Great critical discussions going on this weekend – wish I had the time to chime in more but I’m busy coding and back testing several strategies. Unfortunately it seems that the NinjaScript version of the Zero will have to wait until Q2 of this year – their current version does not support certain functionality I require. I know it sucks, but the good news is that I’m learning a lot of C# and NinjaScript and will be able to hit the ground running when NT7 is being released.
I’ll post a forecast tomorrow afternoon – but as a little teaser: The next two weeks are going to be extremely interesting – make or break time
UPDATE 2:17pm EST: IF we hold the 832 level on the SPX, which is 61.8% fib line I drew yesterday, then I have reason to believe that we might rally up to 920 next week.
Perhaps what Eric is seeing in his XLF analysis is an early warning sign. Again, the close is almost two hours away and if we drop from here we might continue our trajectory downward. But I wanted to give you guys an early warning to at least hedge yourself for the weekend. Maybe sell some puts against the ones you’re holding – or take profits.
UPDATE 3:30pm EST: Looks like CatBird got his wish and the market dropped – good for you mate. The Yen is still wrestling with the R1 pivot – it seems that’s the Berlin wall for now – watch towers, moat, and crocodiles included.
We are closer now to the 78.6% mark – still a possibility we rally from here, but the pattern is weakening a bit now. Just FYI – I think being hedged over the weekend is not the worst idea still.
UPDATE Closing Bell: Well, that was an interesting and productive week – only regret I have is not being able to trade most of yesterday. I’ll be posting my forecast on Sunday afternoon – in the meantime take a look this Karl Denninger post – great analysis as usual.
Favorite quote: “Charlie Gasparino was trotted out by CNBC to claim that some sort of deal was imminent”. LMAO
UPDATE 7:02pm EST: Okay, since everyone here seems to confuse Karl’s analysis as mine – NOT SO! People – I was not suggesting to take Karl’s SPX targets at bare value – just wanted you to read his analysis of the Fed’s meddling. In my mind he’s more of an economist than a trader. Obviously I continue to follow the scenarios I outlined for what – 2 months now?
UPDATE 11:43am EST: I see only 36 votes on the latest poll and majority picked the joke response. Seriously – has everyone given up on the Zero or what’s going on?
UPDATE 11:50am EST: Gold baby – GOLD!
What you think guys? I’m trying my luck at yet another gold short. I think that this resistance line should be difficult to overcome – if it breaches it’s probably off to the races for the precious metal.
UPDATE 1:12pm EST: Let’s throw up a quick fib:
If 84.1 doesn’t hold then I think 84.85 is in the cards – the dip buyers took their chances at 83. Nothing unusual IMHO – after two days of dropping like a rock a little relief rally is what we need.
UPDATE 1:42pm EST: Looks like the 23.6% fib was all the bulls could muster. We just made new lows but I’m staying out as the signal is weak. However, we might see some fireworks soon as the Yen just pushed above its R2 resistance pivot (1.1155) and it’s only at its 60% short term stochastic.
UPDATE 10:05am EST: So, we got our obligatory fake-the-open whip after which we dropped nicely. Last night I did the right thing by actually simulating taking an earlier ETA yesterday afternoon as the tape touched 846. However, when whipped up I was hit by a surge of recency bias and cut one contract – I could be sitting on double profits now. No excuses – I’m pretty steamed – if you think I’m tough on you guys – I’m a lot tougher on myself.
Anyway, take a look at this:
You know that Yen/ES correlation chart by now. Is this another bear trap or a sign of major weakness. The Yen has been dropping along with the ES futures – bad sign for equities. Are we lured into a trap or into the elevator to riches?
Cake or Death?
UPDATE 10:20am EST: Recently I keep seeing comments along the lines of ‘Mole – you are a rock star’ or ‘Mole – you rule!’, etc… Now don’t get me wrong – I’m respond to praise as well as the next guy – but I also have been influenced by Zen teachings long enough to realize that such praise will only serve to built my ego and in the end might become the source of hubris, arrogance and finally my demise.
Let me be very clear about something: Since I was a kid I despised gurus and the core of my existence is based around a secular mindset and the idea that each human being has great potential that can be fostered and thus led to excellence. In other (non fancy) words – if you really want something badly enough you will succeed – as long as you know that there are many sacrifices on the way. I don’t believe that any other human being is less special or less deserving than I am – or you rats!
