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.

2015-07-06_spoos_gaps

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.

2015-07-06_EUR_gaps

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.

2015-07-06_ZF_gaps

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…

2015-07-06_AUDUS_briefing

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.

2015-07-06_soybean_briefing

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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2015-07-06_soybean_meal_briefing

… 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.

2015-07-06_natgas_briefing

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.

2015-07-06_AUDNZD_briefing

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.

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

Cheers,

Greece Saga Precautions

It seems that finally Greece has gone past the point of no return and events are quickly escalating. If you truly care about all the gory details then look no further than ZeroEdge which is literally bursting out of the seams with extra sarcastic coverage of the gloom & doom that is bound to descend on us starting Sunday night. Your guess of what happens next is good as mine but I’ve hired my own consultants and per Dr. Venkman the outlook is pretty grim:

So before you all resort to cannibalism (first dips on Skynard) let’s take some basic pre-cautions in anticipation of some massive volatility across Forex which will most likely affect bonds, equities, and various futures contracts as well.  First up, don’t be surprised if your broker may only accept close orders tonight and tomorrow – clearly the industry has learned from the Swiss Franc debacle a few months ago.

Down here at the lair I have turned on CrazyIvan but strongly caution you subs from taking any entries until things normalize, whenever that may be. On the Thor front I will not put up any new setups tonight but revisit the situation on Monday before the roll over. Perhaps this will blow over quickly after some last minute deal but I won’t risk any exposure until we know for sure.

Message to Greece: Good riddance! I have nothing against the country or its people – quite on the contrary (although I’m partial to Moussaka). One of my relatives is actually renovating a villa in Santorini and I plan to visit soon (with my American passport – ahem). But with all due respect – I was sick of hearing about this dreaded Greek saga five years ago and since then have long ceased to care. We’ve teased this out beyond anyone’s pain threshold and we all could do well without hearing about Greece at least a week or two.

Message To All Greeks: Good luck – you’ll need it. But heck – you still have a gorgeous country at your disposal and things could be worse (just ask any Greek over 75). This may be an opportunity to turn the corner and rebuild your nation without outside interference. As the saying (kind of) goes: Be careful what you wish you for because you may have just gotten it.

CrazyIvan News: A few weeks ago I posted about some long overdue statistics I had run on my CrazyIvan results. Turns out that inside periods are a complete waste of time over the long term (as I had long suspected) and I also managed to identify a list of the highest scoring entry patterns. I have now removed those dreaded IPs and today deployed a new version which features a filter that will only permit the 12 highest scoring entry patterns. That in turn however will have implications on how we trade CrazyIvan going forward.

  • Each respective symbol will be taking a lot less entries on a daily basis. I can’t give you exact numbers but I expect about 1/3 of the entries in comparison with the old system.
  • Given the that I felt that we needed to add a bit more opportunity. So I have made the following changes:
    • Added the following futures contracts: Corn, the 10-Year Bond futures, Natural Gas, and the S&P E-Mini.
    • Added the following forex symbols: USD/CAD, EUR/JPY, NZD/USD
    • Removed AUD/JPY. It’s a minor one and I don’t see any advantage over the EUR/JPY for example.

For the coming weeks I recommend that you trade the new futures symbols with only 0.5R position sizes until we are sure that they flow as expected. I don’t anticipate any problems but always prefer to err on the cautious side. The new Forex symbols shouldn’t give us any trouble and those can be traded full steam ahead.

That’s it – I’m off to my training class and then I’ll have plenty more work on my plate before Monday. See you guys on the other side.

The future is now – so don’t bring a knife to a raygun fight. If you are interested in becoming a subscriber then don’t waste time and sign up here. A Zero subscription comes with full access to all Gold posts, so you actually get double the bang for your buck.

Cheers,

STFO Wednesday Morning Briefing

Yes, it’s that time of the quarter again – today we will be graced with another FOMC interest rate decision and as usual we should expect a lot of snooze followed by wild gyrations around 2:00pm EST. By the way FOMC stands for Federal Market Oracle Commission, they just swapped two of the letters.

Imagine a group of  financial high priests in silly costumes locked into a room without food, water, ventilation, or a toilet for two days meditating on how to best to destroy our currency. Which explains a lot of what has transpired over the past two decades. Anyway, whatever happens today – for me this is a ‘stay the fuck out’ day. I won’t touch anything with a ten foot pole until after the announcement.

Unfortunately the spoos have dropped overnight – if you partook in yesterday’s jump higher then you have been robbed of a valuable profit buffer. Obviously it would have been more helpful if we had stayed near the 100-hour overnight. I don’t enjoy exposing myself to wild swings without having some profits under my belly. If we drop from here then it’ll be fast slicing through all support clusters – same on the long side of course.

If you are long I suggest you leave your ISL in place – but there is a good chance it’ll be taken to the woodshed during whatever swings we may see around 2:00pm. Alternatively you can lower it and also reduce position sizes. Whichever way this resolves – we may see a stab in the opposite direction first – you know how the game is played by now.

Bottom Line: Every quarter we have to endure this ritual and in most cases unfortunately only the boyz on the inside get to be positioned in the right direction. It sucks but it is what it is. Remember, we cannot worry about things we have little control over. So if you are playing either direction today then do it with a 1/4R position size and expect to get ridiculous fills if you get stop-run. This way if you happen to sit right you still bank coin and if you are on the wrong horse you won’t lose more than 1R.

Good luck! ;-)

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