Post FOMC Musings

As widely expected the Fed decided to taper by another $10 Billion per month. Worthwhile noting however is that it also delivered on some earlier rumors that it would hint at a more hawkish stance going forward (i.e. interest rate hikes). The response on the equities side thus far has been pretty muted but predictable.  As in draw in all the hobby bears ahead of the announcement just to smack them with a two-by-four post announcement.

Where we wind up closing today is anyone’s guess and to some extent it’s academic and really doesn’t matter. As both Scott and I have been telling you over the past two weeks – entering anywhere inside our current trading range borders on ritual suicide. The chart above shows nothing but the price action of the current month – we’ve got one more session to go. What does this tape tell you? Does anything jump out at you?

Frankly speaking I’m seeing a cigar smoking dragon in a clown suit riding a Harley. Yes, it’s  a complete and utter mess – the only take a way message is that the current trend is either inside a sideways correction or that we are painting a medium or long term top. Given Scott’s posts earlier today and yesterday I would not rule out the latter. Which is why I suggested some cheap insurance – it’s still available but volatility continues to climb. You have been warned.

On the SPX however today’s session was extremely productive as it bestowed us with additional context. See -experienced traders focus on controlling risk while retail chases gains [quote I saw on the ThinkingAlpha feed today]. I really don’t care about the gyrations we’ve been suffering through in the past month. But I care a LOT about price context in combination with various technical evidence.

I’m seeing various momo indicators suggesting a correction is overdue – see above my updated NYA50:NYA200 chart which expresses breadth across the NYSE. It shows as at a possible inflection point but it also does a pretty good job of visualizing the buying exhaustion that may have permeated equity traders. As you can see bullish momentum is oscillating in smaller and smaller signals and over the long term this is unsustainable.

but in the end price will have to follow suit. And for that we need context on the price front. Well, the SPX just produced a technically valid support zone which is rising – and that means the onus now is on the bulls to keep price above 1965 and pushing higher. This may appear of limited meaning to you but for me it carries significant implications.

Quick update on the Dollar campaign I posted about last week. Well, it’s been going pretty well and today’s little pull back was expected. I currently do not see any cause for concern – I’ve been long since 81 and after a three week advance a correction will shake out some of the weak hands. We may even see a retest of the 100-week SMA and I’m leaving my stop in place (< 80.5).

Not surprisingly this has produced a more favorable exchange rate for this lowly expat. I like what I see thus far but the EUR has now approached its 100-week SMA and I expect longs to stage a significant defense down here. Today’s FOMC response has produced a very convenient push higher and some of the strong players who traded this one down may now try their luck flipping for longs here.

Bonds also have responded as well post FOMC – here’s the ZB futures contract which was near its own 100-week SMA just ahead of the announcement. I always get suspicious when I see major symbols approach long term resistance/support ahead of the Fed or ECB. Again shorts now have a good excuse to launch a bit of a squeeze lower but they are facing a weekly NLSL near 136 below. Let’s see how that plays out.

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Cheers,

Bear Time!

As all of you know I am probably the least bearish trader around. I am a trend following pattern trader. However, to all things a season, and it is the exact time for the bears to finally do some technical damage to the tape.

Why do I say this? Because as pullbacks have gotten shallower and shallower over the last few months volatility (real volatility in price right now, not the market take on implied future volatility in the VIX) has fallen to a historical extreme and then painted an uptick. I posted these two charts on Sunday and I think they are well worth a revisit.

Very strong price action late in a trend is a classic sign of capitulation of one side and typically marks the terminal stage of any move. Objectively price action could not have been stronger over the last few months.

Volatility, in this instance measured by a normalized (expressed as a percentage) ATR (14) with a 100 period 1 standard deviation bollinger on it is a good objective measure of volatility (though it must be said it is slightly lagging). Objectively, when ATR is below its 1 standard deviation bollinger it is historically low. When you get an uptick from extreme low volatility it is a time for extreme caution for trend following traders, and counter trend trades become a positive expectancy again.

We are somewhere near the terminal phase of a low volatility melt up. In low volatility moves on all timeframes from 15min to monthly counter trend setups have a very pronounced negative edge UNTIL you have extreme low volatility and then an uptick from that low base. This is a remarkable and repeatable concept I suggest you all take to heart.

