I am still recovering from a little technical melt down I experienced with ThinkOrSwim this morning. Fortunately their customer support really kicks ass and helped me roll back minutes after posting a slighty angry support request. Alright, it was a really angry request – but who can blame me? We’re talking about dozens of charts here that suddenly disappeared.
Anyway, it’s all fixed now and I’m a happy camper again. Yes, they screwed up their last release but it is clear they are working hard to help everyone roll back to their previous setup. If you have any trouble at all – just email support@thinkorswim.com and they will help you out. Even with all the recent trouble I maintain that they are the best platform for retail traders, period.
Anyway, now back to the markets. I’m posting this chart in the clear as I think everyone should see it after what transpired yesterday while I was on the train South. And I’m not ashamed to admit to this being a plug as this chart continues to keep dominating all others. Some of you subs are familiar with it as it’s a recent edition to the team – the daily Zero.
For the past two months the daily has been pointing upward, much to the chagrin of any bearish subs who have learned to respect it. It’s almost become a daily routine now – after the closing bell I pull up the daily Zero and upload it to the server. And every time I do it I am on the look out for a more negative signal which would be an early harbinger of structural weakness and thus short to medium term downside.
But as you can see – the daily Zero has been stubbornly pointing up. And guess what – thus far it continues to be proven right. I’m not sure what’s making this market tick, and despite the fact that I wrote the damn thing I myself am surprised by the level of reslience that equities have been exhibiting in the face of a relatively firm Dollar, plunging treasury yields, horrible economic reports, etc.
Listen guys – if you’re like me you have been reading hundreds of opinion pieces and studied thousands of charts trying to figure this market out. Yeah, you can do that and maybe you somehow manage to call the wiggles in this tape. Or – you can just follow the Zero
There are three of them now. The daily is the latest edition and it’s really growing on me. The hourly was the original Zero and it shows us nice divergence across daily sessions. If you’re a swing trader or even scalper the Zero Lite is where all the action is. I can’t tell you how often it has kept me and my subs out of trouble – in particular ahead of head fakes. Anyway, if you like what you see and are interested in becoming a Zero sub then don’t waste time and sign up here.
Alright, now after this shameless plug I want to respond to Tim Knight’s post from earlier this morning. I tried to get him on the phone but he seems in bad spirits, so I will address it in an open forum as I actually meant to encourage him. This is what Tim said:
Two important questions I’ve been posing to myself:
Why not just resort to day-trading? It’s tempting. When I read about nummy having something like 28 profitable days in a row, and Market Sniper having – what was it? – something like 50 – - not to mention day traders not having to worry about overnight gaps, it is horribly tempting to throw all the knowledge I’ve built over the past quarter-century into the shredder and just take that approach. But, simply stated, that just isn’t me, and it’s not my style. There’s a reason I approach the markets the way I do; sometimes it works brilliantly; sometimes it seems foolhardy. Lately, it seems to be more of the latter. But throwing my arms up and completely changing styles just because I’m frustrated doesn’t seem prudent to me, although I’m willing to hear other opinions.
Mole: You are worried about throwing away the knowledge you accumulated over the past few decades. That’s understandable. However, you ought to ask yourself what good ‘knowledge’ is when it ceases to serve you? I study martial arts and an aphorism in Aikido – which has only two belts, white and black – is that as you gain more proficiency and work hard you finally are being rewarded with a black belt. Then you keep training and as you do your belt starts to fade and after hundreds or thousands of washing cycles fades back to gray and then almost white again. This is representative of the fact that in martial art you have to learn all these techniques to master an art. And then you have to forget all of them – in a sense, you complete the circle. You have to make them your own – they have to become you. And at some point you don’t think about techniques anymore – you just move when necessary and your instincts will tell you what to do. But those ‘instincts’ is the accumulation of what you have learned and practiced for years and years.
