I feel rather conflicted about the price action over the past month and quite frankly that’s exactly how I should feel and thus act accordingly. Just take a look at a daily E-Mini chart and compare the March contract (ESH7) with the current front month (ESM7) and tell me what you see.
In my recent momo update I was quite adamant about the increasing odds of a major market correction. Since then we’ve seen a further increase in spasmodic intra-day gyrations across the board, fueled by a mix of low participation bot trading, heightened emotions and a constant stream of contradicting market rumors (e.g. Deutsche Bank). The trading lair has been in defcon 3 mode for a while now which clearly affects our daily trading activities.
Let me precede this post with a few caveats, just so that we are clear. First up, I’m not really bearish here. As a matter of fact the Zero signal suggests that we’ll see more upside today and we could easily blast higher way above the ES 2000 mark. Second, what I am proposing here is nothing but downside insurance – meaning we are not attempting to nail a top and make fortunes riding the tape to the downside.
Over the past few months a potent emotional cocktail of fear and confusion has been seeping into the consciousness of market participants. It’s not just that equities are steadily heading lower whilst producing more and more bearish context above to be overcome sometime in the future. What’s worse is that there appear to be very few places remaining to sit out the storm. The exception of course being the two usual suspects – bonds and gold.