Long Term Support

Something rather interesting happened yesterday during the E-Mini session. Granted it was a bit subtle but perhaps some of you veteran subs picked it up as well:

2015-08-20_zero

More specifically it’s something I saw on the Zero Lite after I marked a pretty significant bullish signal divergence, meaning price was meandering down while selling pressure was abating. Our modus operandi when confronted with such a divergence is to start looking for price confirmation in order to take out a contrarian entry – in this case a long position. Only problem was – price never budget. Participation continued to contract and then completely flatlined with the tape dropping lower all the way into the close.

As you can see VWAP was never threatened and not even touched beyond the first third of the session. That ladies and leeches we call a consolidated sell off session and that’s been pretty damn rare over the past few years. Just yesterday I mentioned that the bears have been unable to inflict any significant damage all year and this is perhaps the first session where I saw significant selling pressure and even a bit of panic selling toward the end.

2015-08-21_spoos_LT

Which brings me to the big picture, because for the first time in a long while I see long term support levels being threatened. As you can see the weekly on the left shows us only a few handles away from the 100-week SMA. But much more significantly – the monthly panel on the right is currently in breach of a monthly NLSL at 2023. Now it’s only August 21st and a lot can happen in the next 11 days. My inkling here would be that we’ll revere this at some point and stab back higher. However, what happens afterward in the coming month or two will show us whether or not the bears are ready to put themselves into the driver’s seat.

2015-08-21_NQ_LT

This is actually quite exciting as we are seeing acceleration plus we have finally abandoned the dreaded range we have been gyrating in over most of the year. On the NQ we are actually accumulating quite a bit more context across the board and this is where I see the most salient entry opportunities going forward. Note how we are touching the lower 100-day, a weekly Net-Line Sell Level, and a monthly NLSL at the very same time. Clearly the 4330 – 4340 range has significance and what happens here today and next week will be crucial.

2015-08-21_NQ_briefing

When it comes to taking entries however I suggest that you keep an eye on the hourly panel. If you are a Zero sub then that’s clearly going to be helpful as well. Yesterday was a prime example how you always always want to wait for price confirmation, especially during strong sell sessions. If you do not see any divergences and if the signal accompanies price then simply go with the flow. Don’t over think this – especially during price corrections. Many of you may be a bit rusty trading trending tape like this after a year of sideways churn. So let this serve you as a reminder that price is always king – do not every attempt to step under a falling sword.

More specifically this means you want to see the following in place:

  • A bullish or bearish signal divergence on the Zero Lite. Make sure the large spikes of the signal ranges above the 1.0 mark – it’s easy to be deceived by pseudo-divergences when the signal range has been tiny for days.
  • Price confirmation. Wait for price to start moving in your direction – do not try to guess when the tide will turn. The more forceful the sell off (or ramp) the more conservative you want to be here.
  • Look for additional context. You can use whatever your heart desired – I personally rely on VWAP on the E-Mini (as shown on the Zero panel). You can use Bollingers, MAs, stochastics, it doesn’t matter. On VWAP for instance I look for attempts to breach it – if there hasn’t been a touch for a long time and we’re far away (like yesterday) then that means selling pressure is strong. So in that context you want to wait for price to give you a clear indication – spike lows or spike highs for instance are something to look out for.

Speaking of spike highs/lows – there is one in place on the NQ right now but it’s still a bit premature for me to jump in here willy nilly. So I’ll wait a bit more and perhaps take out a small long position if I see the lows being respected. If we breach the NLBL at 4364 then I may add 1/2R and build my way up. Yes we are sitting on LT support here but that doesn’t mean we won’t see another stab lower which may be bought back Monday. This should give you a general idea of how I approach things and how I (and some of the senior subs here) are playing the swings.

Finally, do not attempt to use LT charts for grabbing long positions here – you will be smashed to pieces. I hope I don’t have to explain this in further detail but let’s just say that too many retail rats utilize LT charts for ST trading decisions. It’s like taking the bicycle to the toilet – a bit overkill and you bound to bump into walls.

