Coiled Up To The Max

As you are probably already aware – the Federal Open Market Committee begins a two-day meeting on Wednesday and will deliberate the first interest rate increase in nearly a decade. Analysts seem to be split over the outcome however I would be rather surprised if the Fed decides to hike. Yes, there has been a lot of pertinent jaw boning since late last year. But behind all the spouted rhetoric hides very tangible fear about the shock waves a hike may cause. For one the Dollar would most likely punch massively higher – affording the mighty Mole an even more lavish and immoral lifestyle over here in poverty stricken Spain. Expect me to buy up massive amounts of property and elect myself the rightful ruler of Valencia. Heck maybe I even change my last name to Borgia and re-implement prima nocta.


But all joking aside – while everyone is treating water we rats have work to do. No other chart shows us the accumulated anticipation like the E-Mini futures and I have decided to post a tryptic so that you are able to take in the entire context, starting at the daily, the weekly, and most importantly the monthly panel.

You don’t have to be seasoned analyst to see that the daily is now curled up to the max. That first drop down may either have been this year’s correction or it will be remembered as the first dip that preceded a massive slide lower in equities. If I had any idea as to where this pendulum may swing I would offer it. However we are literally sitting at the gates of hell with almost perfect context across all three time frames. By anyone’s definition this is a very bearish looking chart. But I have seen too many stick saves in the past few years to count out the bulls just yet. Thus, lacking any further evidence and with daily/weekly/monthly support levels yet intact I have decided to hold my small long positions I placed last week.


Bonds update – here I have gotten a bit more luck. The Friday entry was well placed and I am now moving my stop to break/even.


I’m waiting for a little bounce higher so that I can get short gold. Willing to be long above the 100-hour SMA but only 1/3R if it plays out this way.

Where is the gold!!? Anyone remember this awesome band from the 1980s? I used to dance my ass off on that tune way back in the days – we’re talking spiky hair and Doc Martin boots – the works. Unfortunately they just don’t make raw uncompromised music  like this anymore. Whether or not you like EBM – in today’s PC soaked social media policed environment this feels like a refreshing air of authenticity from the past…

Anyway, quite a bit more looming below the fold – please step into my lair:

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Bonds Reloaded

Looks like we may get another opportunity to dip into some bond action. If at first you don’t succeed try try again. In general I’m seeing very nice price action on the futures side today, so let’s get to it:


The five year continues to coil up and as it’s near a rough rising diagonal I’m playing an hourly Net-Line Buy Level to the upside. Stop below 119 – 1/2R only as the tape is highly volatile.


The other half goes to the ten year bond futures – that keeps gyrating its way higher and seems due for the next leg higher. I am open to the downside here as well but do not like the context below, which tells me that any drop lower will most likely be fast and short lived.


Gold still continuing lower and I’m currently long 1/2R but am expecting to flip on a stop out.

More below the fold for my intrepid subs:

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You have been briefed – now have fun but keep it frosty.



Meanwhile Down At The Evil Lair

Over the past few weeks I have hinted a few times that I was developing a swing trading system based on Darth Mole. Which you may recall is a simple indicator I developed last year with the aim of predicting expansion in price volatility. Quite a good thing to know if you’re about to enter a symbol and over the past few months we’ve been watching it nail one big swing after the other. Some of you are subscribed to the free email alerts or have seen it in the twitter feed. But for the uninitiated here are a few screen grabs:


Here’s DarthMole running against the EURUSD. The blue arrow indicates when you received the alerts.


Here it is killing it on crude.


Here it’s calling out gold.


And here it’s having fun with the 30-year bonds.

I guess you get the idea – it’s bang on when it comes to predicting volatility. Of course the missing piece always has been DIRECTION. Quite frankly DarthMole has been driving me crazy over the past six months or so – I kept watching it nail those volatility swings day after day and became almost obsessed with developing a system that would take advantage of its uncanny abilities.

For months I spent almost entire weekends scrolling through mountains of charts. Just watching and taking notes of anything that stood out to me. Exhausted and desperate I tried to get Scott involved who took a long look at it and pretty much told me he was seeing no edge. There simply seemed no way of making a directional calls and thus building a system around, no matter how tempting, seemed out of reach. After all volatility knows no directional allegiance – it’s great to know when it’s coming but what to do with it?

But persistent (and a bit obsessive) as I am I kept plugging and testing various ideas – correlations, other indicators, Net-Lines, moving averages, heck, everything I could think of. I realized that taking losses would be part of the process and that any successful system would thrive via large outlier winners followed by a succession of small losers. But when exactly to take that entry was the big puzzle I needed to solve. I was laboring for weeks on end until about three weeks ago the light bulb suddenly came on. The result is a fairly trivial and unoptimized swing trading system which is frankly speaking is killing it across the board. I call it (drum rolls) SCALPIUS. Let me show you:


Scalpius vs. the USD/CAD – all stats show the past 19 months (i.e. since early November 2013).




The spoos…


But it really really loves Forex for some reason. Here’s the gofer.


Cable is just a beauty, isn’t it?


EUR/USD – gorgeous…


And finally here’s a graph showing all symbols above combined. I know – 732R – insane. Took over 2700 campaigns to get there – a bit over six to seven campaigns per week day (i.e. about one per symbol). Yes, it loses more than it wins – the ratio is a win rate of about 1: 1.6. But the winners can be huge and it loves to ride the trends.

In case you’re wondering – no this is not something I plan to offer as a service via email/Jabber alerts. It’s way too busy for that and I’ve learned my lesson with CrazyIvan (remember, only 4 subs left). And honestly I’m still pondering whether or not I’ll be accepting LAMM signal subscribers either. Perhaps a small number in a few months from now – if so only the people who already signed up for the LAMM service recently. Frankly it’s probably the best system I’ve ever build plus it very much suits my trading style. A bit busy but it’s manageable as it’s running on a 60 minute chart.

I’ll be leaving for Austria for a few days on Friday morning and will start trading Scalpius after the 25th when I’m scheduled to be back in Valencia. I’ll keep you guys posted on how it’s doing. In the meantime keep watching out for those DarthMole alerts – I always told you guys there is a great system in there! 😉

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