Now, I’m not saying that you should trade via instincts, that is not what I tried to communicate. Rather, I suggest that you should not be afraid of throwing away anything you have learned and that may have served you in the past. I just recently switched from Aikido to Systema, which is a Russian system I am really starting to appreciate. But guess what – many of the things I learned in Aikido I now need to abandon and I again am training with the white belts. Of course I do have a bit of an advantage, but you can’t walk into class and think that you are a hot shot and that you think you know something. That’s a mental block and it will lead you to not learning anything new. Plus it’ll lead to getting your ass kicked – hehe
Maybe that’s why we are mortals to begin with. We accumulate too much baggage and knowledge that may not be applicable as times change. But even within our times we often find ourselves unwilling to embrace change – despite the fact that change is the only constant in the universe. Now, in terms of trading it is very clear that this market has changed considerably in the past few years. And I’m certain that it will never revert to what it used to be – traditional technical analysis simply is unable to offer the type of edge we were able to enjoy for the past few decades.
Phoenix From The Ashes:
But this is also an opportunity to excel to the next level. I have been spending a lot of time working on new automated trading systems lately and yes – they are all intra-day systems. And not just swing trading strategies – most of the ones that seem to be unaffected by the daily gyrations and gaps of the past two years are running on a 1 minute chart. So there – we can argue with what we think what’s ‘right’ or what we want this market to be – or we can just accept the market ‘as is’ and develop tools that offer an edge. I choose the latter.
What worries you more than anything? It isn’t pre-election shenanigans; it isn’t monthly OPEX silliness; it isn’t the Fed; it isn’t Geithner. What worries me above all is…….what if I’m wrong about the economy? What if all this government intervention, in the end, turns out to be a brilliant stroke, and it really does set the economy on the road to a robust economy complete with healthy, growing earnings, growing employment, and worldwide prosperity? What if my sense of “balance” and “natural” is just misguided, and the modern knowledge of economics has yielded a situation where things simply aren’t going to roll over again? I have no answer. That’s simply my question.
Mole: What we ‘believe’ does not matter. The market is smarter than you, I, Prechter, or anyone else out there touting that they have seen the future. Quite frankly, I can show you some probabilities via my wave counts and many times I nail it spot on. And then there’s that sudden move that nobody anticipated – maybe I was suspicious about what preceded it (i.e. my comments to the Zero subs last Thursday) but did I anticipate a spike like we saw yesterday? Hell no – and neither should anyone for nobody has a crystal ball (except Goldman Sachs). Your sense of balance and natural wave form is very honorable and probably spot on, Tim. But you may be limited by your human perception in that you want it to happen now when you feel a redemption is overdue.
Well, sorry to disappoint you, my friend – but there is no ‘fairness’ in war, love, or the financial markets. If I have learned one thing in my life is that the big dogs get away with pretty much anything while the poor minority group schmuck who’s trying to feed his family via some desperate and act like robbing a gas station for fifty bucks gets thrown in the slammer for over a decade. That’s life – and although you have experienced success in your personal life do not make the mistake to think that any of us are excempt. Life is a bitch and then you die.
The market will do what it wants to do. All we can do is to follow the signs and then do what we have to do to survive and fight another day. Another lesson I have learned is that half of winning the war is to surviving and being able to fight another battle. Thus, instead of complaining I am spending my energy focusing on new tools and systems that are impervious to news, manipulation attempts, FOMC statements, etc. I think I am making great progress and to me it is clear that the future is in automated trading.
Bottom Line:
In the coming months Evil Speculator will slowly shift its focus from traditional technical analysis to automated trading and selected tools that provide a clear edge. The Zero is one of them. Geronimo is another. But there are more to come and I’m just getting started.
Stainless steel rats all over the world can rejoice – for Mole is going on a little day trip tomorrow. In case you’re not getting the joke: Word has it that every time I leave somehow equities tank – it’s roughly a 2:1 ratio. Well, I hope this time won’t be an exception and we’ll see a little plunge tomorrow. In the market that is – let’s avoid a repeat of the little ‘incident’ that occurred last time I took the train to San Diego.