Quite a few setups today – please step into my lair:


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Uncharted Territory

The price action in equities today reveals renewed imperviousness to gravity which is a bit surprising given the chasm we are facing on the volume profile panel. I am a bit conflicted up here – there are reasons to be bullish and reasons to be bearish.

As a trend trader there still are no reasons to pull positions. But as a discretionary daily trader I am a bit uncomfortable following the bulls higher as we are heading in uncharted territory – and that at the onset of the vacation season when participation is expected to fall.

Let’s take things from the top. The more medium term SPX P&F panel (by P&F standards) shows us a fulfilled bullish price objective with a lonely spike higher that just begs to be corrected.

The already mentioned ES volume profile chart shows us eleven consecutive higher closes with as it’s heading into a chasm of participation. Do I really want to be long here? Statistically speaking at least one or two down days are very likely.

The weekly ES managed to bust through two Net-Line Buy levels and then closed a few ticks below a third one. Today we’re above it but obviously the week is still young. If we close above it then that would be bullish – but if we close below it then this opportunity would be lost for the bulls as this NLBL expires on Friday. We use that 5-period expiration for a reason as price either rejects or conquers within a statistically valuable time period – IMO price action beyond that is mostly unrelated to Net-Line inflection points. Obviously this is not an exact science.

The regular daily chart has us in the middle of nowhere – what is useful however is the fact that the VolStat indicator shows us falling volatility. And that often is what drives late stage rallies (assuming we fall from above the 1.0 Bollinger). The implication here is that we could see a continued short squeeze fueled by – well, low participation summer tape. Market turns require counter participants, not just lack of continuation.

Bottom Line: I’m pretty comfortable being neutral on the equity side right now. I’ve said this before and I’ll say it again: better wishing you were in a trade than wishing you were out of one.

We have a ton of great setups today so roll up your sleeves, folks. I need to pimp gold again – which is playing hard to get at the 25-day SMA. Once again I will be patient and follow price through sideways churn (i.e. a good reason to play futures and not options here). Short until that SMA is breached.

Many great setups on the FX front again – AUD/USD painting an inside period right on top of a NLSL. Good stuff and that entry will be ripe for the plucking tonight after this session ends.


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Cheers,

 

Monday Morning Briefing

Welcome to our morning briefing. Here we are reviewing short term setups ahead of the NYSE opening bell. If you are a scalper or swing trader then these setups may be of interest to you. As usual keep in mind that these are short term setups although they could be used as early entries for more longer term positions.

I actually meant to post a weekend update but somehow wound up wiping out my Windows installation, thus condemning me to a weekend of recreating my workstation from scratch. Yes, I do backup religiously but my bootcamp partition wasn’t covered by time machine – fortunately I back up my Windows data separately twice a day. As the old saying goes – only the paranoid survive. Sadly the weather here in Valencia was picture perfect here all weekend and while everyone was out and about until way after midnight the Mole spent it chained to his workstation in his trading lair. You can imagine my mood. Well, as you can see I’m up and running again but it wasn’t fun.

On the the markets – let me get you guys up to speed. The spoos seem are now crossing into Will Robinson territory as prices are currently pushing far below the 100-day SMA mark. There is little on the hourly or daily in terms of possible support. So let’s consult the long term panels.

The weekly is offering the 25-w SMA at 1565 – let’s see if the bulls can stave off the barbarians at the gate.

There was a little volume hole a few handles above but apparently that doesn’t seem to have impressed anyone. Quite a bit of volume below so I expect plenty of participation until near 1530.

Crude is also in a pretty foul mood and I think a play here at the 25-hour SMA could be fun. Which means long above the SMA and short below the 93.04 NLSL.

More fun with futures and a bit of FX waiting below:


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Cheers,




    Zero Indicator


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