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At The Edge Of The Abyss
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At The Edge Of The Abyss

by The MoleAugust 29, 2017

Over the past few sessions a situation has arisen which effectively puts us at the edge of the abyss on two separate but related fronts: U.S. equities and the Dollar. While the mainstream media is once again entangled in a furious clickbait initiative courtesy of our favorite East Asian bad-boy Kim Jong Un, I’m more concerned about what I’m seeing on my comparatively boring technical charts. Not to milk every doomsday metaphor I can think of but the storm that’s brewing here could have serious medium to long term consequences. So let’s observe the potential damage as well as consider opportunities for leveraging the situation:

2017-08-29_spoos_2

Yesterday’s session was nothing but a lackluster encore of last week’s low volatility sideways chop-fest. The current spike low slight above 2421 once again is in earshot of the 100-day SMA as well as a daily Net-Line Sell Level at 2415.75. Which means there’s a few handles of wiggle room but a drop through the prior spike low we painted on August 20th will most likely lead us lower. MUCH lower.

Game Plan

I’m currently long here with a stop a few ticks below 2415 – we don’t want to make it too easy for them, don’t we? However it’s a relatively small position as the odds for a bounce are 50/50 at best. Technically speaking I have been observing problems and if things devolve from here then I expect a chain reaction leading to very ugly consequences. No worries, we’ll get to that further below

Plan B, so to say, involves a breach of 2415 (and stop out of my long position) and a bit more downside, which I then expect to be followed by a bounce and attempt to recover our least favorite old chop-zone of 2410 to 2450. Which at that point has becomes resistance from which we may want to stage a short campaign. However all of this depends a bit on the timing and what happens over the next two sessions. Once again remember that next week is statistically the most bearish week of the year. So the timing may just be right.

So why be long at all? If everyone screams bearish and fear grips the markets I just can’t help myself but think about buying. Always remember, when it comes to the market what everyone knows is not worth knowing. However quite often the herd is spot on so if you trade against it then do yourself a favor and do it via small position sizing

2017-08-29_spoos_volume

A bit more context as promised: For one we’ve now produced a pretty convincing diagonal support zone which also traces the volume hole starting at around 2410. A breach through 2415 most likely leads us all the way there and if that doesn’t stop the slide then say hello to 2330.

2017-08-29_VIX

Now here’s the big one – the VIX. You may recall that I reported on not just one but two consecutive VIX Buy Signals (the buy is relative to equities) over the past two weeks. What is supposed to be happening here is a continuation lower on the VIX and a pretty violent spike higher in equities. But if the VIX pops > 16 then that would represent a failed VIX Buy Signal. A push > 17.5 would disqualify the prior VIX Buy Signal and I probably don’t have to explain to you what I would expect to happen next. So actually make that 3 instead of 2 markets on the brink as we should probably also count the VIX.

2017-08-29_DX

Number three then is of course the U.S. Dollar which, as feared two weeks ago, has now continued lower and is now running the risk of breaching its April 2016 spike low. Over the past few months I have been pretty verbose regarding the long term implications of that happening, so I won’t bore you again with the details. If you’re a noob just know that a drop lower from here most likely leads the greenback toward 87. So yes, life over here in Europe may just get a hell of a lot more expensive for yours truly. I really hope this won’t happen which is exactly why it probably will.

Evil Speculator Rule #742: When in doubt always short your fears.

2017-08-29_USDJPY_gold

Of course this has given the Yen a massive boost which currently is tightly correlated with gold  (note that the correlation oscillates over time). I was tempted to be long here early last week but then changed my mind due to various contradictory variables. I still think it was a good decision as a long position would have had much better odds on a little dip lower, which we however never got. That’s part of life as a trader – most of the time we don’t get the tape we want.

2017-08-29_AUDUSD_update

One of the campaigns that survived last week’s shake out by a mere thread is the AUD/USD which painted one more spike low just a few pips away from my ISL. Fortunately it has now recovered to the point where I feel comfortable to advance it to break/even. That breach of the daily NLBL has a good chance of leading higher, so here’s at least a little hedge against the unfavorable exchange rate I’m most likely going to be facing this Christmas.


