Alright, some of you non-subs may wonder what the Zero hoopla today was all about. Well, let me show you:
The gyrations of the past few days have been torturous – even the Zero was having a tough time making sense of it all. But it’s a triple witching OPX week after all plus we are in a Minor 2 wave correction. Things have a tendency to get crazy under such conditions.
There was a ‘turn on the dime’ moment on the Zero Lite (lowest right panel) late in the session and I simply couldn’t make sense out of it. We didn’t even get a divergence there, which is quite frankly unusual for a pattern like that (Zero subs – please chime in – I am not making this up I hope). Anyway, we dropped down steadily and the tape looked like it was about to fall off the plate at the 1102 mark. However, the Zero Lite was pointing up. I sensed that a divergence was in the making, so I painted a green line indicating just that.
The bulls did however give us one last fake out – as you can see the signal line droops down a little more. I thought to myself – damn it, I just told everyone to not chase this move! But I kept my emotions in check and decided that as long as the prior signal low wasn’t breached the divergence was not violated. So, I straightened the line at the prior low mark as a ‘line in the sand’ for anyone who had gone long.
Turns out the Zero Lite was spot on – that ramp up was merciless and a bunch of bears are applying Vaseline to their hines as I’m typing this. See, the ZL does not catch all the moves – but it usually catches the good ones. You can call it ‘taking it up the rear by evil market makers insurance’. The monthly fee for the policy is one handle on the ES futures – I personally think it’s worth the investment. I’m sure today the subs would agree
This chart was actually sent to me by a subscriber who managed to play a cross-session divergence as painted on the chart. It’s another example of how divergences can give you additional hints about market conditions and help you in making directional swing calls. However, I have to point out that I usually don’t play cross-session divergences – reason being that I believe each session has its own flow and characteristics. There is also a lot of tape in between (i.e. overnight) that is not being accounted for by the Zero. Unfortunately I cannot extend the Zero to overnight sessions as I require certain market measures which are not available outside of the NYSE session.
If you’re interested in giving the Zero a spin then here’s where you go to sign up. There are no auto-renewals – if the Zero doesn’t earn its keep you simply don’t resubscribe. The daily Zero also happens to be a pretty nifty tool for long term traders. I have posted that chart on several occasions and it’s been spot on calling that June 8 low – and all of the major ones in the past year. It’s up to you if you want to trade without it – I for sure wouldn’t.
In retrospect the signal on the Zero was pretty enlightening today. I thought it important to post this chart for the rest of you as a big learning experience when studying the Zero myself in the past two years were two things: One are explicit signals of course - what the Zero does and how it lines up with price gyrations. Another example of explicit signals are divergences, which have kept us out of trouble on countless times. The second most important clues for me is too look out for are implicit signals, meaning what the Zero doesn’t do. Instead of boring you with paragraphs of dry explanations let me just show you:
Early this morning we got a pretty nice bearish divergence (green and red arrows) and it was pretty clear that this blow off top would have to come down during the session. After that the tape kept gyrating lower but the Zero Lite stayed almost completely flat. Only when a few stops were being run it managed to stoop a bit lower but only marginally, especially compared with yesterday’s positive signals.
I knew right away that something was up and that any drop would be reversed – and I was not shy about pointing this out to my subs. The rest is history and we closed near the highs today, another daily white/green candle. Now, you may ask – how about the flat signal during the ramp up? I am glad you asked – and it’s an important consideration as well. If we cannot trust the down tape when the ZL is flat – how can we trust the rally when the signal remains so?
I think this is best answered by referring to a lesson I learned a long time ago, which is that everything in trading is context specific. Had this happened a week or two ago when we were dropping I would have thought – well, the upside is not believed. But it seems to me that we are right now in a temporary up cycle, and the medium term trend rules the day until it is broken. So, when I get downside in an uptrend – I need to believe it! Otherwise it’s just a down fake to reel in a few more bears. The upside does not have to be proven to me – and simply suggests that there is a lack in participation. There – I actually got to the core of the issue. If there is a lack in participation then probabilities usually point towards a continuation of the current trend. Only a sharp and strong counter signal can question the current move.
