Soylent Green And Orange

As I happily continue to trail this advance I cannot help but remind myself that it is a bit early in the season for a continued push higher. Far be it from me to second guess however and I am not one to look a gift horse in the mouth.


I would like however plant the seeds of objectivity early as to prepare you for the possibility of a second shake out that we may be heading into. In my experience in order for significant advances to occur we need to look out for attempts to frustrate and mislead the enemy. As we are currently in earshot of the old highs I propose two main scenarios in the coming week:

  • Soylent Green: We screw around a little more today but then bust higher and paint new highs. I could certainly do with a bit more X-Mas spending money (just kidding – I’m a crusty old Scrooge and I won’t buy much).
  • Soylent Orange: We bump our heads here today and then proceed back lower to retest at least 2041.5.
  • Soylent Red: I didn’t put that one on the map as the odds are very low – perhaps 15% max at this point. It’s the one where we turn and drop all the way. I just don’t see it any signs of that happening right now.

So there you go – if you’re still long right now as yours truly then do exactly nothing and let your trailing stop do the thinking for you. If you’re in cash then you do have a small opportunity for a short position here or in a few handles higher, but I would not risk more than 1/2R with a stop near 2110.


AUD/CAD Update – I’m moving my stop below that stack of Net-Lines now – my target is a few pips below 0.97. It’s been a profitable ride! Hope some of you got in.


Silver may be a long on a drop toward that diagonal I painted. Stop below that NLSL at 14.7.

More setups below the fold – we have a nice collection today:

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On a completely unrelated note, someone in the comment section asked Scott about the Rhonda knock out and I really enjoyed his analysis. Clearly Rhonda’s arrogance got the better of her as there was much talk about her allegedly being able to take down any male opponent. I won’t even go there but for me MA and professional fighting are often perfect showcases of what separates the 0.1% from all the rest of us. The sheer amount of hard work, dedication, and the threshold for pain it demands are not dissimilar to what we as traders face psychologically and mentally in the trading arena.

Just like in boxing there are millions of people out there who think they have what it takes to be great traders and often it only takes five seconds in a real fight when reality catches up with your hubris. As you know I have been training several arts myself for over 25 years and currently teach a rowdy group here in Valencia. However I would never dare to compare myself to a professional fighter who spends six hours per day training in the gym, facing up against other professionals under the guidance of seasoned trainers.

The same humility should be applied in trading on a daily basis as we are truly up against professionals who not only often have decades of experience but also much better tools than you, better information than you, faster access than you (e.g. HFTs), vastly more liquidity than you, and perhaps a much higher IQ than you (or access to people with advanced degrees and talent). That does not mean they are untouchable and we don’t have a chance but it’s good to always be aware of what we’re up against. Which in itself is an incentive to run like hell and never stop improving.

A final point I would like to offer is that trading, just like boxing, is an activity that requires constant practice and is not something you can learn out of a textbook. It’s great to know how to throw a basic punch, to jab, counter, hook, block, feint, etc. but in the ring or in the battle field you are operating under great amount of stress and often pain. The lessons learned right there and then will hone the type of skills you admire when watching professional fighters/warriors.

Scott said that “in that the boxing clinch/cover up is a good way to get grabbed and thrown by someone who knows judo.” Excellent point and this is what Bruce Lee called the ‘attack by immobilization’  which is part of the five ways of attack Bruce Lee describes in JKD:

  • Single Direct Attack
  • Attack By Combination
  • Attack by Immobilization
  • Progressive Indirect Attack
  • Attack by Drawing

By charging and overwhelming the defense Rousey manages to create her opening for her famous armbar as Scott points out. Floyd Mayweather also has mastered a loophole in boxing in that he reverses holding/hitting into hitting/holding (via his forearms and wrists). He then follows up with damaging blows as he was able to shift his opponent out of his rhythm/equilibrium. Another technique employed to break open a stubborn wall in boxing is to punch down the glove of the opponent and thus create an opening.

Which is why I enjoy very much training MA/systema as as soon an opponent clinches up I am able to get to work on his legs. I am also working on entering deeper into his attack which is something that wouldn’t work for boxers unfortunately.

This is a brilliant video that shows some of this in spectacular detail:

It took quite a bit of effort to combine all these real life examples and if there is a warrior lurking deep inside you then I’m sure you will greatly enjoy this brilliant video :-)


Support Zones

I’m looking for support zones here as I don’t really trust this sell off. I’ll get to the why later but suffice to say that momentum on the way down has been rather pitiful which strongly points toward the scenario I proposed two weeks back: A pre-bear-slaughtering-season-shake-out followed by a Santa Rally pinning equities near positive for the year. After that it’s every man for himself – I expect a huge shake out for 2016.


I mentioned momentum on the way down and this is what I was talking about. The sheer fact that we enjoyed such a smashing swing trading session yesterday is a bit out of character. This is the spot where gravity should make itself felt in order to produce sufficient pain to force a sell off. It’s possible that we’re simply taking our time here but it needs to happen soon, meaning today or tomorrow.


The long term panel shows me potential support zones unchanged near 2054, 2035, and 2008. Let’s also not forget the volume hole on the daily:


Here we got a little chasm of participation between about 2035 and 2055. Which lines up very well with my LT context. It also suggests that should we actually drop through 2055 we may have good odds at getting to 2035.


Now this is something I saw by accident today and which supports my view that this sell off is engineered to clear out the ranks a bit. The VIF/VIN ratio is actually climbing higher, which is something I have rarely seen. Should be dropping right now, so this is worth noting.


Update on cable – it’s finally getting out of the gate and I’m moving stop to break/even.


Bonds – we have been waiting for this one for days now and things are getting pretty coiled up here. Just don’t complain that I didn’t warn you.

But my favorite bond symbol for today I’ll keep for my intrepid subs, plus plenty of other victims to be slayed:

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Yesterday’s session started as a bear trap but then slowly transitioned into the first significant selling pressure for the past few weeks. Bulls and bears alike were getting reamed and staying ahead of the tape took quite a bit of doing.


The trap at the open was rather obvious. If you were a Zero sub then you must have paid attention to a distinct non-confirmation during the first gab down (right panel). Most interestingly the signal remained flat during the fast advance higher, which sometimes simply suggests a stop run initiated by institutional traders/bots/prop desks. However the failure at VWAP was the first sign that further weakness may be in the cards.

Most importantly however the expanding negative signal suggested that we may facing some real selling pressure here. Given that new information and the LT context below odds are increasingly supporting a sideways high volatility phase followed by a trending high volatility and then trending low volatility phase. In other words – at this point I do not expect resolution in the near future – most likely we shake out some weak hands and then either take off or fall off the plate.


This may sound like a problem but actually it affords us an opportunity to make use of additional technical context we are currently lacking. The long term panel is the only one which currently offers us upside resistance, otherwise we are pretty much in limbo land on the daily and hourly panels. And those are what I personally use for entry points.

So at this point I would propose we stand by and let the next few sessions play out. It will also be valuable to watch the Zero – should we see selling pressure expansion then the odds for a large downside correction may increase – if the signal remains relatively flat or positive then I think we continue to the upside.


AUD/CHF – a tepid long here with a stop below last night’s touch of the 25-day SMA. If you want wait for a little dip lower on meager participation which would increase the odds quite a bit.

More goodies below the fold:

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.


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