Rolling With The Zero

If you are a sub then you know that an important aspect of what separates the Zero from traditional short term momentum/trend indicators are divergences. It’s not that other indicators (e.g. stochastics, RSI, MACD, etc.) won’t paint them – they do. But many times they trigger either too early or in many cases way too late, thus diminishing your potential edge. The holy grail, so to speak, is an indicator that paints appropriate signals before prices reverse, not afterward. I am not sure if the Zero should be called that but quite a few subscribers have been happy (and profitable) campers for several years now.

There are actually several good divergences in the past two days but today’s session is almost a textbook example of how to play them – in particular as we got one to the up and one to the down side – the Zero of course loves to play both. As you can see two hours into the session we are painting new lows but the Zero Lite (on the 5-min panel) is already starting to point up. You may have gotten in early or waited for a retest of VWAP after which we started to paint a positive signal. The inverse happened near today’s highs (at least as of this writing) – we rapidly pushed higher but the signal was slowing down – plus we were painting outside our 2.0 BB. If swing trading is your game then this is the kind of stuff you want to see. And if you want to see the Zero in action then you may be interested in some of my EOD Wrap Up videos – it’s a great opportunity to see first hand what separates the Zero from the rest.

Recently I also added scalp signals to our chart which are based on the Mole indicator shown on the very bottom right. If you are interested in more details then look no further than my recent post Scalping With The Mole.

On the charting side there’s not too much to write home about today – let’s look at the spoos. Thus far the 1330 resistance cluster on our daily chart remains in good shape. As you may recall we are more interested in what’ll happen over on the monthly panel:

As we today will finish the month of May I am eager to see how we close out – as always we should be cognizant of possible EOM tape painting. I am not going to call the bulls in trouble just yet but suffice to say that we have two more hours in the session to go until this monthly candle concludes. IF we close below then it would be one more strike against the continuation of what was a six month up trend. The next breach we are looking for was mentioned on my P&F chart – sorry subs only 😉

Speaking of which – there has been too much freeloading lately – please step into my summer 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.

I’ll be rather quick today as there isn’t too much on my plate – sorry, guys – I only report the tape, I don’t make it. Soybeans are at support and may be good for a low probability low risk entry. I am long at the 100-day SMA with a stop only a few ticks away.

ZN is showing us a Net-Lines buy entry – which is great as ZB already ran away from us. Frankly I have no idea how much longer this ramp can sustain itself but I what I do know is that short squeezes can go on for a long time. Anyway, simple entry here with a stop right below that NLBL – or you can use today’s lows if you play it very small. Don’t throw too much coin at this trade as bonds have been volatile lately.

Bottom Line: We are still in the 1330 – 1295 limbo zone. I recommend you don’t take sides or fall prey to overtrading until equities show its cards. Today’s EOM will give us additional information but we want to see prices follow suit. Also remember tomorrow is the FOM and things may revert a little – maybe Volar can give us an update on the pertinent odds for the month of June.


Target Alert:

We have a target alert on Natgas – you may recall that inside day entry three sessions ago. Not a trade for the history books but don’t underestimate how consistent nickel and diming can mean the difference between a good or a bad year.


Medium To Long Term Perspective

Let me start out by stating that I don’t trust this tape at all. It feels a bit engineered and a short trading week usually opens the gates to much monkey business. But as a few bearish charts are starting to come into sync I decided to devote a follow up post to some of the perspectives I have shared in the past few weeks.

Yesterday we took a quick peek at the long term spoos chart. My sense was that a close below that monthly NLSL would be bad medicine for the bulls. I also threw out the potential of a last kiss goodbye at the 25-week SMA. All in all it was a great shorting opportunity though with only a few handles of risk. But that was a short term trade and if you took it you should be out by now, no matter where we’ll end up today.

This is actually the most bullish chart I was able to dig up today. My SPX P&F is currently suggesting a bullish price objective of 1395. In the context of what follows below this is a bit curious – but who am I to argue with a chart that has treated us rather well for the past few years. Rather let’s focus on defining the inflection points at which we see confirmation or failure for this projected price objective. In my mind 1295 is where the bullish case dies – and 1330 (remember our volume hole?) is where the bulls gain traction and probably win the day. In the between we remain in whipsaw central and none of you are going to have much fun.

Alright, and now on to the good stuff – I do have a few medium term divergences in store which you should be aware of:

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.

Exhibit number one: JNK:TLT ratio – has been leading downward for a while now and it’s already making new lows while equities are still lagging behind. Who are you gonna believe? Credit or stock market traders? Before I look up I’d love to see a bullish divergence here – so far nada.

This is basically the AUD/JPY – it remains carry trade central and thus our closest FX correlation to equities. Also note that beautiful bearish divergence a few months ago. Its leading equities down as well and the next support level is near 0.77.

Copper also leading equities to the downside – next support is near 3.30. Again note how copper is making new lows while the SPX is holding behind. Also note the bearish divergence a few months ago.

On the NYSE down/up volume ratio chart I have been waiting for a breach of either support or resistance for a while now. We may have one right now – if it is a false break out then it should swing back in the next day or two.

On the treasury side we seem to be holding my channel on the 2yr:20yr ratio. Thus far it has been calling the TBT rather nicely so if you’re holding that or TLT then keep an eye on it. An upside breach would have to make it above 0.12 on the ratio.

I’m finishing up with crude – here’s the medium/long term perspective. As suggested that 25-week SMA touch was a last kiss goodbye after which things got really ugly. This chart however does not give us much meat in respect to target zones or support.

Which is where the P&F comes in as we still have an open bearish price objective of 84.5. Didn’t that sound ridiculous just a few weeks ago? Well, we’re getting close – as I’m typing this we are scraping 87.5.

Bottom Line: On the long term I am very curious as to how we are going to close out May tomorrow. If we remain below that monthly NLSL then it could lead us lower even if we get a temporary snap back. Obviously that bullish price objective on the SPX P&F is our proverbial fly in the ointment, which is why I suggest to wait out a breach of either inflection point highlighted above.

Keep it frosty and don’t start guessing directions – the tape will lead the way.



Honest Now

It’s early in the session but I thought I’d chime in real quick as we have some movement. Now, I hate to quote myself (not really) but alas:

I think it’s great to be short here until we push above that 25-week SMA at 1336.

And I admit that this may have been a scary trade but not really if you kept an eye on the spoos and set your stop accordingly. Where are we painting right now?

Honest now – who of you guys took this setup? I want to see hands – especially you subs. Anyway, I think I’m pretty comfortable with taking profits right here and now. Truth be told it was a small position as I tend to listen to my own advice, but…

… given a 11% jump in IV my OTM puts are looking rather sweet.

I’ll put up another post later but if this holds through the EOM then it may have medium to long term implications.

Carry on!

    Zero Indicator

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