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.
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.
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.
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.
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.
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!
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.
I poked around my charting universe and didn’t find anything worth reporting. Markets are pushing sideways across the board with equities hovering near their all time highs. I don’t think much is going to happen here this week but given where we are on the equities front we’re most likely are going to finish the year with a bang. Let’s take this opportunity to revisit the big picture.
I think our point and figure chart really speaks clearly here, in particular as it focuses on the big picture and doesn’t concern itself with time, only price counts. In the past two months we have witnessed two medium term retracements, both of which however were mercilessly reversed in a fraction of the time that it took to produce the downside leg. Think about that for a second, consider what this tells us. Usually – meaning over the past 100 years or so – the downside moves are known to be the most violent, retracing price advances in a fraction of the time it took to produce them. It’s rare to see the opposite happening – especially twice in a row.
And quite frankly it’s not the first time we witnessed a drawn out correction followed by a blazing fast recovery. Actually we are seeing a lot of ‘long poles’ on this P&F chart, which continues to speak to the strength of the ongoing trend. If you would turn this chart upside down then it would actually better fit the characteristics we usually expect. Resistance clearly is to the downside here and the ‘easy’ direction continues to be higher and higher. Given that the current bullish price objective of 2280 doesn’t really sound so outlandish.
Now we are parked right at an inflection point which has failed twice before. The odds suggest that SPX 2080 will most likely be taken in the coming weeks, be it in the coming week or in early January. However I do think that 2015 will be a difficult year for stocks, so be prepared for a bit of turbulence next year. This market phase cannot continue forever – it has already outpaced all of our wildest expectations, and the chart above suggests that we are heading for some type of exhaustion spike on the long term side. With the Fed wrapping up QEx in 2015 I think we are already riding higher on borrowed time.
Which should be great news for all of us and probably also for me personally. Quite frankly it’s tough to continue reporting on an effervescent equities market, day after day, week after week, month after month. Yes, we’ve had a great time playing the futures and the forex side. But the majority of you guys continue to be focused on the equities side and quite frankly I do enjoy seeing the comment section hopping. If I have one wish for Santa then it’s to finally produce a meaningful correction – one that lasts more than just a week or two.
And with that sentiment I would like to wish everyone a very merry Christmas – if you’re not Christian (only about 70% of our contemporaries) then a special happy holidays goes out to you as well. It’s been a wild wild ride but once again we managed to eek out solid profits throughout the year by sticking with our charts. In comparison with a few years ago I believe we have come a long way and we all have matured. There was no other choice – we had to evolve alongside a business that has become a lot more complicated, much faster, and of course more global.
But I hope I speak for all of us when I say that we’re just getting started – a lot of good things have come to fruition this year. For instance Heisenberg was introduced into beta in December of last year and it took almost another whole year for it to mature into what we recently released as Thor. Scott and I have worked very hard and will continue to do so to squeeze one R after the other out of this market.
My sincerest thanks goes out to all of you loyal readers and supporters – you’ve been great and I hopefully this place continues to provide value to your daily trading activities. After over six years I still love running this blog and my final wish for Santa is that one year from now I’ll be sitting here again writing a Christmas post for all of you. Very special wishes and thanks go to my brother from another mother – ‘Convict’ Scott Phillips. You’ve been great and you’re always there when the going gets tough. Thanks for that. Now get back to work!
I posted a long term E-Mini chart in the comment section this morning after I realized that we had tested a monthly Net-Line Sell Level during today’s lows (on ESH5). That’s a pretty serious inflection point and as there’s very little other context it’s where I believe it’s worthwhile considering a few long positions:
As you can see we breached a monthly NLSl only once in October, followed by what clearly was the reversal of the year. But as you can see there is an increasing amount of interaction with support and whether it’s this time or in a few months from now – we will see a big sell off sometime in 2015. The past two years have been nothing but manna from heaven for the bulls but we are slowly running out of buyers up here. HOWEVER, that said – all that stuff is happening at a glacier pace and LT tops take a lot more time then you think.
Look at the hourly – I know – quite a jump from the monthly but it’s the best context right now: Apparently a second test of the 100-hour SMA has failed quite miserably and things are now again hanging in the balance. Nobody really wants to be long or short here. However given the monthly context and the fact that we are again trading below ES 1990 means I’m going to start accumulating a small amount of long positions down here with a stop below today’s lows.
Let me however be clear that this is an experimental position. The P&F on the SPX is pointing at 1970 and we only have dropped to SPX 1976.
By the way, if ESH5 1955 gives again then we are most likely visiting ES 1900 or below, P&F target be damned. The bulls are well advised to hold this monthly support level. Alright, I’m going to look for more entries – give me about 30 minutes.
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.