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.

2014-12-31_crude_LT

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.

2014-12-31_WTC_PNF

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.

2014-12-31_ES_LT

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.

2014-12-31_SPX_pnf_b

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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happy_new_year

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.

Cheers,

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.

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Cheers,

How To Survive This Week

This is a special Evil Speculator update. I’m seeing an increasing amount of panic in the MSM and the bears are salivating at the prospect of a bond market default. Ignorant little buggers they are indeed – if that really happens your silly SPY puts are going to do you no good as the U.S. Dollar is going to drop headway into the dark abyss of ex-reserve currencies. Now I’m not going to sugar coat it for you either – the situation is grim and it’s quite possible that we’re going to see some nasty gyrations over the coming week. And that’s what I’d like to cover this morning: How to survive this week and not tell your grandchildren about any of it (it’s too embarrassing).

So this is what you’re going to do. Put on the tune above, lean back, and try to put your mind into a relaxed state. Maybe go full screen and mentally fly along with those dare-devil knuckleheads. Good – you’re still with me? Now, let’s cover a few basic rules:

  1. What everyone knows is not worth knowing.
  2. Do not worry about things outside your immediate control.
  3. Stay away from correlation trades.
  4. Emotional trades are losing trades.
  5. Don’t Panic!

Obviously everyone and their grandmother is expecting a market default at this point. Frankly I cannot tell you what the odds are for this to happen (I don’t bet on idiots) but what I do know is that there is absolutely zero edge in taking positions against an event that a large group of market participants is already expecting. Even if it happens the ‘boyz’ will find a way to cut your legs off before things take off for real. So attempting to somehow get in front of a market crash here is pretty futile. The best you can do right now is to keep your exposure limited and to stick with the charts at hand.

Worrying about a market default is useless. Why? Because its completely out of your control and if it really happens there is nothing you can do about to protect yourself. Markets all across would be halted and you would most likely be locked out of whatever paper profits you may have accrued while they’d find a way to screw over the bears, just like they did in 2008. Besides, as I mentioned above, the Dollar would probably plunge hard and since your profits are denominated in Dollars you still lose (just a little less – again, assuming you get to collect).

Correlation trades work until you need them the most. Just don’t. If you need any proof then look at the bonds all last week – or look at gold. Not much there to see given all that fear. Shouldn’t both be running sky high at the current time? Again, this relates to rule #1 – what everyone expects to happen probably won’t. Plus six sigma events are impossible to predict. It’s possible that we’ll see a last minute debt ceiling extension and then the market falls. That’s what happened last time after all.

There is a lot of fear out there and I’ve seen this script play out over and over in the past. I’m not saying that we should stick our collective heads into the sand but fear and strong emotions in general lead to bad trading decisions and although this may sound a bit academic to you right now I strongly suggest you don’t fall prey to the fear mongering that’s currently saturating the main stream media. Stick with a strict information diet and do not pollute your brain with useless information.

So what to do?

Nothing!

Well – if you’re active one thing: Keep your exposure limited. If you’re long from the bottom (courtesy of our Zero – snicker) then hold what you have but don’t add positions here either thinking you’re taking advantage as a smart-ass contrarian. We’re most likely going to see a lot of volatility here if the congressional stalemate pushes further ahead and that’s not a good recipe for us market plungers.

If you came here expecting some secret super trade that will tripe your account overnight, well – sorry to disappoint. Manufactured crisis are great opportunities for people on the inside – they usually hurt everyone on the outside. And that unfortunately is us – the hapless unwashed 99.9%.

The spoos are wanking sideways right now after an overnight gap lower. I mentioned on Sunday that the daily NLBL is where we should expect support -as of right now we’re still holding there. Things don’t get too serious until we breach that 100-day SMA near ES 1659.

A few tasty FX setups for my intrepid subs:


More charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don't waste time and sign up here. And if you are a Zero subscriber you get free access to all Gold posts, which gives you double the bang for your buck!

Please login or subscribe here to see the remainder of this post.

Cheers,




    Zero Indicator


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