Late Monday Quickie

I really don’t have much to add to this morning’s musings. We got a little fake out at the open but equities have been holding the line and our ST campaign is in good shape. However we are still trading below the 2062 inflection point I established early last week – it needs to be conquered and that post haste.


There’s a typo on the chart – I meant 2062 and we need to close above it – period. Until that happens the bears still have a sliver of a chance to take this dog lower. However, that said – I hate this tape and consider it high risk territory.


Once again participation (courtesy of the Zero indicator) is non-existent, suggesting this advance is driven by a few major players. I don’t wager to guess which way it’ll lead but what I do know is that intra-day volatility is here to stay with us for a while. Even if this resolves higher and paints new high there is no telling when we turn on a dime again and suddenly dive lower.

Just for the record – I am not talking my own book here. I’m actually long the ES from this morning and still long in my NQ Thor campaign, which I professed last week was emotionally difficult to enter but thus far seems to be paying off.


Otherwise I want you to keep an eye on soybean oil – not because it’s delicious but because it’s at a LT inflection point and thus we are looking for opportunities for a snap higher. The best approach IMO is to look for ST entries and build ourselves up from there. I don’t see any right now but let’s put it on our watch list. A drop off the plate is of course a possibility but unfortunately I don’t see a good entry for that right now, perhaps if we correct higher for a LKGB first.

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.


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:


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.


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.


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?


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.



No Juice

Equities have managed to push higher overnight and the E-Mini is now crossing the bear’s Rubicon, a line I drew at ES 2062 based on the most recent daily spike high. Nothing is ever impossible but unless we see an almost instant drop right here today this play is pretty much lost for the bears. Miracles happen but as of right now it seems they’ve run out of juice.


Every handle higher from here now exponentially supports the bullish case. There is no harm in taking out a few lottery ticket shorts here but be aware that the odds are now vastly stacked against you. The hourly is looking pretty solid as well with the 25-hour SMA carrying price higher.


I’m already long the NQ courtesy of Thor – and I distinctly remember how emotionally difficult taking this trade was on Wednesday. Just to make the point that none of us are ever immune to being biased, it’s a constant battle against one’s inner instincts. However if I wasn’t long already I would take one right here with a stop below the NLSL and the 25-hour SMA – let’s say near NQ 4240.


Otherwise I don’t see anything delectable this morning. The sole exception maybe being copper which doesn’t really offer an entry right now but it’s looking like it may start trending lower here.

The Dollar is on fire this morning and the EUR/USD touched 1.11 overnight, so I better head over to the ATM! The way things are heading I may just have one installed in my trading lair :-)


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.


    Zero Indicator

    Darth Mole Alerts

  1. poll

    • What is your average spread on the EUR/USD?

      view results

      Loading ... Loading ...

  2. NinjaTrader

    search warrant

  3. recent misdeeds

    1. Late Monday Quickie
    2. Held Together By Duct Tape
    3. No Juice
    4. My New Best Friend
    5. Inflicting Maximum Pain
    6. Riding This Beast Into The Sunset
    7. Let’s Dive Right In
    8. Friday Morning Briefing
    9. Swiss Only Learn The Hard Way
    10. The Bus Is Empty