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • ridingwaves

    thanks for post….my guess is labor day weekend will hold any down move, dollar move lower is actually good for stocks…Sept is fed decision on next rate hike, now believe they have a reason to skip it…plus economic numbers let them off also..If vix makes lower high here, bears might get toasted….your comment about many of them betting down could be target….XIV could see a run to 90+ if scenario holds…

    gold is getting hit as I type….might be opportunity to buy in lower….NFP on the 8th could be telling on fed decision

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    “short your fears” – I like it.

    https://www.youtube.com/watch?v=JsxavPANO8s

  • Grant

    I believe Mole posted this trade. This is a great longer term “cash” trade that will probably last til October. No need to hold leveraged trade over weekend.

    https://uploads.disquscdn.com/images/8ab7173b0e4154c580fcee139bfb19442f4fc150632d446aeda9e19bbdd31ece.png

  • BobbyLow

    Been watching move in gold closely and took 1/2 profit off the table this AM. Set my current stop close to B E on remaining position.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    can’t blame you.

    however, in this profession, you got to “push it”.
    5.34 or BUST.

    https://uploads.disquscdn.com/images/bb5c0f3b5c91d5bcb10234dae16c8b5b94c67fb2a31014ace70ebfc55d246549.png

  • ridingwaves

    sweet BL, nice trading…

  • HD

    2441 SPX is HWB

  • BobbyLow

    I’ve been leaving too much money on the table lately GG. I think over time, there’s more money to be made by not taking partial profit. However, I’m beginning to believe that the psychological gains earned by taking partial profits outweigh the greater monetary gain of taking all profit at the end of a trade.

    Having a run of unbooked gains getting wiped out in a volitile market was enough for me to change my thinking on this. At least for now.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    all true.
    just poking the bear.

    where’s Julie? did we scare her away?

    Perhaps she had a bomb shelter in Montana. The flooding in Houston definitely seems Apocalyptic.
    😉

  • Yoda

    Same here. First time I heard it. Makes a lot of sense.

  • ridingwaves

    I had a meeting in Houston this week that the company cancelled last Friday…public traded dealer group..They are going to be hurting….the amount of cars that will be sent to salvage will be epic proportions….Houston is a big town, dwarfs New Orleans….30th largest economy in the world if it was a country….the insurance industry is going to be hit much harder than first led to believe….

  • StockTalker

    Good volatility, short again /NQ 5844

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    They might have to cut back on their advertising.

    https://www.marylandinjurylawyerblog.com/files/2012/03/allstatemayhem.jpg

  • BobbyLow

    I think Julie’s on vacation.

    Speaking of flooding, I really feel for the people in the Houston area. We had a flood last year when we had 10 inches of rain in one week followed by 15 inches of rain with Hurricane Matthew. The ground was already saturated when the 15 inches came and there was absolutely nowhere for the water to go. I lost my heating and air conditioning system and pumped water out of my yard into a lake across the street for about 10 days with a pump running 10 hours a day. I also had to run my generator for almost two weeks that we were without power and water.

    This was a nightmare. But I can only imagine if I multiplied what we got by 3X like they got in Houston.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    The water turns to sewage, and the mosquitos, and the heat. Lack of transportation and/or power is the killer IMHO.

    http://image.nola.com/home/nola-media/width620/img/hurricane_impact/photo/texas-10-amjpg-7d2142777fe7258c.jpg

  • Yoda

    Wow, it all lines up for some volatile trading sessions. That’s the way I love it. Glad that the summer doldrums are over. Some big coin banking opportunities lie ahead.

  • BobbyLow

    Thanks RW.

    BTW, It looks like I’ll eventually be joining you in the biotech arena. I still don’t like to do individual stocks so I’ll be using the 3X’s LABU and LABD. I’ve missed a current fantastic run on the long side via LABU that’s still running and in the second week of a great move. It would probably be the kiss of death if I jumped in this now so I’m going to wait for a shorting opportunity with LABD. I’ve used these vehicles a few times before and had mixed results however, I’m on less than a daily time frame now so this current run shouldn’t last forever. If I get a false alarm short and then reenter a long that would be OK. It’s just that I’ve been burned too many times jumping into a run after it’s already had a substantial move.