My intention here is not to accumulate a bunch of trading disciples – if you want that kind of thing – well – there are a few blogs I can direct you to. My goal – no my mission – is to produce a community of highly knowledgeable and profitable traders in order to give non professional traders (i.e. the ‘rats’ analogy) a chance to succeed in this crazy market. Did you know that 9 out of 10 people who try their luck at trading lose their capital and give up within the first year? Those are some sobering statistics, n’est-ce pas? Pair that with a deflationary low interest environment in which many casual investors are forced to try their luck at trading, in this market, and you can take the aphorism of ‘taking candy from a baby’ to a whole new level.
Only by banding together we can succeed in our battle against the Wall Street illuminati. Those guys get all the breaks (obviously) and they know all the tricks – plus they have the power to shift markets their way – the past month is a tribute to that. We have to all be smarter, more nimble, and simply better than they are. I know those are some lofty goals, but if we work together we can become a force that is larger than the sum of its parts. Think about that please – because this is what EvilSpeculator is all about.
Now, cake or death?
UPDATE 11:01am EST: Symbols people symbols!!! What are you trading? Chop chop! BTW, I did get a good fill on NVDA this morning – it’s rolling nicely right now.
UPDATE 11:13m EST: Yen just pushed above its VWAP and is just pushing above the 25 line on my short term stochastic (see 1st chart above). It however bounced off the R2 pivot once more – if we see it push above the 1.1154 level we might see some fireworks today.
BTW, I see only 36 votes on the latest poll and majority picked the joke response. Seriously – has everyone given up on the Zero or what’s going on?
You guys held up well without me today and I think it’s time for a little reward. I already mentioned that I was doing a lot of trend trading before this market turned so volatile. FYI – as you might imagine trend trading becomes a lot more difficult when implied volatility is on the rise:
But when I was still chasing long term discretionary trend trades I also became a big fan of pyramiding. No – we’re not talking about a pyramid (ponzi) scheme a la Madoff – I’ll teach you that one later
What I’m talking about is a popular technique of stacking additional units (i.e. positions) on top of your first one as the trade goes in your favor, therefore confirming the trend. The way to do that is to decide on some kind of price interval at which you add to your additional ‘units’. The turtles used a 10-day ATR (average true range), which is an expression of how much a stock moves on average within a 10 day range. That number becomes ‘N’ – the number you multiply by whatever risk ratio you prefer. Pick something else if you like but ATR has treated me very well in the past.
Depending who you asked the turtles used either 1N or 2N as their stop – there’s also talk that they used 1/2N on the first day and then bumped it up to 1N or 2N but I tried that and it got me kicked out of trades very quickly.
The best way to explain this and really understand it is to look at an example. For instance, I grabbed AAPL before the close at a spot which I think might lead to some downside – tomorrow’s tape will show me whether or not I should have my head examined.
The first thing I look at is the 10-day ATR, which in this case is 3.7. However, I screwed up here and actually picked the 20-day ATR, which is 4.3 – so sue me! Now what I have to decide on are my stop and the pyramid interval. Usually I use a 2N stop but since there is a resistance line I decided to use a 1N stop. My plan is to add 2 additional units at a 1N interval if the trade goes my way.
The calculation for all this is on the chart – I set an alert (i.e. mental stop) in TOS at 94.95, which is 4.3 points away from my entry (1N). If that gets hit I will cut my position. I also set an alert at 88.5, which is where I would add my 2nd unit – probably the same strike, as I want the first one to pay for the second one. Ahaaaa – I think some of you just had an epiphany! Finally, the new unit also needs a (mental) stop, and based on your trading system you either set the stop for all your units to the next stop point at 92.8, or you leave your original stop for the first unit in place and also set one for your 2nd unit. The impact of that is a different discussion and I don’t want to confuse you today. Same game for the third one – if 84.3 gets hit we add one more unit and also set one more stop at 88.5
Now, the idea here obviously is to ride a trend as it unfolds – the further it goes your way the more you add and if you are lucky you sit on three or four units as the underlying stock keeps moving your way. The maximum for me has been 5 units and only when the trend was unidirectional, fast, and clear. The result – less initial risk and compounding profits!
The problem here of course is that all this math makes your head spin and it’s almost impossible to do this while you’re trading. And even if you do it for the first unit you probably forgot your settings once the next unit comes knocking at your door. Heck, even writing this little intro was a piece of work!