The above is why turning the Zero into a black box trading system is quite difficult – because there are explicit and implicit considerations. There are probably ways to code all this into a strategy and I may try in the future. But until then just using our own human brains mixed with a bit of intuition (sparingly please) does the trick just fine.
Shameless plug: If you want to give the Zero a spin – here is where you sign up. And if you happen to need any further motivation – if you think this is cool then you should see the way the daily Zero is calling major lows consistently for the past year
For the bulls we are quickly approaching a line in the sand that must not be breached. If we breach the May 6 lows things will get out of hand quickly. We have pushed down quite hard and an updated wave count is needed – we have a line in the sand, and for the first time in a long time it’s one for the bulls
Soylent Green is still a possibility but it dropped from 50% last night to about 20% as of right now. The line in the sand that can’t be breached is 1065.89 – a drop through that would immediately relegate Soylent Green to the dustbin of history. But do not think there is no chance and that a further drop is guaranteed – I have seen very deep c waves and in my time. We are already seeing a bullish divergence on the Zero Lite – and remember, tomorrow is OPX day
After my Soylent Green warning last night I actually kept on plugging and figured out a few more things. One of which was that the proper currency pair to watch is not the EUR/USD but this:
This is the 30min version but I usually look at the 5min version intra-day. In any case, it seems that the EUR/JPY is really where the action is as it matches the ES futures’ gyrations almost to a wiggle. And if you look for today’s drop you won’t find it in the EUR/USD – but you see it most definitely in the EUR/JPY.
12:46pm EDT: I have to make a very important point. Here I was pimping the EUR/USD correlation all week and after some additional digging it turns out that the ES futures follow the EUR/JPY a lot closer. And that has a big impact on the entire picture as it takes the Dollar out of the equation – well, theoretically, I don’t want to jump onto a new conclusion right away. But consider this – all it would take is a continuous drop in the JPY for ES (and equities) to potentially drop further, even if the Dollar corrects downward. I have to dig around to see how shot to hell the EUR/JPY is but it comes to show the one thing I keep preaching to everyoe: Don’t trade correlations – they at best serve as a bias.
So, in conclusion: I am glad that I proposed Soylent Green last night as it’s a perfectly valid scenario (the odds of which admittedly dropped this morning) but I need to reconsider if the DXY is the right instrument to follow when it comes to a correlation to equities and the index futures. Of course I keep on diggin on that end, and will follow up with an appropriate update. Sorry if I can’t offer more right now – the best I have right now is the chart above – keep watching the EUR/JPY for possible clues. And the Zero of course
Closing Bell – EOD Wrap Up: I just came back from a meeting 20 minutes ago and was surprised to not see more of a push back. Especially in the context of today’s EUR/JPY gyrations:
After the close we were pretty shot to hell on the EUR/JPY – at least short term. As expected there was a retracement and when I saw a bullish divergence on the Zero Lite I thought it would follow suit. But to my surprise (and general amusement) the bulls were unable (or maybe unwilling) to buy the dip and run after the EUR/JPY nor the EUR/USD, both of which pushed upward.
That’s how things looked like on the Zero and Zero Lite. You can see the divergence I mentioned and an attempt to ramp things above VWAP is being made – but ultimately fails.
Situation is looking pretty bearish here – we are but five handles away from Soylent Green biting the dust forever – as of right I give that scenario maybe 5%. I would completely throw it out weren’t it for OPX Friday tomorrow – trust me, I literally have seen horses puke on OPX Fridays. But today’s signal looks real – you can’t fake that type of bearish momentum. If the signal was flat I would give Soylent Green 10%-15% – but as it is right now the bulls are short of getting manhandled Sing Sing style.
