Only The Paranoid Survive

Originally attributed to Any Grove, the founder of Intel Corporation, this has remained one of my favorite quotes and one that has kept me out of trouble over and over again in my time spent as a trader. It always pays to watch your six and if you think you live in turbulent times after following the ongoing Grexit saga over the weekend then think again. Here’s a quote by Andy which summarizes the first twenty years of his life:

By the time I was twenty, I had lived through a Hungarian Fascist dictatorship, German military occupation, the Nazis’ “Final Solution,” the siege of Budapest by the Soviet Red Army, a period of chaotic democracy in the years immediately after the war, a variety of repressive Communist regimes, and a popular uprising that was put down at gunpoint. . . [where] many young people were killed; countless others were interned. Some two hundred thousand Hungarians escaped to the West. I was one of them.

So however bad you think you have it – think again. Things could be a lot worse. Of course not to diminish the situation in Greece right now. I often image myself living there, unemployed, broke, and standing in line in the smoldering summer heat trying to pull my last few Euros out of my bank account. In comparison I live a rather a sheltered existence – which of course could change at a moment’s notice (I reside in Spain). Which is why I personally employ a mixture of living in the now bundled with basic preparation and diversification.


And that should be a standard policy given what I expect in the months ahead. After indecision and a six months + sideways churn we are now seeing successive gapping action across various market verticals. That is not a sign of a healthy market and the wheels could come off here at any moment. So just because the almost reflexive BTFD perhaps worked for you last week doesn’t mean it’s a good idea moving forward.


Be cautious and avoid charts which signal uncertainty – the EUR/USD certainly is one of them. Given the weekend headlines the drop back to 1.1 is actually rather mild, just like when we gapped here last week. But we could see a huge jump or drop here at a moment’s notice (without the notice), and it won’t have anything to do with technical inflection points but rather political brinksmanship played for months/years finally coming to a sudden resolution. Remember that six sigma events happen when we don’t expect them. People have expected one for months here – and perhaps it will happen when everyone thinks the situation has been resolved. I personally don’t have a crystal ball but I do know a dangerous chart when I see one.


You could get lucky and catch the right direction or you could find your trading account severely diminished one morning. To see the five year bonds paint such gaps is certainly disconcerting – especially if you understand how damn huge the bond market is (almost twice that of all equities combined). Gaps like that cost a lot of people a lot of money…


Of course there are still charts out there which seem to benefit from the overall increase in volatility but aren’t flagging alert signals. The AUD/USD did a bit of gapping down but makes for a decent short term long this morning. However I’ll be pretty nimble here in the coming days – meaning small position sizing and being quick to take profits.


Soybeans on a rampage – we did ride some of that beautiful advance recently. After an obligatory 3.0+ standard deviation reversion it may be ready to continue its way higher. I’m long 1/2R here with a stop below 1016. However I’m only playing half an R because…

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… I also like soybean meal. It’s facing an hourly NLBL plus its 100-hour SMA. No guarantee for a low but as good a chance as any we’ll get technically speaking. So I’m long another 1/2R with a stop below 342.


Natgas – it’s always been a volatile bitch but compared with equities it seems almost serene these days. At least we’re seeing clear trading ranges and it seems to be observing LT support levels. Which is why I’m trying 1/2R long here with a stop below 2.73.


AUD/NZD is my final victim for now – I like the combination of the daily and hourly charts. However I could be a bit early here so I’m only taking 1/2R. I would try again with a full position if it drops lower and kisses its 25-day SMA.


That ought to keep you guys entertained for a while. See you guys later this afternoon.


Wrapping Up The Year

And here we are – the last trading session of 2014. It’s been an exciting year to say the least with plenty of nasty traps along the way. But we made it through just fine, consistently banking coin all year, by simply sticking to our guns (i.e. charts) and of course by persistently honing our game. Trading is a constant arms race and stagnation equals slow death – the sharks are constantly circling. I for sure am a better trader today than I was last time I drafted my final post for the year. I am glad you all were along for the ride and hope your accounts are better for it. Now let’s wrap things up Evil Speculator style – with an exhaustive long term perspective of where we’ve been and what the new year may hold in store for us.


We have a lot of contenders but the most salient chart of the year clearly was crude. Rarely have I witnessed such a concerted and systematic sell off, even in futures. I say rarely because if you look back it has happened once before in 2008 in the midst of the financial crisis. That drop took us from over 140 all the way to 40. But this time was completely different in that we didn’t see any major market dislocations and in my mind this clearly was a message to Putin from our friends at the State Department.