  • ridingwaves

    me thinks there is more room to run thru mid sept…the retest of breakout was sweet and I jumped in with full boat
    https://www.investorvillage.com/uploads/92359/images/BiotechSeasonality.PNG

  • StockTalker

    Bulls last gas?

  • ridingwaves
  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • BobbyLow

    Glad you caught the run. This is your wheelhouse.

    And you are most likely correct. However, my system and time frame “should” give me an opportunity to enter on the long side before any supersized run is over. There will probably be temporary shorts during this run that reverse and allow an opportunity for a long entry to present itself. It’s only a matter of time. In any event, if I don’t follow my rules, my trading turns into kakabooboo. :)

  • BobbyLow

    Wow! You must have a million of these things on file ready to fit all occasions and be posted within seconds. :)

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • http://evilspeculator.com Sir Mole III

    Nine years of practice – he’s a pro.

  • http://evilspeculator.com Sir Mole III
  • StockTalker

    Hell of a gap fill, need to make a new high.

  • http://evilspeculator.com Sir Mole III

    Well, day isn’t over yet…. let’s not get too excited 😉

  • ridingwaves

    no doubt rules matter…
    sector itself sells off hard when it wants to anyways…so there will be gaps and valleys…

  • Yoda
  • Jay Thomas

    Question for y’all… It seems to me that the powers that be have decided on a weaker dollar and relatively stronger euro, that the odds are comfortably in favor of shorting the dollar. I have never traded forex and I don’t trust Google to direct me to a trustworthy source, so I ask the steel rat pack. Where do I go to learn the nuts and bolts of trading currencies? Is it as simple as walking down to the bank or the local retail shop (like Scottrade) or somewhere online? I have been watching the currencies market for 4 years and I like to think that I understand the principles, but I’ll never truly understand until I dip my feet in the water. Thanks all.

  • Jay Thomas

    That image explains a lot.

  • BobbyLow

    It might beg the question – Have you been able to trade other things in the markets successfully? If so then perhaps you might be able to move into currencies. But just like the equity market often disapoints us when 2 + 2 is supposed to add up to 4 and it doesn’t, the Forex Market does this but even more so.

    This is all the more reason why you would need a trading plan that is based on technicals that you have proven to have edge through backward and forward testing. Otherwise you will probably get eaten alive just like almost everyone else who thinks they can trade currencies.

    Another thing is that you have to learn another trading language with Forex and how it is traded. But if you insist, I think Google is a good place to start and you will find all kinds of things about trading currencies but there is a lot of bullshit there too. However, when you find numerous articles written by different sources that say the same thing, you can find areas of fact.

    As far as finding an easy method to learn how to do it, IMO, there isn’t one. It’s a long and slow grind and there is only one way to learn and that is understand the basics and the language, get an edge, trade it on paper and then trade real money in small amounts until you believe you know what you are doing.

    I don’t know if this helps but it is my honest opinion.

  • BobbyLow

    Moved my stop and am now completely out of my remaining position in Gold. Decided on booking a total of +.75 R Net for the last 2 days. Ficken Gold has been too squirrelly over the past few days.

    Watch it shoot right back up now but “a bird in hand” and all that rot. I guess we’ll see what happens.

  • Øyvind Nyhammer

    Great impulse day in the stock market, drop and then pop.
    During the June correction NDX made its first recoil back up to the 5780-5800 area.
    During August it made a rock hard double bottom in the same area.
    This morning it started at 5785 and the took off like one og Kim Jong Un’s rockets.
    My humble guess is that we will never again see a close below 5780 in the NDX in our lifetime (in practice ever).

  • Yoda

    We have retraced back the highest volume profile on ES. A short entry (ES) before the end of session would be worth a shot, as far as I am concerned, especially if the tape touches the volume hole just above at 2453-57

  • Mark Shinnick

    You must have some exceptionally profound reasoning to this guess Øyvind ?

  • Mark Shinnick

    Point well taken.

