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¡Ave, Mercatus, Morituri Te Salutant!
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¡Ave, Mercatus, Morituri Te Salutant!

by The MoleOctober 8, 2014

In principle all financial market operate in two alternating operational modes, both of which are aimed at evoking a reaction among active participants. It’s basic human psychology 101 exploiting the fact that the reptilian brain of us mere mortals responds to these two basic stimuli in a same fashion:

  1. If you chase something it will elude you. Also, evasion instinctively triggers a hunting response of varying degree (depending on personality type).
  2. Intellectualization is used as a defense mechanism for avoidance of pain. Self preservation is the mother of all rationalization.

The first one is a lesson especially men (mostly) learn the hard way during their teenage years and into young adulthood. And yes, I am talking about meeting and attracting the other sex – we all know how it works. The second one is a bit more complicated but a similarly basic human response. It all boils down to removing one’s self, emotionally, from stressful or painful events. Intellectualization comes in many many ways and it’s an extensive topic – in regards to the behavior of market participants we are specifically talking about evoking irrational/fearful acts in response to either an unfavorable/unexpected event or a lack of information/context which lures people into inventing reasons to resolve their emotional stress/pain by acting against their system rules or contrary to objective system goals.

2014-10-08_NYUD_lure_evade

I know – all that is quite a mouthful. But you’re in luck as this week has been a great opportunity to drill into this topic, so let me demonstrate this via the NYUD chart shown above. We see both modi operandi in action right there:

  1. Evasion.
  2. Luring the prey.

Very simply put – the market either runs away from you or attempts to lure you into taking (unfavorable) positions. It will pretend, it will lie – it will fake you out. There are exceptions of course and there are times when the odds are in our favor. The rite of passage for any trader is to identify those rare moments and act upon them.

Nevertheless without understanding how the game is played many fledgling traders may often find themselves unable to take action due to a recent thrashing, inverse exposure combined with wishful thinking, a strong personal opinion, the list is long. But the fact remains that the market very rarely give you perfect opportunities to get positioned. Yesterday was such an exceptional day and although a good entry does not guarantee success you must be ready to take action when it presents itself.

The vast remainder of market activity however falls into the two categories above – luring and evasion. In both cases it is aimed at evoking a reaction. For instance Monday and early Tuesday being short was a very scary thing and the tape was intentionally attempting to lure participants into abandoning short positions and acquiring long positions. Today however the opposite holds true – if you took a short position earlier this week then you are most likely feeling doubts and a host of other unpleasant emotions right now. To which of course there is only one answer:

2014-10-08_seven_of_nine

Exactly – emotions are irrelevant. If you yield to them as a trader you will constantly face emotional pain and self doubt. NOT a way to pass one’s short existence on this mortal coil. You should NOT care whether or not this campaign is going to succeed or what you could have done earlier this morning to avoid giving up your ill gained paper profits. The only thing that does matter is that you snagged a good entry and that your stop has been set. You didn’t seriously expect a setup in equities (the most manipulated market of all) to move unidirectionally? If you want clean trends then please forget about equities and visit us in the Forex or futures lair.

2014-10-08_SPX_LT

The realities on the equities side are as such: The bulls are in trouble and will remain to be until SPX 1960 at minimum and they’re not back in control until about 1970. Today’s jump higher is an attempt to regain the weekly NLSL which must by all means be recovered before Friday. Maybe they’ll succeed and maybe they will not. What matters is that you took the entry when it represented itself. The ES campaign on Thor already has its stop at break-even – nothing else left to talk about.

2014-10-08_spoos_update

Here’s the daily ES chart – all I’m seeing are lower lows and lower highs. Yes, we could be done here – I don’t have a crystal ball and there is no context nearby to suggest that a major low has been produced. Now if we push back above 1970 then the dynamics start shifting but until that happens we stick with what we have – which is short positions in equities and their respective stops.

2014-10-08_NQ_update

The NQ is the big exception – that 100-day SMA touch could signal that we it’s done here and it’s the perfect chance for the bulls to stage a counter rally. However I do caution you from chasing the market here – remember that’s modus operandi numero uno and it never ends well (for us). So if you want to be long – wait for a better opportunity.

Now let’s talk setups – we have a few juicy goodies waiting below the fold:

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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.
  • http://EndOfBull.org/ Pontificus

    duh wheels on the bus go round and round!

  • Billabong

    LOL … I asked my wife to look at a series of charts (not knowing anything about trading) and asked her to identify a possible trend. YM down, CL down, and NQ sort of down (she went on to say that the large green box would make you want to watch it for a couple of days because it may turn up) … I should have her run my CM.

  • Billabong

    US Debt: 17,863,004,998,073.03 … Should cross 18T by Feb.

  • Darkthirty

    AH should be interesting, short a bit…..

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

    First rule of trading, never mention trading (to the wife).

  • Skynard

    Mega div all over the place.

  • ridingwaves

    that was fun…let the earnings season begin……

  • Billabong

    :-) … 346 point swing in the Dow … wow … it’s like the wild west of finance. We haven’t had less than a 150 swing since 22 Sep. Is this distribution?