I swear – it wasn’t my fault – I slipped on a banana peel and fell on the ’steam forward’ lever. Ahem…
Charts and commentary below for anyone donning a secret decoder ring. The rest of you guys will have to wait until tomorrow – sorry. 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 it includes access to all Gold posts, so you actually get double the bang for your buck.
See, it’s always about the follow through – be this in golf, tennis, baseball, or after a nasty Fed induced ramp in the markets.
Except that there was none today and the bulls found themselves in a sand trap. Which puts the odds back in the camp of the bears – thus far
Charts and commentary below for anyone donning a secret decoder ring. The rest of you guys will have to wait until tomorrow – sorry. 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 it includes access to all Gold posts, so you actually get double the bang for your buck.
The clash of the titans is upon us. Make no mistake – it’s make or break time for the bears as they are running out of time as well as wave sub divisions here. Emotionally everyone has been ripped to pieces, but from a technical perspective things could not be much clearer. Either the bears close the deal right here and now or they will be squashed and again be relegated to watching the bulls take their lunch money and fuck their prom queen.
The financial establishment is fighting for its survival – with tooth and nails – as it has been for the past two years. They have used every trick in the book and some unprecedented ones that hadn’t been written yet. They’ve gotten every break and get out of jail pass one can possibly imagine – but despite having the wind in their backs the upside momentum has stalled for about one year now. But don’t underestimate them for a second – until the fat lady sings the incumbents will continue to do exactly what they have been doing and they will never ever give up.
For their survival depends on it.
We now find ourselves at a major inflection point and the big question that remains now is whether the deflationists or the inflationists will win the war. Robert Prechter and friends insist the Fed can’t possible stem the bursting of the credit bubble through continued quantitative easing initiatives. I used to be convinced of that – but having seen what I have seen for the past two years I’m not so sure anymore. I’m also now mindful of various and concerted currency games which seem to provide almost infinite support and thus a permanent floor to equities.
So perhaps the combined forces of banksters worldwide may somehow get the job done and simply socialize those losses to the rest of us – thus in the process finally destroying what ever remains of our teetering middle class. We shall see – either way we’ll probably see some fireworks before it’s all said and done – and I’m not talking about hypothetical ones.
Whatever we’ll get – I’m dressed for the occasion (yes, I’m almost that handsome – well, almost). Now, that I’ve set the stage for you guys (and have the attention of the girls), let’s look at some charts:
The least important chart today is our wave count. Quite frankly – it’s quite clear at this stage that we are in a downtrend that either resolves itself or may paint a bottom and turn into something else.
Clockwork Orange keeps us locked in that current down channel. Which means we may pop a little on Monday morning but then reverse and paint new lows later in the week.
Soylent Green territory begins after 1070 – if we push much above that we will see many funds throw their weight behind a wonderful short squeeze opportunity. Either bears or the bulls are getting squeezed next week. The bears most likely early in the week and if we push higher quite possibly the bulls. I may however point out that if we don’t turn around at the 1100 mark then we’re talking about something completely different. But we’re not there – so let’s not worry about that yet.
But those are just the current high probability scenarios going out for a week or two – what’s a lot more important here is that the current count does not leave much more room for further sub divisions – at some point this bitch has to drop like a rock. After all this is what should be happening around here. In 2008 we had a similar situation and it was driving everyone nuts. I was telling Berk how the slide was overdue and that it simply wasn’t happening. Then it happened – suddenly – without warning – fast and hard. By the time everyone realized what was happening it was pretty much over.
So, when I say that it needs to happen now then it doesn’t mean that I can’t happen. What I’m saying is that it needs to happen by early October – and by that time it should be almost over. So, that leaves us with a very narrow window for a big slide. It has happened before – and there is no doubt that it can happen. But the important message to take away here is that the whole ‘waiting for Godot game’ we had to put up with will come to an end in early fall.
