Wednesday Morning Briefing

Welcome to our morning briefing. Here we are reviewing short term setups ahead of the NYSE opening bell. If you are a scalper or swing trader then these setups may be of interest to you. As usual keep in mind that these are short term setups although they could be used as early entries for more longer term positions.

2015-01-28_spoos_briefing

I’m grabbing a short if the spoos touch 2040 and change – stop above 2045. Low odds of a slide but big payoff. On stop out I’d flip for a long with a stop below 2040. A direction will most likely present itself here before the week is over, this thing is coiled up to the max and ready to jump.

2015-01-28_GBPUSD_briefing

Cable – long with a stop below the 25-hour SMA. Only 1/2R as it’s early in this push and one must be ready for a little shake out. Could have legs though.

2015-01-28_crude_briefing

Definitely experimental long on crude – I should have my head checked but this ST formation does look pretty good to me. 1/2R only here – entered right here with a stop below 45.

A few more ST setups below the fold:


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2015-01-28_events

Plenty of event risk later this afternoon but we should be okay for the next five and a half hours.

Happy hunting!

Held Together By Duct Tape

We’re approaching the close of our January candle and by any definition it’s been a turbulent month for equities traders. We are all guilty of attempting to paint the future by looking at the past (with mixed results), but this morning’s exercise is to abandon or at least postpone such temptations and to simply look at what IS and then to conclude possible implications:

2015-01-26_spoos_volatility

The chart above features some of the volatility measures I employ, some of you may recognize Ken Long’s VolStat indicator. It provides us with a percentage based measure of average true range which then is put into context by standard deviation bands – you know, just like Bollingers. This tells me what volatility phase we are in and which type of trading strategies may currently be employed most effectively. What it does NOT tell me is the future of state of volatilty – like most indicators it has zero predictive value. Sometimes you get lucky in recognizing a particular formation and perhaps it ends up repeating (sort of).

More recently however I have come back to the basics by employing a simple LogReturn in combination with either a Bollinger or a Keltner channel for additional context. LogReturn is used heavily in machine learning as it relativizes price in the context of yesterday’s position. In other words – we want to know the delta between today’s and yesterday’s close. This offers us a pretty bare bones measure of price changes independent of the underlying’s nominal value. The formula is pretty trivial actually – first you calculate rate of return:

R = Close[0] / Close[1]

Alternatively you can deduct today’s close from yesterday’s and divide the result by yesterday’s close:

R = Close[0] - Close[1] / Close[1]

You can actually just use that but I prefer to slap a natural log on it, thus it’s a LogReturn:

LR = ln(R)

And that’s it. What we have here now is a pretty basic expression of price movement/momentum. And with that in mind you can start interpreting the lower panel on the chart above quite effectively. What I see is expansion and compression of price volatility. In previous corrections we started seeing long spikes to the downside which at some point where followed by selling exhaustion in turn followed by buying pressure which gradually started to build higher day by day. This is how I would expect a reversal to play out and it looks rather natural.

plane_duct_tape

However in recent weeks the pattern has changed. We are now seeing large sudden spikes to the downside stemming increasing selling pressure. Look at the three spikes I have highlighted – they are pretty forceful and one may interpret them as stick saves to discourage the bears from taking the tape lower. What however the most interesting to me is what we are NOT seeing here: Follow through – the big spikes are not accompanied by lower level buying spikes which would support the notion of increasing buying pressure. They were definitely present in prior corrective moves but at least thus far they seem to be lacking. Rather it looks like the tape is being forcefully pushed higher and then everyone just walks away. This reeks of distribution and even if I’m mistaken on that – tape like this it does not reflect a healthy market.

So the take away message here is that the current rally is still standing on very very wobbly legs and it may fall apart at any moment. This whole market seems like it’s held together by duct tape and the wheels may come off at any moment. That won’t keep me from taking long positions near inflection points and while the odds seem to be in the bull’s favor, but let it be said that we should all be aware what we are dealing with.

2015-01-26_spoos_briefing

That said – short term the E-Mini is looking like a long with a stop below 2030 – however if breached things may become unglued rather quickly. ES 2014 is where this rally most likely meets is maker. As I said last week – how many more stick saves do the bulls have in them before equities fall off the plate?

2015-01-26_dollar_briefing

The Dollar is getting more volatile as well – I’d be long above the 95.445 NLBL but only 1/2R. My stop would be below 95.16 – pretty nearby. Either it rides higher now or we’re going to see a visit of 94.8.

A few more short term setups below the fold – please join me in the lair:


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

Cheers,

 

Lottery Ticket Tuesday

We are at a crucial stage across the board with equities and futures near inflection points which respective resolutions will define the direction of the current quarter. I’m going to make this short and sweet for you: Hopping on the right bus is the name of the game here. However the tape at this stage is intrinsically geared toward misdirection. So my approach will be to take out a few lottery tickets and build my positions as I’m proven right. As usual let’s start with equities and then cover forex and bonds:

2015-01-13_spoos_briefing

On the E-Mini we’re clearly in a shake out zone which spans between ES 2020 and 2060 – forty handles of pain and confusion plastered with opinions and high emotions. The bulls currently have the upper hand as the 100-day SMA is below us and it’s slowly rising. You could use the high of yesterday’s shooting star as a long entry with its low as the stop. On the downside things are a bit more tricky unfortunately. Thor is currently short the NQ but that 100-day will be very difficult to overcome. The reason why we decided to include it into the Sunday entry line up was due to the potential of a sudden slide lower that would burn a hell of a lot of longs.

2015-01-13_spoos_b_briefing

However right now it’s looking still as if the bulls can hold the line. On the hourly the 100 is already swinging higher and a long position here with a stop below 2023 is a lottery ticket with very limited risk. The dynamics are balancing on a knife’s edge – below 2020 things could easily accelerate lower quickly, but as of right now as I’m typing this the bulls still have a solid chance to shake out a few more weak hands and then drive this higher.

2015-01-13_EURUSD_briefing

Another short term lottery ticket today is the EURUSD – a few more pips lower and I’m going to grab a long with a stop just below 1.175. As you know I’m implicitly short the EUR (i.e. I live in Spain and earn in Dollars) thus I’d be happy to get stopped out on this one ;-)

Quite a bit more below the fold – please meet 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.

Very nice setups across the board – don’t get over exposed however as we may see a bit of shake out today.

Cheers,




    Zero Indicator


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  3. recent misdeeds

    1. Wednesday Morning Briefing
    2. There Be No Butter In Hell
    3. Setup Tuesday!
    4. Late Monday Quickie
    5. Held Together By Duct Tape
    6. No Juice
    7. My New Best Friend
    8. Inflicting Maximum Pain
    9. Riding This Beast Into The Sunset
    10. Let’s Dive Right In