The Honeypot

The modus operandi in equities seems to be set to maximum shake out today. Although I see only minimal participation on the Zero indicator the E-Mini has produced some wild swings and leaves everyone guessing as to where things will proceed next. Not an unusual occurrence given that we are curling around an important inflection point.

Compared with yesterday’s signal range we are practically flatlining today. But we have seen that in the past: A spike in activity followed by a resting period which either sends stocks tumbling or via sideways gyrations positions large buyers for another leg up. You may recall my earlier post on market weather which would qualify the current period as a honeypot. We are not in technical limbo but a shake out now separates weak hands from the real playaz. Maybe it’ll breath renewed hope into bears who were losing on a way up and may now feel tempted to double down.

If you look at the overall picture then it couldn’t be clearer. The volume profile chart shows us plenty of available volume near 1405 and the 100-day SMA breach is what separates us from another glorious Santa Rally. On the very short term panel we are also enjoying the aid of the 25-hour SMA, thus affording us a possible early alert system should things break down here. As long as this SMA holds and keeps on rising the bulls continue to be in good shape, little shake outs notwithstanding.

In the end however price speaks clearly and is never wrong. Yesterday’s inside day following an outside period (or you could call it an outside day) suggests that the bears do have a fighting chance here, even if it’s just for a quick shake out back to the 1377 NLSL. But the official daily short trigger does not take over until 1395 has been relinquished.

As you probably have learned the hard way – when it comes to trading there are never any guarantees. However there are times when the picture is rather clear (again I invite you to catch up on my market weather post) and this happens to be one of those times. Don’t let the tape fool you – we are at an important inflection point and all the pain incurred now will most likely pay off handsomely once this thing turns into a rocket (in either direction it decides to break).

Now this morning I suggested an entry in natgas, which I got after some obligatory whipsaw. If you are a sub then you may be holding a few long contracts yourself and probably know it’s not been an easy trade. The pain may pay off – the basic idea here was that the daily NLSL and the daily SMA would serve as additional support. This is a good example of how a short term trade may turn into a medium term setup. But if you missed this entry then don’t dispair – it just happens that we are getting another technical setup on the nutty stuff today:
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That’s right – natgas will most likely paint an inside period today and that gives us additional context. If you are long (as yours truly) then today’s ID buy line will become a long trigger tomorrow. The short trigger (3.71 as I’m typing this) will become my new stop out and of course my signal to flip my long positions for a short. As usual I implore you to not get over exposed when it comes to trading NG futures – it’s, shall we say, a bit temperamental and the cautious trader survies to fight another day.

Gold! We may get a short breach today which is nice after that long OP candle on Friday. We are dealing with a very small trigger range here and that affords us to take on minimal risk with a potential high pay off.

EUR/JPY – it’s been a brutal short squeeze since the recent inside day trigger. We have not seen two red candles in succession for over two weeks and that makes today’s inside day setup very interesting. The only fly in the ointment is the NLSL that’s now just below. So a drop below today’s ID trigger won’t be an easy trade and you may take the NLSL breach instead (if we get it).

AUD/JPY – very same setup – how about that? Same thoughts and context – proceed accordingly.

Now I have been short bonds as you remember with a stop above the 100-hour SMA. I was hoping for a LKGB on the daily panel but it seems that the 100-hour may be breached (we are already trading above it). What to do?

I will keep my short stop intact for now but will tomorrow flip my setup into Inside Day mode. Meaning today’s range extremes now become my triggers. Should we breach above 149’22 tomorrow then I’ll turn my short into a long position. Of course if we drop lower then there’s nothing for me to do – I may even add a few more contracts on a breach through 148’31.

Sugar – still a good setup today. Today’s spike higher looked promising but we’re almost back to whence we came. My stop is below that diagonal and thus far it’s technically valuable that the line has remained intact.

Cheers,