Time For A Little Hedge

As you may recall I am still long the spoos, having trailed the current advance since 2013.75. Last week I proposed that we may be heading into yet another pre-X-Mas correction as the timing has us a little early in the season. Given what I’m seeing this morning we are literally sitting at the knife’s edge and that’s a great opportunity for a little cheap hedge:


Since I want to hang on to my ES long position I decided to hedge myself via the NQ, which shows us very nice context. Quite frankly I have no directional bias here yet – we could easily paint new highs today. But given the ST context this is a very effective hedge given the current inflection point.


Crude – I’m feeling adventurous and am taking a long here after a bit of short term volatility. It’s a low probability high payoff lottery ticket thus I’ll only throw in 1/3R.

Not much else out there this morning. As we head into the tail end of one of the most difficult trading years in recent history I remain very conservative when selecting setups. Sure 2008 and 2009 were tough but they also had their highlights if you were positioned right and were able to ride the trend lower. 2010 was a watershed moment for me in that it forced me to up my game and approach trading in a more objective and systematic manner. 2015 however has been nothing but an ugly sideways grind – basically we’ve been running all year and getting nowhere fast. Despite this we have managed to stay ahead of the tape but only because we remained nimble and refused to let wishful thinking or directional bias influence our trading. Let’s keep this up folks, because I don’t think 2016 will be any easier.

The future is now – so don’t bring a knife to a raygun fight. If you are interested in becoming a Zero subscriber then don’t waste time and sign up here. A Zero subscription comes with full access to all Gold posts, so you actually get double the bang for your buck.



Misses Mean Reversion 2015 Runner Ups

A few years back I wrote a post [1] in which I profiled one of the main deadly sins of retail trader ignominy – the ubiquitous and often almost fanatic anticipation of mean reversion. I am not going to regurgitate my point; if you are a culprit (and you know you are) then I strongly recommend you read my old post and perhaps also one of my more recent ones [2]. If you’re a noob here then you may also want to point your browser toward our all time favorites page [3]. The holidays are nigh and tis the season to debug your brain and start the new year fresh.


However book knowledge is one thing – seeing things play out in reality is quite another. Let me present to you Ms. Gold, our first runner up for our ‘Misses Mean Reversion 2015′ contest. She’s quite a tease, enjoys frustrating gold bugs for months in sideways ranges for months on end, only to finally slam them with a relentless sell off which counts eight consecutive lower lows (CLLs) followed by 7 CLLs.


Not to be outdone here’s Ms. Copper – she’s been popular since the bronze age, thrives in industrial production, but is particular fond of electric circuits. She managed to paint 11 consecutive lower lows this year and she doesn’t look she’s breaking a sweat just yet.


Last but not least here here’s Ms. Silver – she’s got a special shine and is particularly interested in jewelry and fancy cutlery. Most recently she managed to paint 15 consecutive lower lows and thus far is our official winner of the Misses Mean Reversion 2015 contest. Congratulations!!


Moral of the story – whatever you have been told about mean reversion is a lie and will fail you when you most expect it. This spells true in particular when it comes to trading the futures as well as forex. So next time someone suggests mean reversion to you – keep calm and just say no.


On the equities side we seem to be building a base on top of the 100-hour SMA after the initial short squeeze higher. So far so good…


I really like the context on the daily NQ futures which I have highlighted above.


EUR/CHF update – that was quite a ride in the past few days but it seems it’s finally ready to bust higher. Putting my stop below the current Net-Line Sell Level.


Soybeans update – that was one of yesterday’s setups. Moving my stop to break/even here.

More goodies below the fold…

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A bit of even risk later today when get the FOMC minutes, so I don’t expect too much activity before 2:00pm Eastern.


Coffee Is For Closers

Equities are firing on all six cylinders and overnight we’ve held the line near the magic ES 2100 mark. Given the momentum over the past few days (consistent and small) this suggests that institutional traders are milking this short squeeze for all it’s worth.


This is the S&P cash has us only ~10 handles away from our all time highs at 2134.71. There is no telling whether or not we breach it this week, but if we do then I’ll be keeping my eyes peeled for weakness starting the next.


On the volatility front we’re just about to head into more turbulent waters. As you can see we are now back in the lower range after a low volatility trending phase has recovered everything that was lost when equities fell off the plate in August. More volatility means we’re most likely heading into a shake out, which once again is in line with the scenario I have been pimping over the past few days, e.g. shake out due before X-Mas bear slaughter.

We’re actually a wee bit early and thus I would caution you guys against blindly taking out short positions next week. We may just paint one more exhaustion spike higher on the weekly – I strongly recommend you watch the Zero like a hawk. As long as it’s supportive (like yesterday) just bide your time and wait for your opportunity – it will come.


Crude Update – I didn’t catch that SOB yesterday as I was too stingy on the entry side. If you did however then good for you and I recommend you take at least partial profits as there’s a hurdle ahead on the daily panel.


But it’s time to roll up your sleeves ratlings as we’ve got setups crawling out of the woodwork this morning. Bonds – the 10-year futures are looking like a possible long position here – I’ll be playing it very safe and only take out 1/3R.


USD/JPY – also small position sizing on that one as we’re heading into a veritable brick wall of daily resistance. The play however is in anticipation of a surprise push through which should trigger a short squeeze. Low odds high rewards on this one.

Alright, are you getting warmed up? Time to 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!

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

That ought to keep you guys busy for a while – have fun but keep it frosty.


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