An Impending Trend Shift?

With the exception of equities we have been seeing a pronounced shift in market behavior across the futures as well as in Forex. Once again it drives home the point that one’s approach has to constantly be gauged and if necessary modified in response to shifting market phases. Or in other words - none of your trading strategies/approaches work all the time – the trick is to apply the proper market strategy to each discrete market phase.

2014-11-19_gold_pnf

Gold for instance has been stuck in a pretty uneventful sideways churn for most of the year. Hunting for an trend trades on the precious metals side would have been a total waste of time which is why we barely touched it all year. Just look at the P&F chart above – note that the part covering 2014 is a quarter of the size of that of 2013. Reason being – P&F charts do not track time – they only focus on price, which is why I appreciate them. If there’s no movement then no boxes are added to the chart.

That may however soon change. Gold just painted a low pole reversal warning and that means the bears are officially on notice. And as coincidence would have it we do have a promising setup on the roster today:

2014-11-19_gold_setup

We have a nice hammer formation there on the daily panel – right underneath the 25-day SMA. I would take a breach of today’s highs with a stop below yesterday’s lows (today’s a bit low for my taste). Pretty simple setup but be aware that it’ll most likely try to shake you off. When it comes to precious metals every campaign has to be earned.

2014-11-19_FXE_pnf

The EUR has been among the trending charts this quarter – but until August it had barely painted any boxes on our P&F chart. Then Draghi announced a whole new battalion of printing presses in response to lackluster GDP growth in the EU and the rest is history. I have been enjoying the sell off quite a bit as you can imagine but the downside ride may be over soon as we are but a bagel throw away from producing a low pole reversal as well.

Are We Due For A Trend Shift?

Now if both the EUR and gold turn then it may also mean that equities are due for a much needed correction. Seasonally however that would be an incredibly inopportune time for the bears. Not that the Santa Rally is chiseled in stone but it’s rare to see any significant corrections this late in the season. Not to second guess what may happen next (which is usually out of touch with reality at any rate) I have decided to simply keep my trailing stops where they are and let the chips fall where they may.

That’s all I have for today folks – nothing exciting to report on the setup front. And quite frankly – given the recent gyrations across board I am a bit cautious and when my Spidey sense tingles it’s usually good medicine to remain extra selective when picking entries. See you guys tomorrow.

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.

Cheers,

Volatility Tales

After weeks of painting higher highs and higher lows equities are now in the process of completing a sideways week. It may have come to your attention that the current formation is starting to resemble that of the August advance which, albeit being smaller, ended with a plateau and then proceeded to drop lower. In September we got a dip lower followed by a quick blow off top – after which the second shoe dropped with a vengeance. Should we expect the same?

I’m afraid not – unfortunately the tape rarely repeats itself. It rhymes to some extent but rarely is it following an identical script. Because if you look under the hood the conditions right here are completely different than what they were in late August.

2014-11-14_spoos

The tale I am about to tell is that of volatility and how it goes through cycles. To visualize the concept I will be using two of Ken Long’s indicators – VolStat to plot volatility and StretchStat for direction/momentum. Let’s start with the spoos but we’ll peek at a few other major markets as well as they are loosely connected.

If you look at the indicators on the charts above you see Bollingers giving us some sense of what’s normal, what’s above normal and below normal. Bollingers are a wonderful tool for that in that they use standard deviation to give us some sense of context. And that is very helpful for our human perception is easily manipulated.

In early September what you see is a gradual but steady increase in volatility (lower panel) which was accompanied by a lot more whipsaw (i.e. longer candles, longer tails, less direction, and fast drops/advances). Volatility started to slowly drop off in mid October in the midst of the current advance. Right now we are basically back to where in early September but we are exiting a high volatility period.

High volatility period are rarely followed by more of the same – the odds now suggest low volatility activity. But that doesn’t necessarily mean sideways tape. We could easily just crawl higher all December while volatility paints new lows.

Low volatility periods are however rarely associated with sell offs – so this suggests that the odds for an extended sell off and in particular panic selling at this stage are pretty limited. It’s never off the table altogether but also considering where we are seasonally I would be cautious betting against the bull here.

2014-11-14_ZB

Bonds are also now coming out of a high volatility phase and the expectation here is that we’ll see a bit more orderly tape for a while. This may be good for certain systems and bad for others. For instance CrazyIvan seems to be doing extremely well during high volatility periods while Thor has been pushing sideways for the past month. Which by the way is no coincidence and it’s the reason why I took a closer look at the situation in the past few days.

2014-11-14_gold

Now here is gold which is on the opposite side of the equation. It’s coming out of a sell off phase with medium to high volatility and in the past week volatility has started to explode. I think we’ll see more before we start seeing less.  So if you are trading the upside keep your stops very loose and let her run. She’ll try to to buck and throw you off the horse for sure – be prepared.

More on volatility cycles and a few setups below the fold – please join me in the lair:


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Bonus Chart:

2014-11-14_VXV_VIX

FYI – on the VXV:VIX ratio chart we are in the upper range and the signal is a bit divergent now. I think the bulls would actually benefit from a little correction here. We need to shake off some of the weak hands so that we’re ready for the EOY bear hunting season! ;-)

paulaner-hefe-weizen_bg1

Well, it’s been a fun and profitable week again – but now it’s time for the Mole to crack open a bottle of Hefeweizen. See you all next week!

Cheers,

Thursday Morning Briefing

Recently it seems that the early morning entries are where the getting is most profitable. If you recall my 13R equities campaign in ES started out this way near 1872 and yesterday morning I got what I would call a perfect entry near support.

2014-11-13_NQ_update

Someone asked me how I was managing this campaign and at this point I’m keeping it simple by using the most recent spike low as my stop, which right now means a tick below 4203.

2014-11-13_EURUSD_briefing

EUR/USD is messing around but may finally have sufficient context for a drive higher. I’m long here with a stop below 1.244.

2014-11-13_gold_briefing

Gold also looking like it wants to run higher although I’m still suspicious as it usually has a habit of driving everyone nuts for a while before it takes off.


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.

You have been briefed – now have fun but keep it frosty. See you guys later this afternoon.

Cheers,




    Zero Indicator


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  3. recent misdeeds

    1. The Slow Walk-Down
    2. It Keeps Going And Going And….
    3. The Bots Are Back!
    4. An Impending Trend Shift?
    5. Fade The Noise – Play The Game
    6. Tuesday Morning Briefing
    7. Painful Ping Pong
    8. Volatility Tales
    9. Rational Ambivalence
    10. Thursday Morning Briefing