Medium Term Support

Equity futures are heading down this morning and there’s one chart that I would like to bring to everyone’s attention. I don’t talk about the Dow often but as it’s the weakest among the three major equity indices it may be paving the way for the two others.


In particular the weekly panel has grabbed my attention as we are now in earshot of the 100-week SMA. Hell it’s been a long time since that happened – last time we touched it was in November 2011. By the way the chart looks a bit different on my NinjaTrader (there it’s at 16,939) – so I guess it depends on how the indicator is implemented and of course on the data feed.

Be this as it may – what happens near the 17,000 mark will be rather significant in that it will determine the tone of the market for the remainder of this year. I wouldn’t rule out a quick dip lower to scare the children followed by a dip buying frenzy in order to push things back over the edge. What follows after that will be crucial and I’ll be watching intently. Of course if we don’t even descend that low or if the 100-week SMA remains relatively unchallenged then there’s probably nothing to talk about, at least for the remainder of the year. As I keep telling you guys – tops take a long time to form. And then things fall apart rather rapidly.

Timing all this – well that’s as much art as science – isn’t it? What I am seeing right now are that the bulls are feigning injury and have been letting the tape descend this far. Clearly we are not seeing major weakness on the spoos or on the NQ just yet. Death crosses and all that notwithstanding I have not seen one single session in which the bears were able to inflict any meaningful damage. Major support lines continue to be held – single session sell offs are being bought back almost instinctively a day or two later.

What that means for us is that picking a direction here is still a pretty precarious endeavor and I would advise against it. It’s fine to play the swings and take on positions where you see the odds in your favor. Declaring this bull market dead however would be a bit premature. What many over eager market participants often forget (or are unaware of) is that the initial phases of bear markets (or major corrections) are plastered with snap backs. You get sideways tape that drives you nuts for weeks on end. Then suddenly buying materializes out of nowhere and robs you of your profits overnight – squashing the VIX and stomping on option premiums at the same time.

Does that remind you of anything? Unfortunately the problem is that the very same symptoms can be attributed to medium or long term sideways corrections. The proverbial purgatory for directional traders (which is most of you guys). So we could easily be in one of those and we won’t really know until major support levels give way. And that does not mean it will be too late to play whatever correction may lay ahead – you really need to give up on that idea of picking major highs or lows. It’s a psychological affliction that over the past century has transferred trillions of Dollars from retail rats to professional players who know how to simply bet one hand at a time.


Not much on my radar this morning. Things are either blasting off or are stuck in sideways churn – the one exception maybe being cocoa futures. After the obligatory dip lower it may be ready to resume its course upward. I’m waiting for a few more ticks to the downside before I’ll dip into some long positions here. My stop would be well below the 100-hour SMA – so the lower entry you can snag the better.

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Setups Deluxe

Not a very interesting day on the equities side unless you enjoy playing the swings, in which case the sideways range on the E-Mini for instance offered quite some opportunity for jumping in and out. It’s the sort of day when the Zero really shines and not surprisingly it painted a pretty juicy Mole reversal signal during the mid day stab lower – plus note a very distinct signal divergence during the highs:


However what really caught my attention is the repeating pattern that its presenting itself on the hourly Zero panel (the lower panel). It’s starting to look like a heart beat and since it represents participation to the up/down side my conclusion is that buy/sell programs are bouncing the ball back/forth here. I looked around for signs of distribution or divergences on the momo side but still see very little.


My UVOL/DVOL panel seems to support that notion as both lines are almost in perfect sync and are steadily rising – easy as she goes. Again, great day for swing traders, everyone else be nimble and be long near today’s lows and short near the highs (unless we breach above ES 2015 – see charts below).


The E-Mini volume profile shows us a pretty deep volume hole at 2010 which now has been touched 2 1/2 times (the first one missed it by a tick or two). So that should serve as an inflection point moving forward – on the upside we have a ceiling near 2015.


Which also is represented by a NLBL at 2014.75 – a breach above that by a tick or two and we are probably off to the races for another stab higher.


But I promised setups and am happy to deliver as we’ve got a ton today, especially on the futures side. But first Forex – here’s the USD/CAD which is painting a descending triangle formation. Now the odds for a breach higher is pretty low – I think we are talking like 15% or so. Which affects your position sizing – your odds of success are low but accordingly your pay off is high as many traditional chartists will expect a break down lower here – perhaps after a fake out spike higher. Sure, may happen, but every once in a while it just keeps running higher and burns the shorts in the process. Therefore my plan is to add 1/4R on a breach of 125.5 and another 1/4R on a breach above 1.266 – give/take a few ticks. 1/2R total with a stop below the 25-day SMA.


Cocoa – very nice formation here and I’ll be long above today’s hammer with a stop below the NLSL (you can also use today’s low as usual).

Quite a bit more below the fold – please join me in the lair:

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!

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Setups Setups Setups

Way too much chatter on this board and way too little hands on trading. Almost none of you are riding this higher due to either a) lack of effort b) propensity for mental masturbation or c) trying to make predictions. Seriously? After six years plus of Evil Speculator goodness I expect a lot more from you guys. So once again, let me show you how it’s done:


The bulls are clearly back in charge here as we have crossed all bullish inflection points and are now squeezing the tape higher. What I like in particular here is that the upper 25-day BB is now starting to point up, which means there’s almost nothing but air above. Well, I said almost – there is a weekly NLBL at ES 2088.75 but we just sliced through the one at 2062.25 and may have enough velocity to push it over the edge. That said – tomorrow is the last session ahead of a three day weekend (PrezDay) – and I have an inkling we’ll park up here and leave any remaining bears to roast for a few days.


Bots clearly in buy mode – look how smooth the UVOL line is climbing today. The squeeze is on! Heck, I’m just glad we are finally outside that dreaded trading range we’ve been locked in for over a month. The human sacrifice I offered the other day seemed to have appeased Mrs. Market. Gold Gerb – thanks for taking one for the team – you will be missed.


Boy, I almost didn’t catch this pig except for the ST longs on the ES I put on the other day. However Thor came to the rescue and the current campaign is about 0.75R away from its target.


I promised setups galore, so step right into the lair – we even have a VIP section. And what happens in the lair, stays in the lair!


EUR/JPY – long here with a stop below the 100-hour SMA. It’s still early in the game but there is a good chance that the 25-day SMA remains in place. 1/2R only – if she goes we probably get a runner.


Crude – long above the 100-hour SMA with a stop below 50. 1/2R only – I do love the formation on the daily but we cannot exclude the potential for more monkey business as there are too many eyes on this symbol.

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!

Please login or subscribe here to see the remainder of this post.

Alright, that ought to keep you rats entertained for a while – have at it and hopefully I see a bit more participation in the comment section. The Mole deserves better!


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