The past week show various examples of how the Zero indicator continues to give us important clues as to what is ahead. Let’s review:
If you ever have traded the ES futures you know it’s a tough game. Weak hands are quickly sent to the dustbin of trading history. Well, we consider keeping traders from getting rolled over by the big boyz a public service (which doesn’t keep us from charging a subscription fee as we are evil by nature) – and this is how we do it:
Let me reiterate a few things for any noobs who may want to know about how this evil creation works. First up, the Zero is not new – it was created about 18 months ago by yours truly. Since then it has gone through a few revisions and improvements but the basic signal has remained the same. It’s not an indicator per se – it’s a market oscillator that shows us participation and momentum. When the lines swing heavily in one direction we know that a strong trend is building which may stick around for days or weeks – sometimes longer. The Primary Zero (PZI) is on the left and the Zero Lite is on the right. Although the PZI is great in evaluating the overall medium to long term trend, the Zero Lite is really where the action is. We are mostly looking for the level of participation and most importantly we are on the look out for divergences. I have highlighted out a few in the chart above.
What’s immediately apparent even to the untrained eye is the weakening signal on Friday and Monday. We dropped a bit more on Monday but prices were not confirmed by participation/momentum, which was looking less bearish by the hour. Something was up – and we weren’t disappointed as we got served another whipsaw yesterday afternoon and a gap this morning. Which however was not supported by momemtum, which is why I was hedging hopes that my line in the sand on my wave count may be observed. For the record – we do often see tape whip higher on very little momentum, so early this morning we did not know. But a give away was the sudden drop after the open, after which the signal started to increasingly go negative.
Finally, you see a developing bullish divergence late in the day, which was a signal to start taking profits. Yes, sometimes we do see the signal change and break through but in the majority of cases these divergences deliver.
BTW, in case you care: A good word to describe the action of the past two days is distribution. It seems the boyz whip the tape higher – get out and leave someone else to hold the bag. Not us that is – we are on them cats
I hope that this little post mortem of today’s action helps the rest of you understand the value the Zero delivers to my subs on a daily basis. Price lies to us all the time – especially these days – but the Zero Lite is our resident lie detector. Often indicators or systems break after a few months – I was never worried about that happening with the Zero. Why? Because it shows us what the market is really doing, not what it is pretending to be doing.
If you are interested in subscribing to our Zero oscillator then don’t waste time and sign up here. More details and a brief tutorial (which is a bit behind – which is why I paint on the chart a lot during the session) can be found here.
Alright, time to roll with my biatches – who got the keys to my bimma? (crank up the bass)
8:00pm EDT: Something’s cooking – all the FX pairs I follow are down right now. I don’t recall ever seeing something like this. It’s is starting to look like real fear our there:
Don’t chase those currencies down – this can snap back wildly if the ECB (or the Feds) decide to intervene.
Now this was a fun day – although bananaben would probably disagree. Sorry buddy!! You’ll snap back from this!
Well, to the bears I now give the same advice I would give to that 40 year old virgin. Dude, you better close the deal this time!
This is why – we closed far outside the 2.0 BB on Mr. VIX. But the worse news is that the LOWER border of that BB is now extending a lot further down. Good luck seeing a push below 14 anytime soon – sheeesh. The bears better make this one work, ladies and leeches…
More short term – check out the divergence we saw on the Zero Lite:
Yes, we prefer to see those intra-day and a lot can happen overnight. However, it’s reasonable to assume that Ben and cronies may hold some kind of emergency session overnight and that we might see some push back tomorrow morning. Now that said – more longer term it’s interesting that we reversed right here and now:
Plenty of charts below for subscribers – Evil Speculator Gold will set you back a whopping 29 bucks – less than you handed your Starbucks barista this week
Oooh – she looks like she’s going to hurt you if you don’t know the difference between a Venti and a Grande – I like her….
