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Back To Reality

by The MoleJanuary 10, 2017

Now dreaming about the future can be a lot of fun (of course your mileage may vary) but until we actually get there there’s quite a bit of work left to be done. After all those fancy hover cars and food replicators won’t pay for themselves. Or perhaps – will they? 

Since after Christmas I have been quietly observing the relative lack of progress in equities whilst attempting to form a halfway intelligent idea of what may lay ahead. Meanwhile the Dow has been flirting with the 20,000 mark and just missed it by a few pennies on Tuesday. Clearly rounded numbers have little significance beyond the psychological milestones, but it’s clear that the mojo we experienced ahead of Christmas has been suspiciously absent.

2017-01-10_spoos_rv

Our realized volatility indicator may offer at least some answers. The patterns we have been observing has been one of exploding RV followed by a drop which often (but not always) turns into a depleting volatility trending period (DVTP). How long that trending period can persist in part depends on the preceding peak in RV. A good example is the sudden drop last summer followed by a gradual falloff during the ensuing ramp higher.

Of course that isn’t always the case. Depleting volatility can also be accompanied by sideways tape, especially if the prior RV peak was gradual and less pronounced. When attempting to plot the path forward it’s perilous to convince oneself that the very same scenario is once again beyond the horizon. However, that said, as events unfolds the probabilities do start to gradually narrow. For example the chart above shows us that the current depletion of RV seems to have been concluded as RV is once again on the rise. This possibility would gain more credence in particular if (and only if) the indicator once again pushes above the upper standard deviation and thus turns green.

Because if it does then probabilities once again shift toward an increase in RV and that means a fast move (up or down) would take quite a few participants by surprise. If that fast move resolves to the upside then the potential for a blow off top (and the trigger of Dow 20k celebration) raise considerably. Once that happens we would be looking for a reversal pattern, at minimum a spike high but I would prefer a valid Retest Variation Short pattern.

However if it resolves to the downside then I would actually be looking for buying opportunities, especially if it happens before the Dow scrapes the 20k mark. I concede that this perspective is rather contrarian but unless I see a clear trend trading signal I cannot justify being long here.

In case you wonder a trend trading signal would be a failure of the RTV-S pattern or a breach of a prior significant spike high. If nothing else in times like these our Zero indicator should also be giving us valuable clues, e.g. participation and possible divergences suggesting either accumulation or distribution.

2017-01-10_silver

Now silver was a great entry yesterday and I actually had it marked for you guys until I got sucked into writing about virtual reality and our glorious future as 21st century traders. However that setup has actually gained in probability now and I’ll be sure to grab a long position in a drop back to the 16 mark. My stop would be a respectable distance away near 15.38.

The weekly panel suggests that it’s really high time for silver to either finish its business or get off the pot. Let’s not forget that the trend is still to the downside here and currently near a possible reversal point. However it’s also possible that silver may finally reach escape velocity and break the current trend.

Of course that means that a short position right here and with a stop above the recent highs may turn out the right way to go. If you’re sharing that view then this is a good spot to pull the trigger.

More setups below the fold.

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Welcome Back BobbyLow!

After a little row misunderstanding last year I was elated to see that Bobby Low has decided to return to our comment section. Bobby has been a long term participant and prolific contributor here at Evil Speculator and I consider his return a very good omen for the new year. Welcome back buddy!


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

    This gadget is like an open invitation for spooks to spy 24/7 on your private life.

  • Yoda

    Great trade plan Mole.

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

    ya think!?

    I’m sure they will be federally subsidied, perhaps mandated to have in your house by 2030.

    http://www.foxnews.com/tech/2016/12/28/amazon-alexa-data-wanted-in-murder-investigation.html

  • Yoda

    You bet. That log cabin in the deep woods looks better by the day.

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

    There goes crude, see if /ES breaks 2260 now.

  • Mark Shinnick

    Good observation there.

  • ridingwaves

    last time breadth at highs was this bad was at snp all time peak in 2000
    advance/decline is one sided for bears right now

  • StockTalker

    Yep, tech bubble

  • Mark Shinnick

    …yeah, maybe even get the kids to rat out the parents with offers of 4 pounds of sugar cookies.

