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Back Playing Limbo
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Back Playing Limbo

by The MoleSeptember 9, 2016

The other day I felt the need to remind everyone that we as retail traders have one principal advantage over fund managers or institutional participants such as trade desks or system operators. We don’t have to trade unless we want to or perceive the express need to risk our capital. Now given by yet another spectacular failure to breach outside a now well established trading range it seems that we again may be well advised to claim that privilege.

2016-09-09_limbo

As you can see a fast unceremonious slice through our current inflection zone around ES 2176 returned us smack middle into the dreaded limbo zone which extends all the way down to about 2150. That’s about 25 handles of pain which are extremely difficult to navigate unless you are a stone cold swing trader with ultra chilled freon flowing through your veins.

2016-09-09_rv_spoos

As you know I’m a sucker for volatility with a particular interest in realized volatility (RV) patterns and fractal formations. Shown above is the 60-min panel which, except for one or two occasions, indicates that high volatility periods (as evidenced by a signal pushing into the green) were mainly produced courtesy of buying activity. Which is exactly what should have happened near the very last line I painted, putting us near the beginning of yesterday’s session. Instead what happened was more indecision and a complete lack of interest in pushing the tape into the end zone (i.e. 2180 and above).

2016-09-09_rv_zero

Yesterday’s Zero session shows us all over the place with no coherent theme. In recent times we have seen more and more days in which the Zero Lite signal (on the right) oscillated almost equally above and below the Zero mark. If you are a long term sub then you probably are aware that this is not the norm. For years we were used to seeing one side clearly dominating at least a large portion of the session. A change in that, often accompanied by a bullish or bearish signal divergence, was often a clear indicator that a ST trend change was in the works.

Recently however all we’re seeing is more and more indecision and until now I attributed this mainly to a lack of participation during the summer. However, we are now pushing far into September and clearly something else is going on here. The bulls continue to fail where they should not. A year or two back they would have kicked this thing into overdrive weeks ago as there is no bearish mojo whatsoever and we’d be trading above 2200 by now.

Take Away
  • On a short term basis this suggests that we once again need to reduce our participation to playing the swings.
  • On a medium term basis this type of tape is extremely toxic as setups like the one I posted yesterday used to play out more predictably. Even when they failed there usually was a clear attempt to breach. A sudden disappearance of buying interest at key inflection points suggests internal forces are at work that we are not privy off but that put in question the prevailing trend.
  • On a long term basis this once again suggests that this bull market is in its last throes. A blow off top is absolutely still in the cards. It’s quite normal to lure in early bears late in a trend just to once again blow them out of the water and thus produce prime conditions for a surprise take down. Ms. Market after all is a cruel mistress. There is no predicting as to when long term trends paint their final exhaustion spike or simply die with a whimper. And we have long learned that we should not obsess over catching that final moment. However we need to pay attention here and once again remind ourselves what we are dealing with. Which is an indecisive market without direction. Anything may happen at any moment.
Where We Go From here

As you know I continue to take things on a day to day basis, focusing on the few charts that actually make sense. Although promising setups do pop up here and there we need to remain focused on asset preservation. Don’t think for a second that you will be able to navigate market periods like these on the basis of technical, fundamental, or cyclical analysis. You are not that good – and neither am I. Chaos reigns right now because it is from the ashes of a dying trend that a new one can emerge. Although periods like these can be extremely destabilizing and frustrating psychologically I urge you to focus on what you have direct control over:

  • Your exposure (i.e. position sizing).
  • Your participation (i.e. capital commitment guidelines).
  • Your trading rules.
  • Your sound mind and psychological well being (i.e. your mental equilibrium)

Remember that 60% of your activities should revolve around the qualitative aspects of trading and only the remaining 40% around the quantitative aspects. You are not a computer and this type of tape is uniquely designed to press all of your cognitive biases in order to create a staccato of confusion. And there is only one way to win in such conditions – and that is not to play, or at minimum choose your participation extremely wisely.