Which makes it a bit harder to propose any technical support levels – many have tried and failed over the past few months (I wasn’t one of them – knowing the cost of engaging in long term predictions). However there are inherent dynamics in the production and supply chain of crude which suggest that prices below the 50 mark would be difficult to maintain for extended periods.

Our P&F chart originally suggested a price objective of 82, which has been far exceeded. So technically speaking we don’t have much to hang our hats on and it’s quite possible that we may see an exhaustion spike lower before crude is ready to paint a floor. Plus we just triggered a bearish triangle break down two days ago and that’s not the time you want to start accumulating long positions. Remember that markets can remain ‘irrational’ a lot longer than you can remain solvent – that rule applies to both the up and downside. By all means buy the fear but make sure you have at least some technical context to back you up.


It’s not been an easy ride in equities this year and by all definitions we are in the late stages of an historic five year bull market. But it’s those late stage that often prove to be the most treacherous, as they are paved with increasing volatility on both the up and down side. The 25-week SMA was tested five times this year but the bears only managed to breach it once. It was the most serious medium term correction we had seen since late 2012 but the counter response speaks to the more volatile market conditions we should also expect for 2015.


A few weeks ago I posted this P&F chart and mused that the rallies proceeded faster and more violent than the preceding corrections. Usually, meaning 95% of the time, it’s the other way around and there’s a reason why they call it the ‘wall of worry’ and the ‘slope of hope’. Medium and long term bull markets grind higher and then eventually correct relatively quick. A contrary situation implies that we are indeed in the late stages of a bull market. So I don’t think 2015 is going to be an easy year for equities. Now for us evil speculators this may actually be good news as there will be plenty of opportunities to play the swings. To all you investors however I suggest that you prepare yourself for rougher waters ahead.

Quite a bit more waiting below the fold – secret decoder ring required.

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And with that I would like to wish all my readers and in particular all my intrepid subscribers a very happy near year. Prosperous? Well, that goes without saying, after all that’s what we are here for. Scott and I will be continue to work hard to steer you through the coming year, banking coin as always, and most definitely enjoying a few good laughs on the way.


Earning My Keep

I’d say the Mole earned his keep this morning when he kept you rats from getting emotional and chase this sucker to the downside. If you even managed to grab a few longs during the squeeze higher than you must be feeling rather giddy right now. Another bear trap averted, right? Well curb your enthusiasm – for the bulls are far from being out of the woods here. Let’s take it from the top:

As you can see the drive down pushed us against a small volume hole, which has however been filling in a little now. But it may establish a new bounce zone here which gives the bulls a chance to gather some strength. Now, I’m saying they will – what I’m saying is that any bullish scenario most likely involves some teasing around up here between ES 1938 and 1960.

On my Bollingers we’re seeing the E-Mini attempting to overcome hourly resistance – that’s a good start. As you recall there is a NLSL at 1944.25 and we need to stay above that one as well. A close below that one this week would trigger a daily sell signal.

For anything bullish to materialize now that 25-hour SMA on the SPX needs to be retaken. We are still below it and that opens up for a ‘last kiss goodbye’ scenario.

Now here’s the ba-aad news – check out that participation on our Zero indicator, in particular on the Zero Lite. Complete flatline since the session started and that was ‘after’ all the bad GDP news was being announced this morning. This kind of smells bad to me but as of right now we have no signal telling us to go short either.

Now this is interesting. Look at that divergence prior to the drop starting on the 20th. I didn’t see it but in my defense I did warn you guys near the top so I guess I’m forgiven 😉

The signal is currently in sync but it it remains far below the SPX. And that means MMs are being a bit cautious here on the medium term. Let’s watch this tomorrow and Monday for early clues as to whether we’re heading into a real correction or not.

It’s been a bit dry on the setup front here in the past two sessions but as you all know I am not one to force the issue. I only feel comfortable posting setups if the tape throws them my way.  But I have an inkling things are going to start aligning rather quickly – just like with volatility cycles (see my post earlier this week) trading flips between periods of relative inactivity (actually we are monitoring and watching) followed by short bursts of action (i.e. getting positioned). But both are necessary for successful trading – it is not a linear activity and neither should it be.

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