  • Mark Shinnick

    If after your 4 years study you see your own unique edge to do this, just execute that edge as you understand it with etf’s.

  • Øyvind Nyhammer

    The intermediate reasoning is above, the long term is this : Bonds have rallied to take into account long term low interest rates.
    When the general understanding is that interest rates will stay low for the long term than the last resort to have any return is the stock market.
    Realization of this is when the public will pile into the stock market, they may make a bubble, or they may not, but my humble thinking is that we are in a reprising environment that will last for some time.
    Remember, we had a bull market from 1983 to 2000, it was only the last year or two that was the bubble. The 1990s bull market was argued on the “peace dividend”. This time it will be based on long term low interest rates. Forcing PEs to very high levels.

  • http://evilspeculator.com Sir Mole III

    First of all: Where are you located? If you are in the U.S. your options are currently limited = IB or Oanda, perhaps one or two more who don’t suck. Otherwise try to find an ECN broker that doesn’t run their own trade desk.

  • Mark Shinnick

    Would it make you feel any more secure of the continuation of these trends to draw a monthly trendline to both stocks and bonds since the early 1980’s ?

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    This Market does not obey reason.

    I have been on this forum, and heard these calls before.
    Nobody knows exactly what will happen, if they do, run – they are a lie.
    If your call does not go as planned, all I can advise – is do you have an eject plan? Without it, you are toast just like the many that have gone before. And do not think of me as someone against you, but as a survivor of QEInfinity.

    If NDX rises hard tomorrow, you can look forward to a month of pain.
    that’s all I have to say about it. Good Luck.
    https://uploads.disquscdn.com/images/20e49b83b85d83a9540f889210fbe937a73bdd0ff9a9ea2f9d7bec4c389746a8.png

  • OzarkHillBilly

    BobbyLow is asking the right question: Have you had success with other trading vehicles? Your technical skills need to be above par, to say the least. More importantly, you need to have already instilled some trading discipline into yourself.

    Your typical bank brokerage and mainstream online firm won’t be of any assistance when it comes to currencies, except for a handful of exceptions. I still refer some people to Scottrade for the basics, but the culture there has changed a lot over the past few years, and you’re not as likely to find someone there who will help you get over any initial hurdles. That’s not necessarily a bad thing anyway, as I think you’re generally better off figuring things out for yourself and taking advice from experienced traders, whether it be from millionaires who wrote great trading books, or people willing to throw in their two cents on Evil Speculator.

    Having said that, Mole posts great set ups for currencies, and you could do a lot worse than follow the suggestions he posts. But you need to understand where he, or anyone else is coming from.

    Other than that, be careful about taking trading positions based on what you think the TPTB want to see. The markets aren’t nearly as controlled and manipulated as ZeroEdge would have us all believe. Not that they don’t try ……..

  • Øyvind Nyhammer

    Thank you for your good luck wish.
    For some strange reason it is in the human mind to fall in love with the downside of markets.

  • Øyvind Nyhammer

    You asked me for my reasoning and you got it, take it or leave it.

  • BobbyLow

    Good point Mark and if he was actually “Studying” it for 4 years as opposed to “Watching” it for 4 years, I could agree with you. For example, I could watch someone perform surgery on TV on a medical show for 4 years but I won’t be able to perform surgery myself unless “I sleep at a Holiday Inn” the night before. :)

  • BobbyLow

    I think you might have the wrong idea about most of us who trade here Oyvind. We are not in love with any direction at least I’m not. But I’m not a long term trader. All I want to be is on the right side of the trade and whether that’s long or short doesn’t matter to me.

  • http://evilspeculator.com Sir Mole III

    How’s my crew today? I am finishing up the statistical charts which I then would consider integrating into a web page for querying with symbols. Who of you guys would be interested in that kind of stuff?

  • http://evilspeculator.com Sir Mole III

    There are two great advantages to forex assuming you have a good broker: liquidity in the top five symbols (EUR/USD, USD/GBP, AUD/USD, USD/JPY, USD/CAD) and no f..ing rollovers. Of course contango and backwardation in the futures can be gamed so that may be a minus for some 😉

  • StockTalker

    Shake out before the real selling IMO. Standard MM’s procedure…………

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    selling some GDX. 50% reduction.
    dollar could reverse tomorrow, and gold as well.

