It’s been a while since I put together a Zero video, but as yesterday’s session was a textbook example of how to play prospective sell exhaustion I simply couldn’t resist. So grab a cup of coffee or your favorite tea, sharpen your pencil, and pay attention – you don’t want to miss this one:
First let’s set the stage – this is the Zero right before the open of yesterday’s session. What stood out to me right away was a pretty pronounced divergence on the hourly panel (on the left). Price is painting new lows for the year but the daily Zero is starting to push toward its center (or 0) mark. What we DON’T do here is to blindly go long – no siree bub! This is exactly what market makers would expect retail traders to do – make haphazard bets that a low is in place. Stainless steel rats like us however understand that engaging in hasty predictions is hazardous to one’s account, so instead we’ll watch the Zero Lite for early clues:
Now if you watched the video then I think you understand how we operate down here at the lair. When playing the swings we always look for the Zero Lite to give us sufficient clues to warrant a contrarian position. Most importantly however we also wait for price to back us up a little. There’s no predicting when a low truly is in place, and it’s better to get in a little bit late than too soon.
I usually start with 1/4R or 1/2R and then put my stop a few ticks below the prior low. As price pushes in my favor I slowly add a few more contracts until I end up with 1R. Things got a bit worrisome there at the EOS but the E-Mini did hold the 2k mark overnight and is currently at 2012 as I’m typing this.
Will it hold and is this a permanent floor? I don’t know but I’m well positioned as I started to accumulate a few longs near 1990 – which now affords me the buffer I was hoping for yesterday in anticipation of today’s FOMC announcement. Compare that with someone who’s trying to chase the tape higher here or, even worse, is waiting for an opportunity to scale out of rapidly depleting short positions (ahead of a high volatility event).
Once the fat lady has sung this afternoon we’ll know if our evil plan will come to fruition.
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Massive reversal today and frankly quite a bit more forceful than I had anticipated. So it seems the Mole got played on this one. I had it right on target regarding the bounce - our P&F pointed at SPX 1920 as its bearish price objective and our monthly NLSL sits at 1930. The SPX dropped right in between those two and our current low stands at 1926 and change. From there a bounce was to be expected but today’s rip higher is rather bullish and we could see continuation higher here.
I posted this chart for my subs in yesterday’s long term update – the area I had highlighted in green was 1960, which is where I expected a low pole reversal warning to kick in. And that’s exactly what happened today – the odds were preeeettty tiny for this to happen. And it certainly took a few market participants by surprise. Fortunately I had no dog in this fight (except for the Thor campaign – see below) and thus escaped this little trap unscathed.
If you are a bear this is a very ugly chart. Only a drop back below the ES 1960 mark (and better below the SPX 1960 mark) gives the bears another shot at some autumn fun. Not saying it won’t happen but it has to happen soon and in addition the tape must not breach back above the 25-day SMA.
The weekly panel actually had triggered a double sell signal yesterday and a close below it would have locked in a major blemish for the bulls as this would have been our first official medium term sell signal. But both were reversed today and this is a big kick in the nuts for the bears.
As you can see on our NYSE UVOL signal – since the lows this has been one concerted short squeeze. It would be a mistake to cling to yesterday’s picture and not consider that the bulls can drive this higher. Yes, it could be one last spike higher but we get to that…
More bullish ammunition – the VIX is most likely going to complete a bonafide equities buy signal. And potentially plenty of space below…
Now to the bearish evidence, which is why I don’t count them out completely just yet. The Zero signal is completely flat and this supports the previous chart in that this drive higher does not enjoy wide participation and could just be a bot driven squeeze which may fizzle out next week.
I am not seeing any confirmation at all on our old Forex correlation pairs – neither on cable…
..nor on the EUR/JPY. This is highly suspicious but the Dollar has been pushing hard today (who-hoo!) and this correlation has weakened somewhat recently.
Bottom line: The bears are now officially on notice across the board and the onus is now on the bulls to drive this higher. Should the bulls fail to do so then the jig is up and the wheels will come off next week. However, simply holding SPX 1960 for a session or two will send any remaining grizzlies back to the sidelines – old habits die hard and the bulls still enjoy home turf advantage. Until proven otherwise they are effectively back behind the wheel. Inflection point: ES 1960 – below it the bears stand a chance – above it the bulls will probably bury them once again.
First up apologies for not deploying Thor earlier this week. I kept running into little things to fix – you know how it goes but it will be ready for Sunday night and (barring any major problem) that’s a promise. Here’s the GBP/USD which currently has earned us ~1R.
The ES bounce still left us with 1.25R as Thor took 50% off our units off the top near the lows.
Gold also in good shape and our stop is now at break-even. Let’s see if we see continuation lower – this is a great start.
One setup below for my intrepid subs – sorry, all I could dig up today but it’s a good one:
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Alright, I think I’ve done enough damage this week – see you guys on Monday morning.
The comment section has gone into flatline mode so I must assume that many of you guys are enjoying an extended weekend. Well, the market waits for no man (or woman) – since it’s only the hardcore crew I’ll be brief but I will make it count as we have nice setups today:
So I told you guys to short near 2010 and judging by the thundering silence none of you rats did. A bit frustrating, but not for yours truly as I pocketed some green on the way down. I can tell you where the good spots are but if you guys don’t pull the trigger – well, refer to my comment in the intro.
Now what does this chart above tell us? Quite a bit of short term price volatility there – it’s been going on for a week now. Where does this sort of thing (sideways/volatile) usually happen? That’s right – before big moves. Again, direction is unclear but the more time we spend here the greater the chance we’ll actually get a good entry. FYI – I have no directional bias.
Before we get to the setups. The Zero indicator did a bang job again today – very nice divergence near the lows – just like yesterday. If you are a sub and didn’t play those then please proceed directly to the tutorial page for a refresher.
Seems like that speculative gold entry yesterday (sorry – subs only) may just have a leg to stand on. I also like the proximity of the 25-week Bollinger (a touch would have been better). Best we can do right now is to leave our stop below 1260 and forget about it for a few days.
While we’re in the precious metals aisle – I’m long platinum on a breach of that hammer. I think Scott would actually like this one, hammers and shooting stars are his new thing (with a few additional rules thrown into the mix). Anyway stop below today’s lows – or you can put it below the 100day BB nearby.
Sugar is looking sweet again – may just be able to muster up the mojo for a bounce. Long here with a stop just a few ticks below (i.e. < 15.5). A bit speculative – you may reduce R size to 0.5.
AUD/USD – nice reversal – I want to be long above the NLBL on the daily. FWIW – beautiful BB compression on the weekly. I think we may just see some movement here into fall.
USD/CAD back near the 100-day SMA – it’s now or never. If it fails it then we’re pretty going to see a more complex correction – the easy path is to bounce here and take off. Decent probability and I’m in with 1R – stop a respectable distance below the 100-day as shown on the chart.
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.