But have no fear – evil Mole to rescue! Sometime last year I got sick of doing this by hand over and over again – although I’m actually pretty good in math – but I’m also equally lazy. So, I sat down and wrote a simple browser based JavaScript utility that does it all for me in an instant:
All you do is to first select your stop and pyramid setting in the drop downs. Then you type in a symbol – it won’t go online and get the data – LOL – not that sophisticated. It’s so you know what the numbers belong to. then you select whether it’s a short or long trade – that’s important as it reverses the direction. Finally you type in the current ask price and the ATR. The rest is all done for you and all that’s left is to set your alerts (or stop orders if you like) in your trading platform. I usually only set one unit alert and the stop at first – after all you don’t know if the trade will go your way. Then you set the next alert when another unit is due.
The final task is to use jing or your favorite screen grabber to take an image of your trade setup and store it somewhere. I actually post it on a private blobspot site, which is password protected. So, when my alert hits I add my unit, then look up AAPL in my blog and set the next unit plus the stop alert based on the image. You ‘could’ recalculate it of course but that’s too much work and you never get the perfect entry anyway.
So, where can you find this coveted NCalc utility for which many traders would give their firstborn just to bask in its glory? Well, right here:
That’s it – it’s free to use for all you leeches – so you might want to bookmark that sucker. Remember that you don’t have to be a trend trader to leverage this tool. Just calculating your stop usually is enough of a pain, so this will do it for you. But it’s also a good tool for your own trading blog as you basically ‘commit’ to your trade when you place it. From then on it’s all in black & white and there’s no changing plans afterward.
One more tip – make sure you reload the page once a day as the date does not change automatically. The time however changes, so not only do you have a track record of your trade, you also know what date and time you placed it. Perfect for your trading journal/blog.
Before I let you go, let’s do a quick review of today’s tape: The chart is a bit messy but don’t let that intimidate you – I’ll explain.
The green line can now apply to the green or orange scenario – meaning either today’s highs (which I missed out on – grrrrr) were the top of minor 2 of intermediate (5) or it was the top of minor wave E of intermediate wave (4). If it was the former then we should keep dropping here and that pronto as we should now be in wave 3 of (5) – no more of frustrating whipsaw action. Gaps should only happen towards the downside, not the upside. So, we’ll probably know fairly soon if this one is playing out.
The orange line scenario would have us rally to the upside fairly soon, I think 840 is what I would be looking at, bringing us to our 900 zone which we have been coveting. This would also give us relative equality with the first a wave up and thus produce a nice a/b/c. Tomorrow or Monday is when it needs to happen, so this scenario is also due to finally resolve or walk into the sunset.
The blue scenario shares its path with the orange one until the separation point around 900. If we keep pushing past 920 it would be strike 1 for blue, and if we push past the prior 944 top then that would be strike 2. To continue our baseball analogies – home base would be at around 1020 – 1040. We would probably not get there in a straight line, so if this scenario unfolds expect more of this torturous tape we had to condone during the past week or so.
Also note how nicely the two Fibonacci scales fit into each other – the 50% lines are overlapping and the 100% and 0% lines fit right inside centers of the large ones. I’m not sure what this means, but it’s worth mentioning as it is a tribute to how omnipresent and magnificent the ‘golden spiral’ really is. Sometimes you see something that has meaning – you know it instantly – you don’t know what exactly its meaning is, and sometimes it takes you a long time figure out. But when we see truth or something truly beautiful we recognize it instantly.
In that spirit I am dedicating tonight’s post to Leonardo Fibonacci. We all greatly benefit from his work on a daily basis, but rarely do I see a tribute to his work and his genius.
‘A. Leonardo Fibonacci, Insigne Matematico Piisano del Secolo XII.’
I just got back – looks like I missed out on a glorious day. Actually I wasted one hour standing in line to apply for a passport. Then they told me that I have to send in my citizenship certificate. NO WAY I’m doing this unless I have a notarized copy of the original. Can you imagine the red tape nightmare if it gets lost in the mail?
It was a nice ceremony though – can you believe over 6000 people attended it? There was basically a sea of people taking the oath – almost surreal. Anyway, I will put up some pictures later.
Back to business – it seems the green scenario might be in the making here as this was quite a retracement. We are right at the 38.8% fib line but should keep dropping here soon if this one is playing out.
Let me get my bearings straight – I basically walked in here 10 minutes ago – need to check my charts.
UPDATE 3:24pm EST: I was almost shaking when pulling up XLU – I forgot to grab it this morning and I was prepared to see it have run away from me.