Dirty Humor

One last thing – and if you’re a fragile millenial snowflake then please stop reading here: Don’t be worried about missing the bus. If this thing really resolves to the downside then there will be plenty of opportunities to get in. You may have heard this joke way back when good humor wasn’t yet outlawed by political correctness:

Father bull and son bull are sitting atop a plateau looking down at a herd of grazing cows. Son bull is bouncing up and down with excitement exclaiming “Dad! Dad! Let’s run down there and f…k one of those cows.”  His father turns to him and replies calmly, “Son, we are not going to run down there and f..k one of those cows. We are going to walk down slowly and f..k ’em all.”


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.
  • Tomcat

    Since we are going down this path…let’s enjoy:
    Two men are walking through a forest. Suddenly, they see a bear in the distance, running towards them. They turn and start running away. But then one of them stops, takes some running shoes from his bag, and starts putting them on.
    “What are you doing?” says the other man. “Do you think you will run fast than the bear with those?”
    “I don’t have to run faster than the bear,” he says. “I just have to run faster than you.”

  • ridingwaves

    4 more fed speeches over next 2 trading days, 1 later today-3 on Monday…me thinks they will talk up rate hike, hurt some commodities traders and then you have a slew of auctions next week to top it off, maybe red thru tuesday ? the meme today was asset prices are why we should raise rates per Rosengren……

    today’s close could be important….

  • Tomcat

    Pretty quiet in here today…are the bears hunting???

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

    Mooo.

    Mess with the Bull, you might get the Horn, as my father would say.

    ..coming up on a definitive moment.

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

    Excuse me while I feed.

  • http://evilspeculator.com Sir Mole III

    That’s 4 too many.

  • ridingwaves

    there dead, hibernating after not finding any berries…

  • ridingwaves

    I agree…

  • Mark Shinnick

    Yeah…then the perfectly-adapted berry bushes do their thing.

  • http://evilspeculator.com Sir Mole III
  • Mark Shinnick

    Highly relevant and useful. Thanks !

  • Ronebadger

    Trend day, eh? (fun to say that)

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

    It’s also fun to say Brexit. Don’t get cocky mate. 😉

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

    9/9/16 – isn’t that like an evil pagan blood sacrifice number?

  • Mark Shinnick

    Lets go for it, not even dried flakes or stains of the last bloodletting are anywhere to be seen.

  • Mark Shinnick

    BTW…Where the next alter level?

  • OJuice

    Watch for this to be a faux head and shoulders break down. Common move from back in the day. Break down to suck in some shorts. Then reverse hard on Monday with a gap up.

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

    I checked. Marriage to the beast was a few days ago. Nothing till Equinox. Only numerologists can freak. Carry on.

  • Ronebadger

    Not fake…this is a Wave 3 of 1 of 1 of 1 of 1 of A…there, I’ve said it…Who’s with me?

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

    My major index signals are neutral. If 2160 holds, the bears are F’d. A blowoff is in store like Mole stated. If this sell off continues, there’s no rush. Best thing to do? Have a plan, trade your plan! -GG

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

    ROFL. You do have great comical timing!

  • Mark Shinnick

    Sort of has the ring of q-infinity to it.

  • Ronebadger

    Just channeling my inner Elliot… (or is it, inner Idiot?)

  • kim

    haha, bulls are getting some today :)

  • Yoda

    TICK numbers were really strong at the open

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

    ..even AAPL, muwahaha.

  • Yoda

    MM are certainly creating some room for a VIX crush opex play next week, either that or TEOTWAWKI is in play ;-P

  • Ronebadger

    What’s the impetus for today’s breakdown? Wells Fargo…tip of the iceberg realization? The Nice Korean’s fireworks display? Trump’s ahead in the polls? Nothing?

  • Tomcat

    Don’t know about no 2160 and bear f’in (unless you share your chart since I don’t see it in mine http://schrts.co/FckKSg). but one thing I am sure off (as much as one can be sure about these things) is that the bulls haven’t had the last word yet…

  • Yoda

    I was wondering the same. Maybe it is just because of a lack of fear in the market.

  • Mark Shinnick

    Momo did slow considerably.

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

    would you believe a fib-fan?
    =P

    why ask WHY?

  • Mark Shinnick

    Damm nice ride so far….

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

    -40 S&P pts, gettin serious now.

    back from dropping off my kiddo.

