1090 to 1290. That is a cruel squeeze, with many “smart” shorts getting absolutely killed yesterday. The vol collapse according to us is wrong. The moves up have been way too strong, for people to be selling vol in panic. Many short gamma players got hurt more during the past session, than on the way down. Market is driven by greed and fear, and all moves are magnified by HFT Algos, making it impossible for big players to trade risk efficiently. Below are our chart expectations and levels to look out for.

08/11 comparison. Yes the market was pushed above the 200 day moving average yesterday, but we want to see more stability before giving this signal the appropriate attention. Note how we actually never closed above the 200 day in 08, but the similarities are still there. The situation is not identical, but there are similarities, and the coming days will be crucial in deciding if this was the shake out of shorts marking the short term top.

SPX short term chart. We are inside the negative trend, still, and should expect some kind of reversal occurring.

Stoxx 50 put on the most aggressive squeeze of all Indices yesterday. Below levels to watch. We are still inside the negative trend, although there is a new steep Up trend channel.