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

    it’s the blood moon, maybe Mole is packing his bag. who cares?
    by the time you figure it out, she’s out the door. (don’t chase her).

  • Billabong

    That’s true and I did mention a full moon triple digit day last night … now if it was supporting my recency bias on the downside, I would be a happy camper.

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

    Anybody notice the DOW low was 16663?
    I was driving into work and spotted 16,666.53 on my phone.
    “666” hey wait a minute…wasn’t that the S&P low?
    then I got the biggest evil grin, almost ran a red light.

  • BobbyLow

    Not going to bitch anymore about Fed Days today other then to say that they are pain in the ass.

    I did something right today. I was down to one last Open Forex position and that was a short of the GBP/JPY. It was in decent profit and around 1 PM, I had to decide what to do about the “Minutes” at 2 PM. So fortunately my discretion was the better part of my valor and I submitted a buy to cover at the market to trigger at 1:55 PM. It filled at 174.30 and this pair is now trading at 174.86. It is also no longer a viable short under my system.

    But on a darker side, I still have my long oil position. However this position is surrounded by Puts and a Bear Call Spread. It’s going to be a bitch to peel out of this mish mash of oil positions but this is what I get for peeing against the wind in the first place. Dismantling this trade is probably going to be about as much fun as having sex wearing a 1/8 inch thick condom. :)

    But like Bluto from Animal House who didn’t let 4 years as a Freshman at Faber College go to waste, I have similar experience trading Options so we’ll see what happens.

    https://www.youtube.com/watch?v=q7vtWB4owdE

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

    If you haven’t back tested the UCO weekly against CL, you may want to check it out…

  • Skynard

    Pegged SPX 1970 again, amazing. Also, DJI below 17K

  • SirDagonet

    I thought you absolutely, positively swore off options long ago?

  • BobbyLow

    I will. In the mean time, UCO made another 52 Week Low Today.

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

    I picked some up.

  • Billabong

    It’s still in a down trend.

  • Billabong

    I find it a lot smoother and the R (as he blows a loving kiss to a lady) … depending on the time frames of your TA within the weekly.

  • BobbyLow

    Yep, this is another case of never say never. This is an extraordinary situation with oil.

  • Billabong

    My bias on the long trade would be driven by fundamentals … a few months of this and the frackers will implode and marginal rigs will shut down.

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

    Summer 2012 was bad.

  • Billabong

    The article fails to mention Saudi deficit spending at $90 (they need it a few $$$ higher). It also fails to mention frackers YTD are spending $1.60 for every $1 of revenue (red witch syndrome). And banks are requiring drillers hedge forward production as part of the loan process. The biggest money in fracking right now is flipping properties. At $8-10M per well, they are capital hogs with unstable ROI. Because of CAPEX requirements, big integrated oil companies are dumping properties, taking big write-downs, and exiting the fracking business.

  • SirDagonet

    Thanks for that informed response to the article…

    “big integrated oil companies are dumping properties, taking big write-downs, and exiting the fracking business.”
    Oh, well.. there goes the notion of energy independence…

  • mugabe

    Follow da rules!

  • BobbyLow

    One of the reasons that I plead ignorance to the whole fracking issue is because if I wanted to find something in writing to help create confidence in a position I can always find it so I try to stay away from “news”. The market watch issue below makes sense and so does your reply to it. So who knows which way it’s going to go?

    The only thing I know with absolute certainty is that last year there was a similar type of sell off. I posted a chart yesterday showing what happened in 2013. I’m too lazy to do the research to find out what was the “explanation” for last years decline. But the point is that it seems like every year the same thing happens.

    Perhaps it is “different this time” but I have my doubts. And yes this is a bias. :)

  • BobbyLow

    So was the Fall of 2013.

  • SS_JJ

    Ave Mercatus, Malum Soricum Te Salutant!
    There, I fixed the title for you

  • mugabe

    ‘if I wanted to find something in writing to help create confidence in a
    position I can always find it so I try to stay away from “news”.’

    Absolutely

  • SS_JJ

    Love the set-up on the shiny thing

  • dragan ilic

    Everything is bigger in America

  • mugabe

    That’s the biggest range daily bar on SPY for almost 3 years! Ivan- does that mean anything?

    If today’s action showed something, it’s where support is on SPY.

  • mugabe

    That’s not what the girls say:)

  • Billabong

    Like many things in the market environment, it can last a lot longer than I have capital staying power. Hence CM and RBT mixed with PDC.

  • SS_JJ

    When I see the strength (or lack thereof) of the ZL signal today during the up-move, along with TRIN and NYUPV:NYDNV final reading for the day, I am like Meh.

  • Billabong

    A lot of people that believe in energy independence will trade their beliefs.

  • dragan ilic

    Nothing has changed. Only news action. Most likely another bull trap. Like Mole says the market will not let you get/hold those “easy” positions. Did the mistake to chase the market at Monday. This time i will give the tape time to resolve. Not worth it.

  • mugabe

    romanes eunt domus!

  • http://evilspeculator.com molecool

    Rough day today! How’s everyone holding up?

  • dragan ilic

    Drawdown…

  • SS_JJ
  • Scott Phillips

    Me too! Big one!

