Last Thursday’s mini-flashcrash in the overnight market was a wake-up call for the longs. The reason is that it took the sale of only 700,000 ES contracts to force a “limit down” in the futures. Of course, there was quite a scurry to get the ES back above support before the open. Nevertheless, the selling in the first hour of the 21st brought the trading volume above any full day’s volume in the past year.

Possibly we can blame it on Quadruple Witching last Friday. Had the market crashed then, the “House” would have had hell to pay in the options market. Sadly, the selling stopped after the first hour on Friday. If it had continued, trendline support would have been broken and the 50-day moving average at 1413.89 would have been challenged.

Today’s agenda is playing out with a break of the trading channel trendline and hourly mid-Cycle support at 1423.00. Interestingly, traders have been content with hedging and not selling, as the January SPX put options are becoming more populated. This is a clear sell signal. Speculative traders are at their highest net long positions since early 2007.

The VIX is heading for yet another breakout. This time it is the lip of the Cup with Handle that may be overcome, giving the VIX it’s next target for this rally. Remember, the risk profile of VIX is already elevated, having passed daily mid-Cycle support and its 200-day moving average at 17.65.

Sadly, elevated risk in the VIX may not be recognized by many until it exceeds 25.00 and challenges a Head & Shoulders scenario with a minimum target in the low 40’s.

GLD is revisiting the underside of its Orthodox Broadening Top trendline this morning. This marks the start of a panic decline in GLD to a minimum target at 127.00 and a possible target as low as 93.00 in this decline.

Best wishes to you and yours for the Holiday Season.

Regards,

Tony

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Anthony M. Cherniawski, President and CIO http://www.thepracticalinvestor.com

As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals

Disclaimer: The content in this article is written for educational and informational purposes only. There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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