Looks like I missed out on a great entry but it’s still a viable entry, so I’m grabbing some puts here. Probably some OTM March or June puts – sometimes this one makes you wait.
BTW, I just skimmed through the previous discussion thread and must say that I’m proud of you guys. Dozens of great comments with substance – I’m very excited to see that this blog doesn’t fall apart when I’m gone, which speaks for the quality of our members. You know I can be really tough on people – must be my German upbringing. But I also believe in giving credit where credit is due and you guys kicked ass today. Congrats!
UPDATE 3:52pm EST: Buying Feb puts on AAPL, which wants to be at 80.
UPDATE 4:04pm EST: You guys cannot believe how frustrated I am. There were tons of great entries I missed out on today and I had to get into AAPL and XLU at less then ideal entries – couldn’t get filled with NVDA – bid/ask too nasty and not enough time to wear out the MM.
Well, it could have been worse – I could have been scheduled for the day the market decides to crash. But I missed out on a lot of potential short plays, so I feel a bit prickly right now.
However – I guess a U.S. citizenship is worth a few lost SPX points – so I’ll get over it
Good morning rats, just a quick reminder that I am going to be missing in action for the next few hours as I’m attending my naturalization oath ceremony this morning. I might be back before the close of the bell, but you know how it goes. I think the occasion calls for the appropriate Rammstein clip:
Disclaimer – the song is a bit cynical – just like me.
Anyway, this is an important day for me – it’s been a long time in the making. While I’m out please make sure the market doesn’t drop below 740 – I don’t think they’ll let me trade on my iPhone while taking the oath
See you on the other side – as a U.S. citizen!
BTW, starting I’m accepting tips on how to get out of jury duty…. (j/k)
UPDATE 9:33am EST: Another 20 point gap – I wish I was around today as this might turn into a nice island top. Well, I’m off – good luck steel rats!!!
UPDATE 3:15pm EST: I’m pretty much mentally checked out at this point. The Zero has been flat for the past 5 trading days and I remain hedged with a few nice longs in between. Was about to take profits on POT but I think it can bust higher. I might chime in later today if there’s anything imporant to report.
We are at the 50% fib line on the SPX. So far I’m still looking at either the green or the blue scenario. Frankly, the orange scenario has lost much of its luster and although theoretically still possible I’m having grave doubts. I think you guys know the drill regarding the action points – if in doubt check yesterday’s post.
Short term I think we push up – so my favorite is the notion that we are in intermediate (4) still and that we might see new quarterly highs in all indexes. For green to play out we should not breach today’s highs – if we do I might kick that one to the curb as well. Process of elimination – something I learned as an engineer. Seems to serve traders well also.
For the record: Today was a great example of the old aphorism ‘Buy the rumor, sell the news!’
Are we about to make new record lows in the CPC? If we rally from here to 920 or higher we probably will. OMG – this is going to be the shorting opportunity of a lifetime.
BTW, CNBS08 – you’re on a short leash – your contributions are not offsetting the conflict you create in here. Last warning – I mean it.
UPDATE 12:24pm EST: I took profits in NVDA:
I’m really happy here – that was a nice trade. The filling of the gap this morning was scary enough and although I think we might bust higher this is a good spot to exit for a discretionary trade.
UPDATE 12:18pm EST: I see a lot of back and forth here – some of the discussions even have turned angry. Can we please relax and just trade what we see? Everything else is just mental masturbation.
SPY: Yes, it’s a nice bearish wedge but that doesn’t mean it can’t go a lot higher. Never forget: the market can stay irrational a lot longer than you can stay solvent. Let’s just wait and see what happens and when. Usually things take longer to unfold than you want them to.
BTW, for the record – when I talked about a nasty wave (4) I wasn’t kidding – LOL – it’s been a tough few weeks. But we made money anyway – which is probably more than 90% of traders out there can say.
UPDATE 1:46pm EST: I was just about to post about XLU but damn T.K. already did an SDP post. I swear I did not read his post before pulling this – it’s part of my favorites list. Anyway, I’m looking to go short XLU soon – think it has a few more points to climb but maybe at the close today. I also like long: BGC, DE, WYNN.
UPDATE 2:16pm EST: Fed leaves rate unchanged. What a shocker
UPDATE 10:13am EST: I expect the Yen to bounce back any second now as we just touched its S1 pivot (1.1195 on JYH9). But take a look at this:
We gap at the open and then drop along with the Yen. Right…. we’ve seen that one before. If you’re bearish today, be careful – I think the trend remains to the upside.
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