Alea Iacta Est

I’m going to cut right to the point this morning. Yesterday near the open equities were at the edge of the abyss and the odds strongly supported continuation lower sometime during that session. However, later that day I suddenly started seeing divergences on the hourly Zero indicator which strongly suggested an impending short squeeze and to which I alerted you to in my early afternoon update. Which is exactly what happened but overnight futures have dropped lower yet again and at this point it’s anyone’s guess to where we head next.


Given the recent gyrations there is not predicting where we swing next or when this thing finally picks a direction. What I do know however is that I am personally starting to feel reactive as well as conflicted. One one hand I would like to keep you guys ahead of the tape as much as possible, and thus far I believe that has worked out quite well, despite some highly volatile and unpredictable tape. However, after some meditation and self examination this morning I feel that I am now crossing into ‘chasing my own tail’ territory and that attempting to plot a course here would be counter productive.

Bottom Line: I am still short from ES 2040 and my stop has been moved to break even. And that’s going to be it – I am not taking out any long positions here and I will not touch equities again until we are trading either near 1900 or above 2060. The woodshed is churning on all cylinders and the only way to win is not to play.

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Early Warning

I hate to burst everyone’s bearish bubble but unless we drop straight down in the next few minutes it looks like the bears are going to fumble this one – again. I just noticed a rather disturbing divergence on the hourly Zero. Wish I had seen it earlier but I’ve got a bunch of Spanish workers crawling all over the place as I’m getting high speed fiber installed in the lair today. Anyway, here it is:


Lookie here – that divergence on the hourly panel is looking pretty ominous – very bad medicine. In addition flat participation suggests the bots are about to take over and the Mole reversal signals are failing. Let’s not be presumptuous but my point stands: a handle or two more and a push above 2010 and it’s all short squeeze into the close.


And that would be extremely bad news as the implications may be a sideways correction like shown on the chart above. We’ll know more by the close, so let’s see what happens here in the final two hours.

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The Last Bear Standing Is A Bull

The annoying thing about late stage bull markets and in particular the formation of long term tops is that they take forever to play out. Navigating increasingly volatile swings accompanying the final throws of a dying bull cycle takes considerable amounts of patience, discipline, as well as skill. Like Bob The Horse reminded us the other day: Bear markets go out in a bang and bull markets go out in a whimper.

Now the dirty little secret about early stage bear markets is that the last bear standing is usually a bull. Yes, you read that right. Traditionally it’s not weak handed bears who take down a bull market, it’s simply a lack of buyers. Guess what – all those snarling bears who were printing some mighty coin in 2008 are long gone, wiped out during their persistent attempts to call a top when there was nothing but green candles ahead. I myself have seen their (virtual) faces disappear right here – one by one they simply vanished. The few who survived the ravages of one of the most significant bull markets in history relented and changed their approach just in time before their accounts had melted away like late winter snow in the glows of a spring sun.

Arguably this has been one of the most hated stock market advances in history, rife with controversy, bail outs, and market manipulations. But let me assure you that in retrospect – many years from now – you all will miss it. Because it was just too sweet and too easy while it lasted. Your children and grandchildren will look at those monthly charts and ask you how in the world you managed to fail banking a fortune in five years of such bull market extravaganza.

And I’m not talking about fairness – you all know how I feel about QE and Fed/ECB interventions. But from a trading perspective – boy – it was pure manna from heaven and it won’t ever come back – not in our lifetime at least. What awaits ahead won’t be as directional and it won’t be as easy. If you thought trading was difficult in the past five years then you ain’t seen nothing yet.


Now as you may recall I managed to squeeze in an ES short at 2040 yesterday morning and I consider myself extremely lucky as it went straight down from there. Now we’re basically hanging by a thread here and I’m not going to claim that we won’t see yet another FU rip higher, killing a boat load of shorts in the process. But that’s part of our existence as traders – not knowing. You don’t have a crystal ball and you basically just have to pick your battles as they present themselves. The war never ends and the goal is to simply keep winning more than you are losing. Choosing to be a trader is a bit like being born into European royalty in the medieval ages – there’s always a war on and participation is mandatory. And if you win enough you get to pillage ;-)

Anyway, if you take out shorts here then put your stop above ES 2040. Yes, it’s a huge range but that doesn’t matter – if this thing really breaks you’ll need that range anyway not to get shaken out. And if it bounces here and breaches 2040 then the bears are dead in the water (again) and we are painting new highs. Alea iacta est.


EURUSD – I’m long here and I hate it. Stop below 1.1251, very much hope it’ll get touched but as you know I’m a lowly expat who earns in Dollars.


The Dollar index however is looking pretty solid here and I’m long with a  stop below 94.6.

More short term goodies below the fold…

More charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don't waste time and sign up here. And if you are a Zero subscriber you get free access to all Gold posts, which gives you double the bang for your buck!

Please login or subscribe here to see the remainder of this post.

You have been briefed – now have fun but keep it frosty. See you guys later this afternoon.


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