The Last Bear Standing Is A Bull

The annoying thing about late stage bull markets and in particular the formation of long term tops is that they take forever to play out. Navigating increasingly volatile swings accompanying the final throws of a dying bull cycle takes considerable amounts of patience, discipline, as well as skill. Like Bob The Horse reminded us the other day: Bear markets go out in a bang and bull markets go out in a whimper.

Now the dirty little secret about early stage bear markets is that the last bear standing is usually a bull. Yes, you read that right. Traditionally it’s not weak handed bears who take down a bull market, it’s simply a lack of buyers. Guess what – all those snarling bears who were printing some mighty coin in 2008 are long gone, wiped out during their persistent attempts to call a top when there was nothing but green candles ahead. I myself have seen their (virtual) faces disappear right here – one by one they simply vanished. The few who survived the ravages of one of the most significant bull markets in history relented and changed their approach just in time before their accounts had melted away like late winter snow in the glows of a spring sun.

Arguably this has been one of the most hated stock market advances in history, rife with controversy, bail outs, and market manipulations. But let me assure you that in retrospect – many years from now – you all will miss it. Because it was just too sweet and too easy while it lasted. Your children and grandchildren will look at those monthly charts and ask you how in the world you managed to fail banking a fortune in five years of such bull market extravaganza.

And I’m not talking about fairness – you all know how I feel about QE and Fed/ECB interventions. But from a trading perspective – boy – it was pure manna from heaven and it won’t ever come back – not in our lifetime at least. What awaits ahead won’t be as directional and it won’t be as easy. If you thought trading was difficult in the past five years then you ain’t seen nothing yet.

2015-01-29_spoos_briefing

Now as you may recall I managed to squeeze in an ES short at 2040 yesterday morning and I consider myself extremely lucky as it went straight down from there. Now we’re basically hanging by a thread here and I’m not going to claim that we won’t see yet another FU rip higher, killing a boat load of shorts in the process. But that’s part of our existence as traders – not knowing. You don’t have a crystal ball and you basically just have to pick your battles as they present themselves. The war never ends and the goal is to simply keep winning more than you are losing. Choosing to be a trader is a bit like being born into European royalty in the medieval ages – there’s always a war on and participation is mandatory. And if you win enough you get to pillage ;-)

Anyway, if you take out shorts here then put your stop above ES 2040. Yes, it’s a huge range but that doesn’t matter – if this thing really breaks you’ll need that range anyway not to get shaken out. And if it bounces here and breaches 2040 then the bears are dead in the water (again) and we are painting new highs. Alea iacta est.

2015-01-29_EURUSD_briefign

EURUSD – I’m long here and I hate it. Stop below 1.1251, very much hope it’ll get touched but as you know I’m a lowly expat who earns in Dollars.

2015-01-29_DX_briefing

The Dollar index however is looking pretty solid here and I’m long with a  stop below 94.6.

More short term goodies below the fold…


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

Cheers,

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:


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,

 




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