Now that I have shown you the least important chart let’s look at the most important chart for next week. I posted this one last week while we were hovering around that equilibrium center line of that one year channel I suggested. And sure enough we reversed right at the 25% mark – which coincides with that magic 1040 level the funds have been having fun with for the past few months now. Buying the dip here has been a literal gold mine and like Pavlov’s dogs they will continue to do it until they get their ass spanked in a serious way.
The higher we climb in this chart the less credible the short/medium bearish scenario. At the center point the odds are about 50/50. If we push to 1100 the bears have one last opportunity to squeeze the bulls and turn this market to the downside. At the top line around 1130 the odds for the bulls will have increased significantly compared with the odds around 1140.
We need to clear this channel – one way or the other. If we push above it the bears will be in a world of hurt as the ensuing feedback loop will bring buyers back to the table. I’m not sure that’s what the Fed wants – after all a climb in equities supports rising yields in treasuries. But their game may be something completely different and I’m not putting any of my coin on anyone’s interpretation of the Fed’s game. If we breach 1130 I will anticipate further upside and will trade accordingly. Unless of course my momos scream sell sell sell at me. If that happens – well, I will be here to tell you all about it.
If we finally breach 1040 and then 1020 it will be a starting signal for what Primary {3} – there is very little doubt about that. The majority of the longs will draw their line in the sand right there and should we breach it will most likely head for cover. Maybe politics and the November election make this scenario questionable – at least that’s what some claim. Then again – it happened in 2008, didn’t it?
The daily Zero has been pretty lackluster as of late. Just compare the magnitude of spikes we saw early in the year with the snooze fest we had to put up with since mid of July. Yes, that may have been merely seasonal, and if that’s true then it gives additional credence to my perspective that September will be the make or break point for the bears. The big boys are returning now and we should see considerable increase in volume and participation.
The last buy signal we got (see dotted line) was pretty weak and it was only good for a moderate bounce. Thus far we did not see a new low accompanied by a major divergence. But then again, we did not see a big spike down either that would signal that bearish momentum was on the rise. So, I’m split here and thus the odds are split in my mind as well.
Copper started to point up last week and – to no surprise – equities followed suit. Note however, how equities have lagged in comparison with similar levels in copper. This suggests that bullish moves in equities are lagging those we see in copper – a bearish indication. Nevertheless, we are also at a pretty important level for copper – which I have tried to highlight via a blue rectangle on the lower panel. But it’s actually a lot more clear on the point and figure chart:
See, isn’t that so much nicer? I love P&Fs for support/resistance lines. And copper just touched the 340 mark which should pose quite some resistance. If it breaks above then the bearish price objective of 296 may have been revised. Maybe some P&F aficionados can chime in here as well. I have the rules somewhere but don’t have the time to dig them up tonight.
The message to take away here is to watch copper like an eagle. A breach higher would be another ace in the sleeves of the bulls.
My gold:silver ratio chart plotted against the SPX also has touched my one year sell line. Usually bearish things happen at this lower diagonal and this time should not be any exception. Again, a breach here may greatly weaken the short to medium term bearish scenario in equities – so I will be keeping an eye on it.
Currencies is really where the game is being played these days. The AUD/JPY has seemingly been set up with a turbo charger running on high explosive mix of nitro, fuel and oxygen. Seems that the BOJ has had it with lagging exports and is putting the squeeze on the Yen longs by buying the Australian Dollar. Maybe some FX traders could shed a bit more light on this for the benefit of us all.
We are close to the breaching the upper line on my stochastic but that doesn’t mean much. We may push above and become embedded after all – so who knows how high this thing may climb. And that is probably the most worrisome chart for the bears – if equities follow suit here then we’ll see 1100 on the SPX in a very short order. But if it lags then it will give the bears additional ammunition for a long squeeze once the AUD/JPY rolls over.
The DXY is clinging to 82.87 – and not seeing the Dollar getting killed is a plus for the bears. After all, the 18 month climb in equities has been greatly fueld by stomping on the Dollar in the process. You may remember the chart I posted last week which showed the SPX valued in Gold.