  • StockTalker

    $50 crude coming again to complete H&S.

  • OJuice

    Taking a crack at long /CL here. entry 51.30. stop 51.15.

  • OJuice

    Are you referring to a back test of the neck line?

  • Yoda

    A vertical ramp on a flat zero sure inspires confidence.

  • StockTalker

    Yes sir

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

    1984 it is. Doing this to ourselves, we are.

  • StockTalker

    Hefty div on the /ES, short w/ stop just above the high.

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

    Damnnnnnnnnnnn

  • BobbyLow

    Wow, I’ve been out most of the day and am extremely gratified to read Mole’s kind words from his post this morning.

    Like I said yesterday, I’m glad to be back. We are very fortunate to have the Evil Speculator as a place where we can learn from each other. I’ve learned a great deal from Mole, Scott and almost everyone who has passed through the ES.

    We as a whole attempt to perform in one of the most difficult arenas there are. This arena is constantly evolving while basic tenets remain the same. If this isn’t confusing enough, it’s not like we can discuss this stuff with friends or family outside of this business without getting a glassed over look within the first two minutes of conversation. A lot of people have come here and a lot of people have left only to return at one point or another.

    Or as GG said “You can check out but you can never leave”. :)

  • Yoda

    sometimes I wish I could jump into a time-travelling machine and go back to 1984…

  • Yoda
  • StockTalker

    Looks like we should get a test of /ES 2260

  • randomuser6789

    Just don’t gloat too much when your Patriots beat up my Texans. :)

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

    really? (click) yep, sure enough.
    Zero wins the day. looked like thin ice on the 5m.
    +1 for you.

  • Yoda

    and +1 for the Zero, the star of day.

  • StockTalker

    Added to my position

  • BobbyLow

    I’ve learned to not take anything for granted and never gloat about anything. :) I’ve been a Patriot fan for 46 years and the success this team has had over the past 15 or 16 years has been outstanding to say the least.

    However, I owned Season Tickets back when the Patriots were a terrible team. There were also years like 1990 when we were 1 and 15 and the laughing stock of the NFL etc. So as a fan, these were times when losing was pretty much expected. Then came a change of ownership in Bob Kraft. The original owner was about to go bankrupt and the team was expected to move. An interim owner hired Bill Parcells (Parcells helped get this team some respect) Then in the year 2000, Kraft hired Bill Belichick who drafted Tom Brady in the 6th Round. The rest is history.

    So I know what it’s like to be an extreme underdog. I also know that underdogs can win from time to time. You guys have a lot of Patriots Blood in Head Coach Bill O’brien who was offensive coordinator for the Pats and Romeo Crennel who was Defensive Coordinator for the Pats along with Vince Wilfork who was our mainstay on defense for many years.

    So I’ll be watching on Saturday Night with my usual cautious optimism along with the thought of “any given Sunday” or Saturday in this case. :)

  • Yoda

    fireworks tomorrow

  • StockTalker

    Shall see, need to break 2260

  • StockTalker

    Nice action today

  • http://evilspeculator.com Sir Mole III

    Thank you for your kind words. Hope to see more of you this year.

  • http://evilspeculator.com Sir Mole III
  • http://greenlander1.blogspot.com/ Greenlander

    Sold off decent amount today
    1/2 XBI
    a little more China down to 1/4 position
    Jan VXX puts
    and actually took small SOHU short for short term. Need a friendly pullback in China to get aggressively long again.

    Still holding NTNX, CMG, REGN

  • Tomcat

    Sold $REGN.

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

    Nice one. I have a longer time frame so willing to let this one bounce around

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

    Bitcoin,
    28% off the high..
    https://uploads.disquscdn.com/images/686b02ef79370da2a7d04610d15d1568e19223b4ecd7fc684c359d2168015366.png

    always take physical possession of your Bitcoin
    😉

  • Yoda

    well, I hope that Chinese will switch to gold and silver now

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

    me too.
    ..if it’s good enough for Prince..

    https://carpeventures.files.wordpress.com/2015/08/chinagold2.jpg

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

    Welcome back, Bobby. You were missed.