I’ve been absent, with nothing to say. The slow motion melt-up of the last few weeks has reminded me of times a few years ago when I succumbed to stupid trader bias and held short.
Therefore I hate this type of price action, and recognizing the desire of the unconscious to “fix” old trading wounds by overtrading, I generally stand aside from markets when they exhibit my least favorite, but easiest to trade type of price action.
Note how each move was kicked off with a FTD. On of my market heroes, Mark Minervini (read his blog its the cat’s ass) has done statistical analysis on major moves on the SPX. In the long term (over 30 years of data) something like 84% of major moves are kicked off with a follow through day (open at the lows, close at or near the highs, increased volume, > 1% range)
Now in a squeeze driven market, where shorts are constantly offered tempting short trades which don’t work the best setups are hammer candles and inside days
Now we have reached an inflection point. My working thesis is below, that we are at post GFC highs.
Rather than try and predict what will happen here, lets see the evidence. The highest probability outcomes are listed in the chart below. If we keep going up, expect a little profit taking pullback after such an extended move, then its long and strong for the forseeable future. This would likely line up with a widely expected announcement of QEIII (though news does NOT matter)
If, however, the bears manage to stage a REVERSAL right here right now, this would be a low probability outcome.
As we all know, WHEN LOW PROBABILITY OUTCOMES EVENTUATE, EXPECT LARGER THAN USUAL MOVES!
Bottom line, if the bears get it together here, don’t hold long.
Now whats my evidence?
Look at the failure at the top bollinger band, painting a hammer candle (bearish). This indicates that the market tried to make, and failed at fresh highs.
Now this is NOT ENOUGH TO GET SHORT ON! particularly when the bears have been battered to pieces.
However this is a time to be watchful and accumulate further evidence.
Now I sense a disturbance in the force in related markets…
Exhibit A – does this look like a normal day of trading in Gold to you?
Exhibit B – AUDUSD should be shooting upwards like a rocket right now after 2 weeks of corrective action, but it is not. A failure at old highs is bearish
This is not enough to get me short, but its enough to tell me that the character of the markets is changing.
Now for my final trick… This is an incomplete weekly setup for copper for next week. It is painting at present a RETEST VARIATION SELL SETUP on the weekly charts, which would be a failure at the 61.8% retracement level.
Perfect bearish technical setup. Don’t jump the gun, wait for a breach of the weekly lows next week
Here’s your Evil Speculator prime directive when it comes to picking targets for your discretionary trades – do not overstay your welcome! You put on a hot trade – it’s pushing in your direction and eventually touches your target. And that means you are out – the only exception being a few lottery tickets if you can plausible justify a second target area.
Case in point: Silver – just yesterday I told all of your short term traders to be out of silver post haste. Today’s candle may have been a rude awakening to anyone not heeding that call yesterday. The story is a bit different for medium to long term trend traders of course and it’s something I addressed in my recent posts.
How do I do it? Pixie dust mixed with evil magic of course. Alright, moving on – please step into my lair:
More charts and cynical 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 or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
Ole’ bucky is back for a retest of its two SMAs (i.e. the 25 an 100 day I follow). The question in our collective rodent brains right now is whether this is a last kiss goodbye or if it can stage a reversal. As much as I would see the Dollar regain some of its faltering purchase power I think the bears currently retain the home advantage. Wake me up once this thing pushes above 79.1 – until I am going to take this as a short trade reload.
Natural gas – this is the continuous contract chart and be aware that if you put up /NGJ2 you will get a similar price but your chart will look different. Anyway, I go by the continuous chart which proved yesterday’s buying opportunity as a good call. Remember that we are dealing with an ascending line here so you may have to adjust your stop upward in a day or two as we churn around here.
USD/CAD looking pretty sickly at this point and I would not want to touch any long positions with a hazmat suit. We may get a retest of that NLSL – use it to take on more short positions with an easy stop just a few pips above. This so far has been a great trend trade and as long as that 25-day SMA remains intact there’s very little for anyone holding positions to do.
Last but not least the EUR/JPY bestowed us with the coveted inside/inside day candle. Trades just like a regular inside candle but I think the odds are better (Scott – correct me if I am mistaken). You know what to do – if not please consult the Evil Speculator cheat sheet.
I don’t really have much to say today on the equities front. The tape is flailing around just as expected and there’s nothing for us to do unless we paint a meaningful correction or progress upward toward 1390. We do have however two new profit targets in the Evil Speculator commodity pit – and for us stainless steel rats that’s always a happy occasion:
Silver has pushed outside both 2.0 BB bands (i.e. 25 and 100 days) which means you thank the dark Lord by sacrificing a chicken (devouring a chicken salad from Whole Foods is acceptable) and immediately proceed to taking profits.
The weekly chart also suggest some impending resistance and if you are a short term trader you want to be out here for sure. However if you’re in it for the long term then holding some lottery tickets into 45 is absolutely an option. But let me warn you right now – the journey will be bumpy so you better make sure you have the staying power.
Not sure how many of you guys grabbed that wheat entry a week or so back but we are now near target as well. Since it’s a pretty small (and less liquid) market I would not want to overstay my welcome and start taking profits now.
If you have been following my work for more than a week then you probably see why the weekly chart strongly supports my view. We have a confluence of three factors here – the 100-week SMA, the upper 25-week BB line, and there’s that old (but admittedly now expired) NLBL. Sure we can push higher here and if we do it may accelerate – but first we’ll have to overcome a lot of hurdles here.
So this is what I suggest – be out here and watch wheat for a while. If it pushes above 680 then take a long entry with a stop below the 100-week SMA. Expect a retest and expect having to take this entry several times as it’ll try to shake you off. IF it manages to touch 700 then I think we could be golden here into at least 800 and most likely much higher. IF of course is the applicable word.
Since I have only one measly entry today I may as well post it in the clear. Natural gas is back at its support line – very clean/easy entry here. If she gives then we probably drop into 2.35, so don’t be afraid of turning that trade around if you’re stopped out. Use that diagonal on my chart for placing your stops. Again – a pretty easy setup and the more touches we get on this rising diagonal the higher the odds it’ll be good for a long entry.