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Monday, September 14, 2015

Monday -- Commercial And Speculator Positioning

S&P E-mini Futures:
Bouncing around in nearly a 20 point overnight range.

The Fed will likely be the news until Thursday at 2pm. All because of 25bps.

AUD on the move, looking bottomy.

These went down with more conviction than they gone up over the last couple of days.

WTI crude down slightly, but could be gearing up to exceed 62.58. Otherwise, it's new lows to come.

Gold and silver appear at cross currents. Gold possibly a more bullish setup than silver. Gold would need a remarkable rally soon to confirm.

S&P Outlook:
Is the S&P making a bearish triangle or a bullish wedge from the lows, that is the question. In other words, are we in wave four of a developing impulse down, or are we making some sort of B-wave for an ABC or a larger triangle before yet more new (albeit brief) all-time highs.

Two things have me leaning toward the B-wave even more than I was previously: speculative positioning in the VIX, and commercial positioning in the S&P.

The top chart was posted Friday.The bottom chart adds yet more suspicion.

Source: Dana Lyons

Source: Steve Briese via Not_Jim_Cramer
In the ongoing battle between commercial hedgers (insiders) and large speculators (speculators and hedge funds and that don't really hedge at all but follow momentum), I tend to stick with the commercials and try to emulate their tactics. That basically means buy low sell high coupled with hedging techniques.

@Not_Jim_Cramer noted, "Net Commercials in Stock Indexes take largest net long position since 2011 lows."

Given such opposing positioning (which could very well be stale by now, mind you) I simply think there is more than enough fodder to wrong-side this market enough for a B-wave to reach the 2050 area or higher before another probe lower. There is also fuel for explosive volatility, possibly coinciding with Thursday's Fed decision.

I add this to my opinion that the waves from the May S&P high are less than satisfactory for an outright change of trend, yet could represent an ongoing Reboot, to borrow a word from the annual September Vogue analysis.

Regarding the mismatch between VIX and UVXY, there wasn't one. UVXY was merely tracking the active futures contract (that it is meant to do), something that I was not tracking due to laziness. So while the VIX index traded to 53.29, VIX futures only traded mid-20s, thus the "mismatch" was likely a short VIX, long VIX futures arbitrage until it was resolved (which it now appears to be).

Thanks to @SphereVolume on Stocktwits for motivating me to dig further. Also, UVXY & TVIX are 2X leveraged not 3X.

Veteran trading psychologist Mark Douglas died. He helped a ton of people in this challenging business, including me. May he rest in peace.

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