  • Scott Phillips

    Low probability outcomes lead to outsized moves

  • Skynard

    Bull above, bear below

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

    excellente’
    With the bottom of Oct 2, and then a spike of Oct 6, I was looking for a double bottom today.
    happened early at open, so yes, a double bottom T post may be in place.

  • Scott Phillips

    No I didn’t warn of the push up, took me totally by surprise

  • Malcolm O’Mara

    I did alright, boss. I’m in cash at the moment. From my perspective, above 1960 is Bullish, BUT
    not enough to take a position. The breakdown in the AM made be exit my TZA
    position at 11:18 EST. I missed NUGT by 0.06. Tomorrow is another day.

  • EXAS Hater

    hahahah, bears are toast….CPC hasn’t been this high in a long time….and bears seem unconcerned that we’re heading into the most favorable season for bulls from October to April…ouch

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

    what if the overnight crossed this TL? what a cruel cruel thing it would be.
    http://s29.postimg.org/fkjxw7q9j/calypso.png
    -GG

  • PipCyp

    “most likely another bull trap” => respect the importance of big candles! This 35-pt rally comes on highest volume in a week, creates an outside day reversal, is the biggest gain in over 6 months and the close is just shy of the two preceding big down candles’ opens.
    Taking a step back to see which way the market consolidates is the best way to preserve mental capital after a tough few days.

  • Skynard

    Long /DX chart

  • http://EndOfBull.org/ Pontificus

    what do you recommend for high beta exposure to the bull wave? maybe CYCC & NURO? *snicker*

  • ridingwaves

    most favorable seasons are not always favorable…..no edge at all…

  • ridingwaves

    RUT is still in danger…Vix might make it down to 14 maybe a smidge under, that its a guess…
    QE is finished at the end of month…..Volatility moves are scalp city while building a core….

  • ridingwaves

    take your pick….plenty of plays…

  • Skynard

    Something on the daily to take note……

  • DollarChaser

    Yeah woke up to my account being about 3R less than when I went to bed. But that’s fine, when I placed these trades I expected them to do one of two things… become a winner or a loser, and that’s exactly what happened here. Not surprised, not disappointed. Just another day.

  • http://www.ProfitFromPatterns.com/ Ivan K

    Any one day draw or profit is perhaps best viewed in the context of the Journey.

    On the other hand … milestones … all of which are artificial and meaningless from my perspective on a
    tiny island in the Pacific … may be a way to go

    An updated Equity Chart from a student that I shared here a while back (featuring different types of drawdown pain) … having achieved the ‘magic’ ton … 100R return … over 79 trading days … from a very focused and active single market RBT … presented without the need for further comment I believe.

    Chart below.

  • http://www.ProfitFromPatterns.com/ Ivan K

    The chart ?

    Disqus 1 … moi 0 …it seems.

  • Billabong

    Currently 54% cash. Today saw a move on two positions to -1R, BE on a third, and butt ugly on a fourth test case. Looking for follow through to close out first three positions. Using R as a stop helps remove stupid and hope.

  • Billabong

    Sort of like “sell in May and go away until Labor Day”. If you had sold, you would have missed a 100 point move in ES over the summer,

  • http://evilspeculator.com molecool

    That’s not entirely true – he is right about seasonal bias – statistically October is actually a good month with a few massive outliers. The last two months are some of our best of the year – looking forward to them!

  • http://evilspeculator.com molecool

    You are right about the stats but wrong about the bears being unaware what most likely awaits them.

  • Skynard

    85 should be good support

  • bdoone

    Is anybody who is using IB having issues with E-minis(ES) updating this morning?

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

    see.
    sell Rosh, buy Yom.
    😉

    nobody listens to the lowly (& humble) leech.
    http://www.marketwatch.com/story/sell-rosh-hashanah-buy-yom-kippur-worked-this-year-2014-10-06

  • Skynard

    Crude going to the Abyss

  • Ballrus

    well, to me it looks as if the pos. div. on the hourly is in the making and could be good for 200 points up to around 88.60 – spot WTI (in the downtrend of course)

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

    Noooooo.

  • Skynard

    Could be, now your sounding like me:)

  • Skynard

    Something going on we do not know about, always thought crude would see much lower prices. Surprized that never got on that train. Bitch lost weekly support dude.

  • Skynard

    Go Bucky:)

  • Scott Phillips

    NEW POST

  • Scott Phillips

    Good! I’m short hides some losses

  • Skynard

    Looks like a major move:)

  • BobbyLow

    There’s always something going on with oil that that the public is not aware of. There have been times when there was a so-called “build in supply” week after week with little or know disruptions while price continued to rise week after week.

    This time price is falling week after week and it will fall until it stops and then goes back up again. I mean are we getting that much petroleum from fracking? Seriously?

  • Skynard

    Thing is that we do not rely on foreign oil much more, therefore the ponzi does not exist:)

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

    remember, the Market can be irrational – and longer than expected.
    like women.
    ;-D

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

    Nooooo.

  • ridingwaves

    u mean me…

  • James Spence

    We have a new great quote! “Self preservation is the mother of all rationalization”