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.


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?


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:

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Euro Perspectives

This weekend all eyes are once again on the ongoing drama in Cyprus – many editorials are focused on how may (or may not) address a Monday deadline to avoid a banking collapse. I’m certain you all know the story and I won’t waste your time on yet another opinion piece. Let’s just say that I continue to greatly admire the European’s ability to turn a problem into a crisis, and a crisis into a catastrophe. Well played! I’m not being cynical actually – after all this is not ZeroEdge. Well, maybe a little bit. Never forget that there is opportunity in chaos and if you believe that the emotional roller-coaster ride of the past five years has not benefited certain parties then I won’t try to convince you otherwise.

Let’s instead be productive and talk about what we really care about in the context of Europe – which of course is the Euro currency and not a tiny player like Cyprus. Obviously I’m posting this and other pertinent chart knowing that things may quickly escalate by Monday morning, but it’s still crucial to know where our pertinent inflection points are. Above you see our FXE P&F chart – it shows us a bounce right where it should have happened, near the 127.5 mark, which I pointed out as the Euro’s final line of defense several weeks ago.

At this point the bearish price objective of 118.5 is still in play however if we see some type of final resolution by Monday I wouldn’t be surprised to see a push into 131.5 or 132 which would constitue a low flag pole reversal warning and put the bears on notice. Similarly non-resolution may finally take us much lower below the 127.5 mark and beyond.

The weekly panel shows us below the 100-week SMA and that’s bearish. A reversal back above would be very bullish as it would represent a failed SMA breach. On the monthly panel we see two NLSLs, the first one of which near 128 has been providing support thus far – a drop below 125 would probably get us toward our P&F target, at least somewhere between 121 – 119 is a possibility until there is some LT support.

Let’s also look at some of the pertinent FX pairs to round out our perspective on everything EUR:

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Some Words To The Wise

Once again I suggest that you simply ignore all the noise about Cyprus you will invariably come across this weekend (unless of course you live in a cave). Chances are you are as sick and tired as I am of the constant drama and the never ending debates focused on the damage control du jour over here in Europe and to some extent over on your side of the Atlantic. There is a growing phenomenon that seems to have become an addiction in its own – to constantly expect and even salivate over some possibility of a tragic system failure – that coveted six sigma event that may somehow reset everything. In that respect I must caution everyone to be very careful what you wish for – as you may just get it.

Perhaps this is a subconscious response to an increasing frustration with the Western political and financial classes which are both obviously in rather questionable state these days. But guess what – there’s nothing new under the sun – this game has been played on for a long time now, and we yield very little control to affect its outcome. The one thing that has changed is a rapid explosion in instant communication and a wider playing field for the dissemination of information. And what has not changed is the most fundamental aspect of it all – the inherent nature of man.

The reason why I started Evil Speculator in the first place was to give the little guy a fighting chance in navigating the traps and tribulations involved in trading the markets during a time of (sometimes fabricated) crisis. We do that by focusing on our charts and most definitely not by following the news. Whatever you will learn about Cyprus this weekend will come too late – meaning by the time it reaches your eyes or ears it has long been played by the inside crew. Follow the charts and you may at least be able to ride the coat tails of those invariably positioned to be on the winning side of the tape. As the saying goes – don’t listen to what they say – watch what they do.


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