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

Time To Strike The Iron

We are at an important inflection point this morning and it’s time to strike the iron as it’s hot hot hot! I’m running a bit late today so I only have time to report on equities – but it’s a very good one, so pay attention:

This is what’s working in our favor right now – the GBP/JPY is still looking divergent or at least unsupportive. Could change quickly but there are no guarantees in the trading game. So let’s look at the price action on the futures side:

This is a textbook RTV-S configuration and you can play it by the rules. My discretionary style however differs a bit from Ivan and Scott which is why I use Net-Lines as additional price inflection points. Sometimes they afford me better entries near important price congestion clusters. In this case we have a typical 1-2 pattern here (if you allow me a tiny bit of wave wanking). What comes next will of course determine where prices head next. I personally have no bone in this fight (yet), so I’m able to objectively assess all entry possibilities that the tape is affording me right now. Here we go:

  • Short via the NLSL below 1948.25 – put your stop above a few ticks above yesterday’s highs (1953.25).
  • Short via the regular RTV-S entry point one tick below (or at if you want) 1937.25. Your ISL will again be above 1953.25. This will result in a smaller position size as you are affording yourself a larger stop. When in doubt use our handy futures risk calculator.
  • Long above the NLSL or yesterday’s highs. My stop would be below 1937.25.

Now I know what you’re thinking – those NLSL entry triggers are dangerously close to each other, and you’re right. I will have to monitor the Zero after the open (you do have a subscription right?) as to assess whether participation favors more up or downside. If you’re cheapskating it I suggest you watch the 100-hour SMA on the spoos plus the GBP/JPY correlation. In summary I’ll be all over this like a fat kid on a Mars bar – this could be a very fun campaign.

You have been briefed – now get busy!

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.


Once The Last Bear Has Left The Bus

Just yesterday morning as we were scraping all time highs I suggested the following: After a three week melt-up the bears are feeling pretty crappy right now – there’s very little desire to short this rally and in combination with yesterday’s doji we may be due for a small correction. Apparently the last bear had finally left the building and after some consideration I believe we may be getting more than just a little dip lower – let’s review:

Let’s start with the obvious – as you recall the GBP/JPY was pointing down strongly and gravity has finally set in on the equities side. Some prefer to follow the EUR/JPY which actually is looking even more bearish.

This is the ratio between the SPXA50 and the SPXA200 – this refers to NYSE stocks above their 50 and 200 day SMA. The ratio shows us inflection points when we should expect normalization – i.e. medium term corrections. Since about early 2013 the 1.0 mark (i.e. par) appears to be where we should expect a shake out and we have pushed a bit beyond it last Monday.

On the volume profile side we never had much to work with since about 1890 – remember how long it took to overcome this? I see us either holding right now and right here in which any of the below becomes moot. Or we drop to 1925 for a bounce. There again we either hold or slide quite a bit lower.

Here’s the hourly SPX – I always like to look at the cash which guides my activities on the futures. As you can see we finally gave up the 25-hour SMA and now it seems the 25-hour Bollinger is being breaches as well. Again, unless we see a recovery here late today we are probably due to visit 1925ish (which lines up with what we see on the volume profile chart – nice!).

The Dollar meanwhile is pushing against its 100-day SMA and I fear that the buck literally stops here. A continuation higher would be very positive as it not only would get us above both SMAs but also interrupt a sequence of lower highs and lower lows. I would very much welcome such a move but call me skeptical.

But we’re just getting warmed up – I have a few more goodies up my sleeves plus I’ll tell you how to best get positioned here. Please step into my lair:

More charts and 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 subscriber you get free access to all Gold posts, which gives you double the bang for your buck!

Please login or subscribe here to see the remainder of this post.

Bonus Chart:

If you ever called me an idiot you may be on to something. I don’t know why I bother trading complicated setups. I should just go long on three consecutive green candles and short after three consecutive short ones. I mean is this the easiest futures contract ever? Literally a trend trader’s wet dream. We should consider trading with the trend here on a regular basis. I think I actually pointed this out in the past – this is a very well behaved contract. However it’s thin and you probably get a bad fill so it’s not something to jump in/out in – be in it for weeks at minimum.


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

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