Cra-Cra Zone

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Cra-Cra Zone! Wednesday's markets – all of them – were absolutely crazy, or cra-cra as the kids say. The energy markets were mad yesterday, while stocks and BONDS went ape-sh*t today. As Rod Sterling may have said: There is a fifth dimension beyond that which is known to man. It is a dimension as vast as space and as timeless as infinity. It is the middle ground between light and shadow, between science and superstition, and it lies between the pit of man's fears and the summit of his knowledge. This is the dimension of FALLING equity values. It is an area which we call... "The Cra-Cra Zone". Perhaps a series of headlines will give you a flavor of the volatility... • CDC admits to a 3rd Ebola victim on US soil. • European stocks collapse on German recession. • Winter is coming and it's going to be cold again. (Polar Vortex 2.0) • Oil prices collapse as global growth falls. • US 10-YR Yield collapses. • NY Fed Manufacturing data plunges; biggest miss in more than 3 years. • Greek stocks crash 9%! Is Greece fixed? • Retail Sales were 3 times worse than expected. • Remember...cold weather is coming. Screw Ebola, like the idiot economists we fear winter! • Business Inventories less than expected. • GDP forecasts revised lower. • 10-YR Yield crashes to 1% handle! • "In the first 15 minutes of trading the S&P 500 E-Minis traded below the S&P 500 cash index despite a fair basis, according to Bloomberg, of -6.72. This is unheard of and something I have never witnessed in my near fourteen year career on the Street. I can only conclude that many large institutions threw in the towel on the Open in wake of the dislocations in not only stocks but also treasuries." - FBN's Chief Market Strategist • Don't forget – winter is coming. Oooohhh, scary! • Fed-Head regurgitates QE4 idea. • Rumors swirl *YELLEN SAID TO VOICE CONFIDENCE IN EXPANSION AMID FOREIGN RISKS • …aaaand stocks rally into the close as Central Planning is there to coddle all of the petulant children on Fraud Street. A friend asked me why the markets fell like a stone today and I answered: "Well Jim, it's like this: The market ignores everything, until it can't ignore it any longer – then it all crashes together." Read Past Issues of Larry's Newsletters at TradeWithLarry.com

Ebola fears the pros say. Oil prices are why the markets are dropping. How about fight or flight? How about margin calls on hedge funds and massive liquidations? How about selling to make quick profit? The DJI at one point was down 460 points. Then the 10 yr yield dropped below 2% for the session. Flashed to 1.89% and then the autobot algorithms kicked in. I mean the buying in the market was tremendous. The DJI rebounded over 300 points off the lows, but alas still finished down for the session. I am not kidding about the algo buying. You can correlate the time stamps and see massive buying kick in across the board. The SPY traded on over 350 M in volume. The futures market had huge volume. It was amazing to see the swings taking place. This is what we have in store for us in the very least short term. The markets are still weak. I suspect we drop again today. Read More

TECHNICAL DATA ES 1885.00/1828.50 POC 1840.00 YM 16062/15870 NQ 3773.50/3722.00

​​Well, the world is a very different place today. The market is down 9% from its highs, the ten-year yield is below 2% the VIX got north of 30 in afternoon trade. What is going on? Take your pick. Overbought stock market "correcting", Europe falling apart, Ebola panic, Russia taking it in the shorts due to $80 Crude. Really, what has changed? In our opinion noting fundamental. So what to do? You can't argue with panic, but you can use that overreaction as an opportunity to get into a favorable signal. We think that this reaction may be over done and want to take advantage of things returning to somewhat normal. So, our first inclination is to short VIX somehow. We could sell a VIX call spread, buy a put or put spread, etc. Or we could take advantage of the time structure of the VXX. The value of VXX is set by the market, but it's closely tied to the current value of an index (S&P VIX Short-Term Futures) that manages a hypothetical portfolio of the two nearest to expiration VIX futures contracts. Every day the index specifies a new mix of VIX futures in that portfolio.​ It is a decaying ETF. Take a look at a price chart and you will see that, in general, there is a very predictive downtrend to VXX. That is how it is designed. So, if VIX goes down (things normalize) VXX should go down even faster. We were able to signal the 10/24 VXX 34/37 put spread for a debit of $0.90​. Read More

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