    I’m turning into BobbyLow {snicker}

  • BobbyLow

    Absolutely agree. And if you live in Europe or anywhere near the time zone when the European Markets open there is an additional advantage. Likewise with the Asian Markets for the Aussie and the Yen. I think most of the good stuff with the Euro happens between 5 AM EDT in the states and before the 9:30 AM NYSE open and most of the good stuff happens with the Yen or Aussie after 8 PM EDT unless there’s some big stuff happening here in the US like a Fed announcement etc. This leaves the USD/CAD which can move like a turtle most of the time unless it’s Friday Morning and the CAD has its usual shitload of announcements. :)

  • Mark Shinnick

    Whoa…that could be impressive :)

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Beats fidget spinners.

  • BobbyLow

    LOL

    This is getting crazy because I’m actually getting closer to a short than a long now but I need a more evidence. These gaps are also screwing up my intra day charts. But if price doesn’t do it’s thing one way or another by the COB tomorrow, I’ll sit on my hands regarding Gold until Monday. I need at least a 2 full day soak and I’m not carrying gold over the weekends for the immediate future. I have bad thoughts of sitting on a short Gold position and Kim Jon Un decides that he wants to play with his missles again over the weekend.

  • ridingwaves

    raises hand quickly

  • ridingwaves

    retest the breakout…possibility

  • Øyvind Nyhammer

    Looking at your chart and your text I am not sure what you mean, the green arrows are pointing upwards. In that case I am not in pain, I am very happy.

    I never short anything ever, for what ever reason. I am either invested or cash. In practice mostly invested.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    at this point, they could save a wet kitten in Houston with a feel good story, and the Market could rocket.

    vanity, vanity.
    So I hated life, because the work that is done under the sun was grievous to me. All of it is meaningless, a chasing after the wind.

  • Darkthirty

    Symmetrical c of ii of 3 hits in the 2460 range, also a 78.6 retrace…..and a “turd of a turd” is afloat

  • Yoda

    Aye!

  • Mark Shinnick

    Damm Holiday Inn, Solvang last month… My trades went ok not Super….too many mental images of the clumps of black algae mess in their Jacuzzi.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    my apologies, I quickly thought TQQQ was UltraShort, not Ultra.
    advice still applies. =P
    http://www.investopedia.com/news/qqq-vs-tqqq-whats-difference-and-which-better-qqq-tqqq/

  • http://www.captainboom.com/ captainboom

    Count me in.

  • http://evilspeculator.com Sir Mole III

    “My humble guess is that we will never again see [_____________] in our lifetime”

    Famous last words 😉

  • Øyvind Nyhammer

    We will see how famous they get :)
    My only trade I posted on 24-Aug.

  • Jay Thomas

    Thank you all for the advice.
    Q1. Have I had success in other trading vehicles? Yes. Before I was introduced to EvilSpec 7-8 years ago, I was following retail formulas and performing below average, couldn’t figure out why. Mole changed my thinking. He and/or Scott laid out a program for thinking through your system and I am on my second draft. Wow, what a difference. My trading (equities and bonds) has improved year by year. According to one measure, I am performing consistently at about the 80th percentile among my peers. (Of course, never mistake a bull market for brains.) I am surrounding myself with wise people and I study their/your words until I understand and can replicate the action without prompting or guidance. I still have tons to learn, but so do we all. I am eating this elephant a bite at a time and enjoying the taste.
    Q2. Where am I? Seattle area.
    BobbyLow in re watch vs study: Excellent point. I moved from listening to Mole talk about currencies while I worked on the other aspects of my trading, to studying the terminology and concepts. I am still in the studying phase, not ready to put actual money on it. My next step is to study the nuts and bolts and create a paper account. I really appreciate the “hotwash” approach you all take – someone posts their view and the community lets them know if it seems stupid. Humility is the first step to wisdom.

  • BobbyLow

    Looks like you have a good plan Jay and taking a “one bite at a time” approach should serve you well. I wish you the best. :)