Bottom Line:
It’s now or at least not for quite a while for the bears. I won’t say never of course. But the wave count does not give us too many wiggles to postpone the grand finale here. If this is a Minor 3 of Intermediate (1) then it needs to start showing its colors. And the A/D ratio of 5.0+ we saw on Friday should be an anomaly that cannot be followed up – otherwise we have to concede that something else is going on. That simple.
Public Service Announcement:
In the past month I have again put additional emphasis on refining some of my automated trading strategies, with quite some success if I may say. A major reason for my revived focus is a growing realization that the retail trader is slowly going the way of the dodo. I love you guys but just don’t think there will be many of you left in one or two years from now. The market simply has become to complex, narrow, and brutal. And as the old saying goes:
If you can’t beat them – join them.
Now, I have been blessed with some pretty considerable programming experience – after all I used to be a software engineer for 15 years until I decided to retire and focus exclusively on my trading. That however doesn’t mean that I stopped hacking code – quite on the contrary: I merely had become tired of working on other people’s projects and quickly found that my skills were a lot better used working on trading strategies. I seem to have a knack for seeing patterns and putting my observations into code and thus working strategies is a very rewarding endeavor for me – mentally as well as monetary.
Incidentally, the strategies I am testing and continue to optimize until I am ready all have been back tested starting January 2007 to the present. The reason for that is that I believe that any strategy which was able to survive the past four years should at least have a fighting chance moving forward. After all, we are talking about some very dynamic and contrasting market conditions here.
There will be several announcements in the next few weeks – and I believe you will appreciate the kind of stuff I have been cooking up. And over the next few months you may see a slow shift towards automated trading. Some of it in the same fashion as Geronimo or evil.rat – which means via email or SMS notifications. But I may also finally hook into Collective2 or a similar service and thus give you guys the opportunity to trade various strategies through an automated framework.
What concerns me a bit is that Collective2 takes a big chunk out of my profits and being the greedy market megalomaniac that I am it would be preferable to find a different solution. So, if you are reading this and know of a better framework please let me know – I’m open to anything as long as it represents a viable and secure solution.
This morning’s gyrations produced a bear trap of biblical proportions. I can only imagine how many grizzlies rejoiced when the former low of 1039.83 was breached by 13 cents – just to then having to watch their legs being chopped in a matter of minutes. I can’t help but admire such an evil setup. I hope you all were watching the Zero as it continued to be extremely skeptical throughout the entire morning drop.
The most meaningful chart for me is one I presented a few days ago:
You don’t have to be a master chartist to imagine how this may be a bad situation for the bears. Not only did we bounce at that 25% channel line again – we did so in short succession, thus painting a very ominous double bottom. Not good!
NYSE A/D ratio is at 5.27 right now – and that’s quite bullish, possibly supporting a move higher.
The wave count is getting a bit gritty at this point. I’m not going to sugar coat it – we should not see such a wave formation at this stage. Fast retracements – yes. Opening gaps – yes. Fake out moves – yes. But a double bottom right here in a third wave? Very strange…
Now, I’m not going to throw in the towel right away. It is possible that we are painting some complex sideways pattern, which after bending a rule or two will lead to a count that satisfies Clockwork Orange. However, it would be foolish to not consider a more insidious scenario – one in which we just completed a very shallow Minor 1 down and are now pushing into a Minor degree retracement which could take many shapes (and burn more theta).
The game here seems to be quite simple – and it’s the one you’re all feeling: This is all about theta burn – delaying the down move as to further discourage the bears. Unfortunately it’s working as I may have to yet again add more theta to my long term positions.
Of course what’s driving all this is the AUD/JPY – and I don’t see this thing turning any time soon. There are some huge currency interventions taking place here and if equities (and the ES futures) catch up it’ll be one hot late summer for the grizzlies.
I am increasingly starting to feel like Michael Burry who a few years ago bought credit default swaps to bet against the sub-prime mortgage market. It’s a long story - but one you may appreciate. The banks selling him the swaps fucked with him all the way to the end – until they finally had no choice but to shut up and pay up. Suffice to say – all through his ordeal he didn’t have many friends. This is no consolation and no – I don’t want to be a Michael Burry. If I see any indications that we are pushing above the center line on my first chart I’m going to head for the hills.
