The Big Furball

Equities have clearly been one big nasty furball over the past few weeks. You remember me writing about this weeks ago already and with the exception of one quick fake out higher we have reversed back into sideways shake out territory. Tough going here but to me it seems like we are either witnessing massive accumulation or distribution over the past few weeks. I’ve touched on that about a month ago and the fact that conditions have remained since then tells me that whatever comes next is going to be significant.


Which means my modus operandi has been one of taking calculated risks near potential inflection points. On the E-Mini we are sloping lower slowly but seem to be jumping higher occasionally to shake out as many participants as possible. And that means I cannot enter here – neither long nor short. Well perhaps long if we were near the recent spike low. But I’ve got a much better entry and I’m posting it for the subs below.


Gold is very juicy here – I’m grabbing a long with a stop below the NLSL which also happens to be near that diagonal I drew. Clearly a short position below this is a possibility but tough going – those daily NLSLs  (right panel) won’t give way easily.


GBP/CAD – very nice context developing but so far no resolution. I’m long here with a top below 1.898.


Soybeans update – nice entry yesterday and I came very close to being stopped out. Moving my stop up to break/even now. If it wants to get going then now is probably the time.


I also grabbed natgas yesterday – so far so good but I’m leaving my stop in place as we haven’t moved anywhere yet. But the longer we remain those ST NLBLs the higher the chance for a stab higher. Volatility should set in here in the near future.


AUD/CHF is also still nibbling on it. Keeping my stop where I left it.

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Curb Your Enthusiasm

Equity futures have survived the night and are still looking solid. Not to sound cynical but isn’t it time for a shake out to the downside now? Just kidding! Frankly I have nothing to add right now – as you know I’m holding longs since 2112 but my expectation of finally seeing some directional tape remains low.


This looks and smells like a break out but after two months of sideways hell one wonders how many shorts remain to be squeezed. Scott pointed out that yesterday’s push higher was accompanied by waning momentum, however that hasn’t stopped prop desks from banging the tape higher in the past. So I choose to not over think this and simply move on. Quite honestly I’m sick of looking at this formation and something tells me the less I do and the less I care the better I’ll manage, no matter which way it’ll resolve.

There’s a good Spanish expression I’ve come fond of: Mucho ruido y pocas nueces. Roughly translates into ‘much ado about nothing’. Pretty much sums up equities since late last year. And sadly most people I’ve met in my life ;-)


AUD/CAD – I’m grabbing a long position here with a stop below 0.962. That 100-hour SMA has been rested recently and is the next best support line before things start turning much lower here. Admittedly not a whole lot of context here so I’m only playing 1/2R.


Copper – very unusual tape for copper here in the past two weeks. I’m daring a long position near the lower 100-hour BB. Would be tempted to go short on stop out. Still this looks like a chart that’s trying to pump higher but like crude it seems to completely lack any directional mojo.


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Breaking The Big Bad Bull’s Back

Every once in a while it’s a good idea to detach yourself from your daily trading activities and take stock of the big picture. Although I do not trade weekly or monthly charts they do however serve one very important purpose – which is as a measure of strength given the prevailing trend. So let’s forget about playing the daily bounces for a moment and let’s simply revisit at the tape of the past six months:


I don’t know about you but to me this looks pretty ugly. Since late December of last year we have suffered through two massive high volatility sideways periods, only interrupted once by a nice straight run higher during February. The rest hasn’t been fun, to say the least, and I’m sure it has blown up retail accounts left and right. However hitherto the bears remain unable to break the big bad bull’s back. Nevertheless the price action clearly tells us that the ongoing trend is weakening. This is not the same bull market we have come to enjoy (or to hate at particular trading blog which shall remain unnamed) and the implication for us, as traders, is that we need to respond in kind and adjust our trading activities.

Now what I am not suggesting is that we immediately start to look to the downside. Long term tops take quite a long time to form (clearly) and shorting the market without confirmation is a pretty bad idea. Bear in mind that we have yet to break any long term bearish inflection points – be this the 25-week SMA, the 100-week SMA, the 100-month SMA for that matter. So boy – do we have a lot of time to change our minds about this market – more time than most of us would care for. Going forward however what we do need to adjust are our expectations. The long straight runs to the upside are most likely over.


Although we are stuck in sideways mode we are seeing the VIX bounce around between 13 and 16. Which I consider a very casual risk pricing model at best – and most likely rabid complacency after six years of effervescent bull market exuberance. What happens from this low base will most likely not been six months of the same – I really don’t think we are going to see the VIX drop to 10 or lower and paint a range there. If that happens after all I won’t be caught with my pants down however as I’m not shorting the market here. What I am however doing is to adjust my trading to accommodate the possibility of:

  • Fake out breaches – like the one we recently saw near the top.
  • A sudden rise in volatility if one of the major support levels give way.
  • In general more and prolonged sideways corrections going forward.

I think these three points really summarize some very realistic assumptions going forward. Perhaps we’ll be positively surprised  as I wouldn’t mind another extended run higher. But until I see a major breach to the upside, and even then probably, I’ll be extra picky with my setups, take profits a bit earlier, especially on the equities side, take smaller position sizes and wider stops. The overall goal for the coming quarter is survival and to keep one’s powder dry.

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