Anyhow, I’m digressing. I told you to avoid long setups this week as best case for the bears we are in a trading range and there is not sufficient distance to the upper boundary to justify getting long on a risk/reward basis

Now let’s take a closer look at what happened today, and see how that affects the overall picture. As you can see today’s price action represents extreme failure by the bulls. Perhaps they were waiting for the Fed garbage to play out but still this is very bearish price action.


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Careful of the potential fed whipsaw :)

Scott Phillips

Head For The Beach

It’s the height of summer and over here in Spain we are mere days away from the entire country shutting down in August. Yes, I am dead serious. Starting next week it will be impossible for anyone on the Iberian Peninsula to make a doctor’s appointment, get a haircut, fix your car, meet with an attorney, negotiate a contract, etc. Just found some tentacle growing out of your ear? Tough luck José – it’ll have to wait a few weeks. Got hit by a truck riding your moto and you may have severed your spinal cord? Better walk it off tough guy – those x-rays will have to wait until the doctor’s back from the beach.

Anything business or health related will have to wait until September as most offices here simply shut down for a minimum of two weeks, economic crisis be damned. For a born German who spent over 20 years in the United States this is a rather alien concept to wrap one’s mind around. It’s not that the Spaniards lack sufficient holidays during the rest of the year, if you get my drift. So apparently it will once again fall on me, the lowly Mole, to keep the Spanish economy running for the next four weeks as my lair will apparently be the only business open during August. Hey, but I can’t make any promises – it is brutally hot over here and it’s getting hotter by the day. I think I may have to raise subscription fees just to be able to afford the electricity bill as my industrial scale air conditioner is blowing day and night. And did I mention the humidity? It’s not California, that’s for sure.

Alright, and now that I have properly set the mood let’s see where we are this morning. Still bouncing around in the range of pain – the high volatility sideways range persists and entries near the center are veritable coin flips. But the good news is that it gets worse:

This is the event calendar for today and tomorrow and guess what, it’s that time of the month again. Wednesday the Fed is scheduled to announce its interest rate decision and also report on its MBS and treasury purchase programs. I don’t expect any type of resolution before tomorrow at 2:00pm EDT and most likely we’ll be seeing sideways flat or gyrating tape in the interim. May actually be a good time to watch the Zero Lite indicator if you happen to be a sub as sideways days like that make for good scalping/swing trading opportunities.

For the rest of you guys I recommend you discover your inner Spaniards and find yourself a nice beach, preferably with bar service. And if there’s no beach nearby you live then find yourself a lake, a cool mountain resort, or if everything else fails head to your favorite coffee shop or watering hole. Bring a book and turn off your laptop/ipad/iphone what have you so you’re not tempted to check the tape. Anything will be better than trading for the next 30 hours. That’s it – see you guys tomorrow!

What – you’re still here? What part of taking the day off wasn’t clear to you? You are an addict, you know that, right? Well, I understand because so am I. Which is why I kept hunting around a bit for short term setups to bridge us over until tomorrow. Very loose correlation to U.S. markets would be good. Here’s the EUR/SEK (swedish krona) which is in a very interesting configuration. I want to be long above 9.185 with a stop below the 25-hour SMA.

And then there’s platinum – may be affected tomorrow at 2:00pm of course. So if you grab this long above 1490.6 then be out and about by 1:30pm tomorrow. Otherwise it looks like a solid long setup after a nice correction. Decent odds and worth 1R on my end if it makes it over my trigger.

Alright, and that’s it for today. UNLESS of course something very exciting/dramatic happens during the session ;-)

 

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Cheers,





    Zero Indicator

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  3. recent misdeeds

    1. I Hope You Bought Insurance
    2. Post FOMC Musings
    3. Bear Time!
    4. Head For The Beach
    5. Insurance Is Still Cheap
    6. Don’t buy the dip this time
    7. No Crying Over Spilled Milk (Or Beer)
    8. Entries Do Not Matter
    9. Last Chance For The Bears
    10. Three Strikes You’re Out




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