Anyway, we are at Defcon 2 here at the Evil Lair – I don’t like this tape and we better reverse here righ away or bad things may happen next week. Thus far I’m sorry to say that it’s not looking good at all.
Alright, this is getting annoying and I can literally hear the question rattling around in your little chrome plated skulls:
Well possibly – but I have an inkling we may have to endure a bit more of this. Let’s look at our map:
Clockwork Orange has us push us lower straight away as we nailed my initial 1060 target. Soylent Green has us screw around a bit more to complete a b-wave and then pull up hard into a gap fill at 1067. From there we’ll drop even harder, so the difference between those two scenarios is almost academic for long term traders. You ADHD suffering swing traders however should take note.
Both scenarios have a fair chance right now, especially since we just breached a pretty persistent 1051 support line on the ES futures. The Zero readings on the way up have been flat as a flounder, thus supporting a mere corrective move.
The long term trend continues to look solid. However, I would enjoy seeing longer red candles at this point – we are dangerously close to the zero mark on this histogram. But as long as we don’t push into green and expand we should be okay. If anything changes on this chart I will let you guys know immediately.
Don’t over think this – there is not much to do. You are not smarter than the market – no matter how much information you collect and how many charts you look at. We can only do so much in order to determine the odds. After that it’s up to the market to point us in the right way. So far it continues to point down.
UPDATE 12:00pm EDT:
Zero subs probably understand the meaning of this – we just played a very nice H&S formation on the ES futures.
Fast and brutal reversals (on little volume or participation) are expected during meaningful drops to the downside – get used to it – it’ll only get worse on the way down. Before you guys all reach for the eject button let’s look at some target ranges for the current bust higher:
Boy, whoever hit that one is a lousy shot – especially with such a small caliber. My trusted CZ P01 (9mm) clears the center at 50 feet – amazing semi-auto. Any rats resident in L.A. up for a shooting match?
We painted another clean motive to the downside and are right now halting after at a 38.3% fib retracement. Could go higher tomorrow – I like the 1060 cluster but we may just close that gap and push into 1067. However, if we push above 1081.58 then the wave count changes considerably. Thus this is the level where I would recommend to start scaling getting hedged a little on your long term positions.
That’s pretty much it for now – there’s more but I wanted to get this posted during the session.
I think we should just feed some artifical A.I. with a bunch of Socrates quotes and then let it loose on the market. Looks like the old robe donning Greek nailed the support line he proposed yesterday spot on. I can tell you, Plato is in a bad mood right now as he was on the other side of that trade. But he should have known better as he himself said:
I have hardly ever known a mathematician who was capable of reasoning.
Someone should pass that quote on to the respective originators of various toxic assets that pushed our financial markets toward complete melt down – i.e. MBS, CDOs, CDSs, etc.) – most of which are still traded over the counter to this day I may add.
Plato pondering about Mousaka Baked Sedatives.
So, let’s revisit yesterday’s chart and then look at where we are in the ole’ wave count:
Charts and commentary below for anyone donning a secret decoder ring. The rest of you guys will have to wait until tomorrow – sorry. 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 it includes access to all Gold posts, so you actually get double the bang for your buck.
As my short term equity charts have all slowed down to the point of ambiguity I decided to ignore them all today and apply a slightly philosophical approach to make sense of it all.
After all it was Socrates who said:
A good decision is based on knowledge and not on numbers.
Wise words indeed and what it means for us traders is that all the fancy tools and indicators in the world are completely useless if we fail to put them into context or are able to interpret them to our advantage.
I mentioned this last Thursday – for the past year we have basically been gyrating within a hundred handle channel on the S&P 500 – with the exception of one meaningful attempt to breach it, which of course failed. Although the bulls still act as if they own the place there has been zero progress for either side. This tape is coiled up and wants to finally escape this dreaded channel.