That’s right – we bounced right off the 61.8% fib line.
We also bounced off the 78.6% fib line on the COMPQ – coincidence I think not!
I’m sure you are all familiar with the concept of ATR – Average True Range. Look how we seem to push up just before we paint a meaningful retracement. And that divergence is getting stronger each time around. It’s another expression of increasing volatility and that is something we want to see ahead of a retracement.
BUT – will it happen tomorrow? Not sure – the Zero Lite is telling me that there is a good chance for a snap back, which hopefully will be manhandled by the bears and that within a day or two. If not – well, then all we’ll see is yet another buying opportunity. I for one am sick of seeing green/white candles.
UPDATE 8:40pm EDT: Bonus chart!
Copper futures are painting a little divergence. It’s not a massive one, granted but considering the big picture it’s yet another clue.
You’re going to hear a lot of spin and frankly a lot of misguided remarks regarding the Fed’s change in the discount rate.
The noise, the noise – the noise!
Personally, I don’t give much credit as to whether or not this was anticipated or meaningless since the Fed is simply unwinding emergency measures from more drastic times with an instrument that banks rarely use anyhow. History is a much better guide than heads talking. In this case, history is relevant, but it will be the interest rate markets that will dictate how much and when.
Historically, a first increase in the Fed’s discount rate has little impact in and of itself, but stocks will be affected more or less according to the degree of change in the interest rate picture; in the months following.
Though it has not been re-edited since the 1990’s, Norman Fosback’s Stock Market Logic is a great source for studying bias in the market following a changing fundamental, such as a shift in interest rate policy. Here is Fosback’s summation regarding the stock market impact following an initial increase in the discount rate:
In the twelve months following increases in the discount rate, the stock market has also risen, but at a below average rate of less than 1% per quarter. Hence, a discount rate increase leads tends to act as a depressant on stock prices but not as an actual negative force. Or, more precisely, discount rate increases tend to mirror increases in market rates of interest which are the actual depressants on stock prices. Since it is always preferable to select the most direct indicator available, discount rate changes must defer to other interest rates as superior monetary forecasters of future stock market behavior.
The point to take here is that now is an especially keen time to monitor interest rates, as priced by the market. If short rates rise from here, we should accept this as a worthy depressant for stocks.
The Fed does not lead the market when it comes to rates (nor do heads talking), but the other way around. The market prices interest rates and ultimately the Fed follows suit. In this case short term rates had already moved-up (from essentially zero) before the Fed responded. Should we see further increase in short-term rates from here, the Fed will further increase the discount rate, as well as the more relevant Fed funds rate. Re-read this paragraph and you will be an expert on predicting the Fed.
Focus on how the various markets respond to market interest rates and vice-versa. Today’s action from the Fed may not yet be significant – how stocks trade in succession with interest rates will tell the tale.
And (in case you weren’t really sure or someone argues it doesn’t much matter), further increases down the line will become more and more of a depressant. Three Steps and a Stumble is a classic Fosback rule for changes in monetary policy and essentially insures some amount of hell lies ahead for stocks. This move is but number one – let’s now look to the rate picture as it develops to determine whether or not further steps are or are not yet looming.
Equities today seem to have turned themselves into the equivalent of a juvenile beer bonging crack snorting party animal. Start with Jaegermeister, sniff some glue, then comes the oxygen, pop some downers, some uppers, a venti shot of espresso, then home for some hot action play fueled by Ecstasy.
Party on Wayne – but remember there might be a big hangover looming next week
Translation: Bearish wedge. Swing traders were having a field day.
Before I run here is a very ominous screen grab from the Slope:
Now T.K. was never known to be a ‘macho man’ so to say but this has clearly gown way too far. We are talking rose petals, un-manly cocktails, chocolates, ribbons – the works. We even got ourselves some ad banner flip flopping – obviously someone reserved the right to change his/her mind on EWT during a premenstrual cycle. Which leads me to assume that Tim has been either abducted by Goldman Sucks (so gay), the ACLU, or at least someone with horrible taste in interior decoration (a punishable offense in itself over here in the evil lair). I can guarantee you there are pink soap bars and cushy carpets being placed in Tim’s bathroom as I’m typing this.