    QQQ’s at support in my lens. Better a month early, than a day late

    http://stockcharts.com/h-sc/ui?s=QQQ&p=D&yr=1&mn=0&dy=0&id=p27499848700

  • Mark Shinnick

    Yeah…I guess bears just have a way that keeps gnawing away.

  • http://evilspeculator.com Sir Mole III

    Zero signal thus far:

    .

  • kudra

    yep this is real selling. market has been schizophrenic for over a month, but it looks like it’s made up its mind today. side note: GDX down 5.5%.

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

    I’m not so sure if it’s bears. Just Bulls than no longer have anyone else to sell to.

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

    kiss of death at the 60day.
    Can I spot them or what!?

    http://stockcharts.com/h-sc/ui?s=GDX&p=D&yr=0&mn=5&dy=0&id=p54245233801

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

    ..that zero lite is hinting at up. that would fit with the QQQ’s limit down.

    “confirmation bias”.. Bad. Bad Gerb!

  • http://evilspeculator.com Sir Mole III

    Don’t try anything stupid…

  • http://evilspeculator.com Sir Mole III

    AGREED.

  • Tomcat

    From a rate hike, odds are increasing for QE4…stay tuned.

  • http://evilspeculator.com Sir Mole III

    Market was ready to sell off.

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

    Aye.
    Done that 2010, 2011, 2012…

  • kudra

    alright. who got positioned short yesterday or this morning? Not me. Any sense in getting short now? IWM down 2.79% ouch. risk off came to town today.

  • Yoda

    There is also a volume hole at about SPX 2130, which looks like BTFD territory to me
    http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&b=5&g=0&id=p26222575309

  • kudra

    textbook selling – furious, steady, and substantial with very few on the right bus.

  • kudra

    exactly. who cares why. identify the phenomenon, ideally sooner than later, and trade accordingly.

  • Tomcat

    Regardless whether this move helped you or hurt you, if you don’t get excited about days like today…you should not be in this business IMO

  • ridingwaves

    ridingwaves ridingwaves a day ago
    TBT-Buy order in for 31 even….
    edit- I might have to buy into this higher than 31, seems a lot of folks lined up on the buy side right now…..
    read some interesting material on China money market seizures beginning last week and similarities to Feb equities down move data points…

  • ridingwaves

    small gain for me as we speak as I did have to buy at 31.40

  • ridingwaves

    I expect more red thru Monday, possibly Tuesday morning.
    Mole strangled me like a chicken but I did mention yesterday the Kichin cycle has topped….so far as cycles go it’s doing well over last 10 years…

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

    I dumped most of the TVIX I was sitting on just now at 23. Ouch, Back to trading not holding.

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

    hold 3X is a lesson..I’ve been through.

  • BKXtoZERO

    not like I wasn’t warned, repeatedly, didn’t know….. just thought I knew better. (nope)

  • ridingwaves
  • Ronebadger

    Humans always want to know WHY

  • Ronebadger

    I’m a little fuzzy about KICHIN…clue me in

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

    it’s a place in your flat.

    WTH man, don’t they have GOOG in the UK?
    https://en.wikipedia.org/wiki/Kitchin_cycle

  • ridingwaves

    thanks I was just going to post..though it took longer to make this reply
    :)

  • Ronebadger

    My platform is telling me:
    NYSE
    Decliners/Advancers 16/1
    Decl Vol/Adv Vol 19/1

    …something about Biblical proportions…

  • kim

    We are sitting on the top of the roof for the last two years…but this just might get legs again :)

  • ridingwaves

    folks, I just jumped into ANY, penny play, low float….Tech firm-3D technology. They are growing revenue but had to do bridge debt financing from some wall street firm that loans everyone short shares to go short and buy back even lower than the original….wall street fucking the retail….I like it here and someone else does too with 350K share purchase before I wrote this, I like that…stop L at .61 at .55

    it might not move fast but a $1 min bid requirement move up good be in the offing

    http://finance.yahoo.com/news/sphere-3d-completes-20-million-220600597.html

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

    noted it below but 4 more speeches and treasury auctions on Tuesday of next week seem to leave some unease with the bulls this weekend…

    they might dump it here

  • Yoda

    That would be in October

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

    Correct.
    that’s why I distrust this strong TICK sell.
    but it’s Friday. and either way is a crap shoot IMHO.