Seems to me there are two forces at work here – one is gravity as dictated by our time cycle as well as the wave count, both of which are suggesting a correction is needed. The other is escape velocity defying said gravity through various machinations by the Federal Reserve in collaboration with the major banksters intent on socializing any losses incurred during the 2008 market melt down.
For the first six months of 2009 escape velocity was winning the day, partially aided by heavily oversold long term conditions. Upward momentum however started to slow in September 2009 and we saw a gradual increase of corrective waves after which a final short squeeze last April completed what we now count as Primary {2} of cycle wave c.
Since then we had a few fast moves to the down side but any attempts to escape the channel shown on the chart above have been thwarted. At this very moment we are smack in the center of this channel – which appears to be the equilibrium between these two opposing forces. The bears are exchanging strikes with the bulls but no winner has emerged just yet. However, it seems pretty clear to me that which ever side is able to breach this channel purgatory will take the price for the immediate future.
So, this very simplistic chart has some very important implications. As we are now in the center of the storm each side has an equal chance to score another touch down. If you look at the quarter channel dividers you notice that they also represent important energy points at which reversals or break outs happen. Only to be presented with another hurdle about 25 handles later. Make no mistake, my dear steel rats, this is a hurdle run and at this point both the bears and the bulls have to hurdles to go.
My suggestion at this point is to do what the market tells us. It’s quite simple – every breach of a line to the upside will diminish the potential of an medium term slide to the downside. If we bust through the upper yellow line then the odds of this happening are reduced by a minimum of 50%. Similarly this applies to the downside. If we push through 1040 it greatly adds much needed credence to the downside potential. And only a push through this year’s lows at 1010.91 will give us a real chance to see Primary {3} unfold as expected.
I know that this is a very simplistic chart but I actually am pretty elated about being able to bring things down to a very basic common denominator. We are in the eye of the storm right now and each tick up or down adds credence to these two opposing forces. Instead of guessing where the market will go we should simply watch this chart and adjust our delta exposure accordingly.
Of course if the Zero (once TOS fixes their data problem, mbmbl… grmbl…) or any of our other short term momo charts are presenting a clear picture I will let you know immediately. Right now however it seems everything is in flux.
After months of patience and braving some of the most excruciating tape in financial history retail traders had to cope with, the final and most exhausting battle still lays ahead. It won’t be the wild gyrations in equities you will have to overcome – most of us are used to that by now. It won’t be the never ending machinations by our friends over at the Fed – or the lack of financial regulations reigning in the banksters. And it won’t be the daily and incessant HFT tape banging. All that, my dear ladies and leeches, was and remains to be the easy stuff.
For we have met the enemy and he is us!
Wir sind so schön | We are so beautiful
Wir sind so jung | We are so young
Unendlich geil | Infinitely horny
Wir sind so dumm | We are so dumb
Wir sind verwöhnt | We are so spoiled
und elegant | and elegant
Wir sind brutal | We are brutal
und doch charmant | however charming
Wir sind so hip | We are hip
Wir sind so cool | We are so cool
Ein bisschen bi | A little bi
Ein bisschen schwul | A little gay
Wir sind so wild | We are so wild
und so versiert | and so well versed
Knallhart und | Two-fisted
perfekt programmiert | and perfectly programmed
Alright, here is where I’m going with this: Most of you steel rats are probably under 35 and hence your brain is wired quite a bit differently from that of your parents or grandparents. Let’s face it – you are all ADHD inflicted information junkies on a high sucrose info diet who can’t sit still for five minutes without as much as glancing at your fucking mobile phone. You are a bonafide information junkie and should you ever have the misfortune of finding yourself stranded in a barren desert (without cell reception – the horror!) you most likely will die from info-deprivation long before any signs of dehydration set in. Yes, you are on the move – you live on the edge – nothing escapes you – every minute of your waking hours is accompanied by a never ending stream of data keeping you up to date, in touch, and well informed. You are a black belt master of the info universe and the more you know the better.
