The Bulls Are Back On Notice

Just this morning I was hoping for some movement, but this may be a bit more than we bargained for. Right after the open the red candles started to stack up and at 10:15am EDT our trend day alert suggested the moderate possibility of a downtrend day. Yeah, no kiddin’!


The Zero shows us several strong signal swings to the downside. This is real selling pressure folks and all dip buying attempts (quick spikes up above the zero mark) thus far have failed. This could easily continue into the close.


Boy, this is one ugly chart – several bearish signals triggered today: First up the NLBL at 2134 was never even touched, then the NLSL at 2113.25 was sliced through like a hot knife through butter. We also are failing a weekly NLBL that we have been testing since last week. We are now back to accumulating bearish evidence – yes, again.

I told you guys LT market tops are tedious – no way to predict when it finally turns and until it happens you have to remain nimble. I’m sure you’re glad now that you listened! You’re most welcome – the Mole’s got you covered as always. In any case, today’s plunge certainly goes on the books as significant technical damage.


The point and figure chart brilliantly visualizes the ongoing market conditions – noting but sideways congestion since late last year. Every sudden drop to the downside has been mechanically bought again thus far – but there will come the time when this game will finally find its maker. In any case – take note that we are triggering a high pole reversal warning today. And that means the bulls are officially on notice. If we drop through 2090 there will be hell to pay.


It’s always difficult to find entries when things are moving fast but I was able to dig up a few victims. On the Forex side we have the AUD/JPY which is painting a shooting star today. However it’s happening right on top of the 25-day SMA and if we can hold it then we may just trigger a failed shooting star long (I wrote hammer on the chart – sorry). I’m actually taking an early long position here – 1/2R – with a stop below 94.903. If it breaches the daily NLBL at 95.755 then I’ll add another 1/2R.

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Scaring The Children

I’ve said it many times before and I’ll say it again – I love using the Zero. To my knowledge no other indicator shows you true participation on the E-Mini futures like the Zero does it. Today’s a great example – you recall I was long near ES 2121.75 with a stop a few ticks below 2120. In retrospect a teeny bit too tight.


Then this happened – my stop got snagged by just one tick. Bastages! Time to get short, according to plan, right? Well, not so fast…


Fortunately I looked at the Zero first. If there ever was a divergent signal this was one – non existent participation on the way down. I got back in – a bit late at 2122 but so far it seems to be working out just fine although I’m expecting a VWAP test shortly.


Ditto on the NQ – except here I got in at 4498. My ISLs are now below each respective spike low.

This tune really has nothing to do with the topic except that it may scare your children. Which is exactly what we call dips like these accompanied by a complete lack of participation. My policy in these cases is to wait for a strong snapback but not too late to jump back in (e.g. above a major NLBL, SMA, Bollinger, etc.).

If you got swiped today then you may be interested in signing up for the Zero. I have people following it religiously for nearly eight years now for a reason. But don’t take my word for it – I welcome any Zero sub to chime in here in the comment section. Tell us how you fared today!

Update 4:33pm EDT:


That was quite a reversal and after some short lived paper profits I got taken out at break/even (I was actually having dinner or I may have squeezed out a handle or two). Unfortunately things happened way too quickly near the highs although we did get a Mole reversal arrow. I did expect a VWAP test (see above) but things went back to flat.

Which goes to show that the Zero can help you traverse rough waters but it’s not the Holy Grail – sometimes the tape simply runs off and it would be unrealistic to assume that you manage to make the correct conclusion if things turn on a dime – which they clearly did here today. Moving forward I would strongly discourage you from playing the spoos with anything but negligible position sizes (i.e. lottery tickets) as we are now heading into the final two sessions preceding a Memorial Day weekend. Which means more bi-directional tape banging like this and it will be easy to have even your best placed stop run over.

In general equities keep traversing a very difficult market environment. Any directional progress (to either side) happens in sudden bursts after days or weeks of sideways churn. Only to be followed by more sideways churn or FU sessions like today. Not to sound like a broken record but I caution you guys to continue taking very small position sizes, if you should decide to play the swings (that means you Skynard!). Although the bulls continue to dominate this is transforming itself into a very different market than what you have become used to over the past six years. Stay on your toes…

The future is now – so don’t bring a knife to a raygun fight. If you are interested in becoming a Zero subscriber then don’t waste time and sign up here. A Zero subscription comes with full access to all Gold posts, so you actually get double the bang for your buck.


Magic Bounce

At the risk of sounding cynical but that bounce off the lows today was rather mysterious and reeks like an engineered double squeeze. Once again our Zero indicator signal paints a pretty good representation of today’s whipsaw:


Some poor sub was asking me how to interpret those wild swings and the best I could offer was the following:

  1. Clearly the tape suddenly turned on a dime today. You may point at some random news event as an explanation but I smell turkey.
  2. The bounce and gap fill that followed looks like it was run by prop desks and institutional traders. The strongest spike was a 1.0 compared with a negative 2.5 on the downside.
  3. VWAP has not been touched since the lows, which is rather unusual given a) the initial drop lower and b) the diminishing participation which since has turned into a flatline.

Obviously all this is completely in sync with the current market phase – which remains to be one big sideways high volatility wood chipper bent on destroying as many participants as possible. So treat carefully and make sure you get exposed only when the odds are clearly on our side.


Speaking of which – what an awesome entry at ES 2011 yesterday. Things looked quite rosy there after the open but it was not to be. I am staying short here as swapping positions here due to a bounce is not part of my system – I got a good entry and I’m riding it to the end. Moving my stop to break/even however, that’s for sure. I’ll be looking into swapping for longs if that happens – as discussed yesterday.

The positive thing here is that this dip lower builds even more context, once again demonstrating that the short side is unable to breach little more than short term support levels. The current NLBL at 2111.75 has already been tested and a breach higher would be a damn good reason to be long. But for now I’m not going to second guess direction – this is exactly the type of tail chasing we need to avoid. You got an almost perfect entry – stick it out as per the system rules.


Some updates on our ongoing campaigns – EUR/GBP looked good for a while but has dropped back lower. Nothing to add since yesterday’s entry. Still willing to flip for a short position should it drop below the weekly NLSL.


CHF/JPY – also looked a lot better a few hours ago. I’m moving my stop to break/even now.


AUD/USD – that one seems to be good to go! As you can see it’s peeking over its 25-week SMA and a breach here could lead to a squeeze higher.


Natgas – I think I threw that one out for free yesterday. I really hope some of you guys grabbed a few long positions after it produced more context near the 100-hour SMA. I’m riding this sucker all the way. Stop now at break/even of course.

A few more goodies below the fold for my intrepid subs:

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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    1. Inflection Points
    2. Back In Business
    3. Edgeless
    4. Putting Out Fires
    5. The Bulls Are Back On Notice
    6. Tuesday Morning Briefing
    7. Equity Curve Filters And Compounding
    8. Pre-Memorial Day Freebies
    9. Scaring The Children
    10. Wednesday Morning Briefing