    Market close in ~30.

  • Mark Shinnick

    Way to go, probably will be a very successful seminar from now on.

  • ridingwaves

    2x held…

  • ridingwaves
  • Ronebadger

    volume is picking up (in SPY) into the close

  • Mark Shinnick

    Yeah…I’ve been bearish last couple of days. I see plenty of meat still on the table but it wont feel as EZ to reach for it.

  • Ronebadger
  • Mark Shinnick

    Ohh…I like the sound of that :)

  • almez

    I’ve never seen this kind of zero where the zero comes back to near zero even though price is still falling. How should we interpret today’s zero?

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

    timecheck.

  • Tomcat

    Does this move seem eerily similar to last Sept (fear of hike and than no hike): http://finviz.com/futures_charts.ashx?t=ES&p=d1
    or is it just me?

  • Mark Shinnick

    I see support right here but may mean nothing to a hot knife.

  • ridingwaves

    quick move up on Monday and selling in afternoon is my take…

  • Ronebadger

    SPY selling right into the last minute. SPY volume was about 2.5 times the 50 day average

  • Yoda

    As 100% fuckery.
    Also means selling pressure is reducing.

  • Yoda

    Doesn’t it always?

  • almez

    All asset classes down today. I believe TLT (bonds) were leading the price decrease since rate hike odds went up. I suspect some ping-pong since stocks down decreases chance of rate hike which increases stock prices etc etc

    I am now looking at TLT for price movement. If TLT is positive monday, stocks will recover

  • Ronebadger

    yes, but REALLY picked up today

  • Mark Shinnick

    Yeah…but I remember how the BTD crowd sometimes gets really hammered, like that Friday 108 dow drop and after 9-11.

  • Yoda

    I would bet on the opposite.

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

    I’d like to see TLT drop another $1.

    it started dropping yesterday. if no one wants a low yield safe haven, ouch!

    http://stockcharts.com/h-sc/ui?s=TLT&p=D&yr=0&mn=6&dy=0&id=p87841364613

  • ridingwaves

    I think some folks were caught off guard their will be a good fed speech in morning, then bam in the mid-morning afternoon…

    but I was born wrong…

  • Yoda

    I just see this move as a good opportunity for a short squeeze that will carry the tape to another high. It seems to me the market moves up better with short squeezes rather than people actually buying it up.

  • Mark Shinnick

    Me too…good company to keep :)

  • Ronebadger

    Aftermarket selling continues…not pretty

  • Mark Shinnick

    Nice prospect…so open modest…just keep dropping get all the shorts on board…and let’em have it.

  • http://greenlander1.blogspot.com/ Greenlander

    I wouldn’t put much stock into zero now on a 1 day basis. I’ve found it to work better in range bound markets or if there is a sharp trend change, after a few days of selling so divergences build up.

  • CandleStickEmUpper

    nice day today. Let the games begin!

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

    this one’s for you.
    Have a great weekend rats!

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

    Cheers!

  • http://greenlander1.blogspot.com/ Greenlander

    Yeh man finally some volatility :)

  • Mark Shinnick

    Periodic strong storms are really good for the environment.

  • http://greenlander1.blogspot.com/ Greenlander

    Word. Hope for more selling next wk to carve out more range.

  • http://evilspeculator.com Sir Mole III

    Not just you. But at some point the dam will break. Very hard to make ANY assumptions here.

  • http://evilspeculator.com Sir Mole III

    Watch some of the older videos. As long as it remains below the mark it’s a bearish pattern.

  • http://evilspeculator.com Sir Mole III

    Disagree completely – selling pressure is not constant and that is what the Zero showed. It was depleting toward the end but it was 90% plus bot driven and we have seen these types of sessions plenty of times in the past.

  • Yoda

    Big boys wanted the market down on Friday. It was confirming by a lack of PPT intervention in the last 30 min. Now the million bucks question is by how much they want it down. Monday price action should be telling.

  • Yoda

    It is a possible scenario, which btw would be really bearish for the rest of the week.