Well, guess what – when it comes to gaming the market – you are in the way. So shut the door, shut your trap, and have a seat!
One of the most famous and at the same time most ignored Livermore quotes quite succinctly captures my outlook for the next few weeks:
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.
Spot on. Here’s another one, which speaks to the lack of patience, a quite common affliction back in days and even more so today:
The market does not beat them. They beat themselves, because though they have brains they
cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the
courage of his convictions but also the intelligence and patience to sit tight.
And finally – one of my favorites, as it debunks an old myth I never bought into:
They say you never go broke taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market.
I could go on as there are plenty of classics to pick from, but I’m sure you’re getting the point by now. So beyond my rehashing of old Jesse quotes – what’s all this about?
Well, the financial markets have a knack for bringing out the worst in people and although there are many vices and cognitive biases to pick from one stands out among all others, and it’s a systemic lack of patience. Quite frankly, the final lesson the next six months will teach you will be to do nothing, nichts, niente, nada, zilch. Am I coming in loud and clear?
Do nothing – check!
It should be so easy to do, right? Just get positioned and walk away, then cash out and focus on getting lap dances from the gold digger of your choice. Turns out it’s one of the hardest things to do and the need ‘to do something’ kills traders on an ongoing basis. Of course this has always been a case, but overcoming this mental trap will be essential in making it through what we currently count as Primary wave {3} of cycle wave c.
The Wiggly Waves
A new glance at the long term picture – now you know why I bought December puts. The long term wave count has us moving toward a mudslide that will quickly separate the bulls from their ill-gotten gains in a pretty scary move – one that should unfold over the next two months. Yes, it’s pretty much black&white at this point and the wave count is only giving me two distinct choices. Either we slide – and that hard – or the count is wrong and we’ll get something completely different Monty Python style.
As you can see we are currently in the humble beginnings of Minor 3 of Intermediate (1) with a rough target of in between 9,000 to 8,500 on the Dow. On the S&P 500 cash this translates to roughly between 975 to 925 – give or take a few panic sessions. Since we had a pretty complex and tormented correction we should then see a zigzag (or flat) to the upside followed by a slide to 8000 on the Dow. Some fellow Elliotticians may disagree here, rightfully pointing toward the current flat as being ’simple’ – thus something more complex could transpire (which for us traders translates into theta burn and sideways strategies). Well, I am pretty open to that and my current POV on the subject is that we’ll cross that bridge when we get there.
More medium to short term we have quite a bit of work ahead of us. In order to even think about any significant downside we first need to overcome the three stooges, with Larry spoiling the fun at 1,065, Curly ready to cause havoc at 1040, and Moe to whip you into submission at 1010. Once we’re clear those three things should accelerate quite nicely to the downside.
If we push up in the coming week – and as you can see a little correction is expected – we should however not pass SPX 1,100 – although it would not kill our overall wave count as we could still paint a running or expanded flat of some sort (although rare at this stage and after an ending diagonal). However, the line we must not breach is 1129.24 – that’s our line in the sand. If that happens then it’s most likely back to the ole’ drawing board for Mr. Mole as the medium term scenario would lose a lot of credence.
As a side note – the preferred scenario at this point is for this current wave to keep sub-dividing, which would lead to an acceleration to the downside. This implies that any upside correction should be quick and relatively shallow. If we hang around too long here or slowly crawl up for weeks on end then there is probably trouble in grizzly paradise.
As per additional evidence: I could post dozens of charts this weekend but decided against it as there is not much additional that I have not shown in prior updatest. Most of my long term charts continue to strongly point toward a deep drop to the downside. And the short to medium term charts are a bit mixed but do entertain this outlook. So nothing new to work with and thus there is nothing new for us to do except for doing nothing (see above) and wait things out.
And Until Then?
If it happens it will happen soon – until either proven wrong or right there is not much to do right now. You can play the swings Zero or Geronimo style a little if you like, but don’t get too overzealous and caught up in the daily gyrations. If we get what the charts are proposing the long con is the right play here.
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