Whoever you are – what have you done with Tim Knight, and what are your demands? We want our grumpy tasteless bear back!
On a completely different note – I absolutely loath Valentine’s Day – yuck!!
Now might be a good time for you dirty rotten bastards to order your ‘evil speculator riding the black swan shirt’ – or in short, your personal evil-tease (click on image):
Remember, I don’t make a dime on those to keep the cost down.
SPX is red across all sectors – it’s a bloodbath out there – starts looking like Hades down in the pits. NYSE A/D ratio currently at 0.1113 – this is not a typo. For the noobs – that is BAD.
I think we can expect a bounce around the 1060 mark – not a big one – just enough to let this third wave sub divide and lead us towards 1035. After that the abyss awaits – get your fucking evil-tease – you will need them for the occasion.
I wish there was a subtitled version – you rats have no idea how applicable the lyrics are.
And there you have it – what we experienced this week has a good chance of being the beginning of Primary {3} in the wave cycle. Which also means that this insane ‘hope rally’ we had to endure over the past 10 months might have finally found its maker. Could it have anything to do with the Democrat’s crapping in their pants after losing ground to Brown in Massachusetts earlier this week? Maybe – or maybe the bullshit meter simply pushed too far outside the red sigma zone and there was no further to go. But don’t get too giddy, rats – as Winston Churchill once remarked:
Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.
I wish I could deliver that in his inimical style – what a man. Someone who wasn’t afraid of looking reality straight in the eye without flinching and ready to make the tough choices. How I miss men of that caliber for there are very few remaining these days. At least in politics – and most definitely on Wall Street. Well, there will be a price to be paid for the hubris Ben and cronies have been exhibiting in the past two years and pay day is quickly approaching. Personally, I revel in the destruction of ill gotten gains – love watch the pigs run around screaming with their tails on fire. What’s ahead now is Mole p0rn TV 24×7 – you bet I got my Tivo on standby
When I returned home about an hour before the market closed I popped up this chart and thought T.K. over at Prophet.net had lost his marbles. Had to double check over with my DTN charts – sure enough – Mr. Vix hiked an incredible 46.7% in a mere two trading days. That – as far as I know – is completely unprecendented. Never seen anything of this magnitude. My puts are loving it and it’s mostly why my account is 30% up since Monday – kaaa-tschinggg!! And I still insist that there will be pushback – expected it to happen today and seems we’ll have to wait for ‘Melt-Up Monday’.
I don’t know how many of you rats are still subscribed to the Zero but it’s simply been rocking lately. Qite clear where the momentum has been swinging and it seems the bulls are not even fighting back. Not a big surprise frankly as the past month was nothing but one heaping serving of distribution. If you think the big boys are being punished here, think again. They are going going going – gone! Retail traders will be the ones with craters in their 401k statements later this year. That’s what you get for being a sucker – sorry, not my fault they don’t read Evil Speculator
Who you tryin’ to get crazy with ese? Don’t you know I’m loco?
Catch you on Sunday rats – and you better be there to read what’s next.
Looking at these price swings in combination with extreme gyrations in sentiment and participation I would be a complete idiot to attempt anything but scalp trades as they present themselves. Otherwise good luck guessing the surprise spike du jour ahead of time (although we seem to trace out the famed shoebox pattern).
Program Trading Update:
geronimo/ES: +2.5 (two winners one loser)
That’s all I got for today – no opinions really regarding the short term direction of this market beyond my musings on the prior thread. Yes, we are topping but it’s a process, not a one week affair. The bulls will stretch out the inevitable as long as they can and market makers obviously love the slow theta burn.
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