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Coiled Up Ready To Strike
47

Coiled Up Ready To Strike

by The MoleSeptember 20, 2016

We’ve got a lot to cover today, so I will spare you the pleasantries and dive right in. Yesterday’s session once again must have been frustrating for many participants due to a continued lack of direction. But I expect resolution to be delivered swiftly and brutally as the equities are now coiled up like the proverbial snake. 

2016-09-20_spoos

On the surface we seem to be well positioned (see Thursday’s, Friday’s, and yesterday’s update) but I can’t shake that ominous feeling that I’m being led into a trap. This configuration is way too beautiful and clear, especially given the preceding range and the intra-day volatility we had to put up with. Of course you all know me well enough to not ever settle on a particular direction. The downside here is absolutely still in play and would take quite a few people by surprise.

2016-09-20_rv

Realized volatility isn’t helping us much right now either as we are seeing both buy and sell side activity once things get moving. Or perhaps that’s a hint we should consider?

Of course short of blindly going short there is no perfect entry opportunity for the bears here. Well, that is not really true – technically speaking this actually represents the PERFECT entry opportunity for the sell side. Just imagine we drop all the way from here and after the fact you’d look at the previous formation and ask me: ‘Heck Mole – why didn’t you take that short setup? Are you losing your edge?’

Quite on the contrary grasshopper, it’s just that this old crusty veteran has learned a thing or two about major inflection points. And in particular that they are incredibly difficult to catch. In these situations I usually look at my momo charts in order to get a basic understanding where we are  on a long and medium term basis.

2016-09-20_nya50_nya200

Let’s start with the most bullish one which is the NYA50:NYA200 ratio – basically a measure of market breadth. Clearly it has actually remained in very bullish territory and one can’t help but wonder if this is really the spot in which major market corrections are staged?

2016-09-20_cpce

However the CPCE, which runs inverse to the SPX I plotted behind it, is looking pretty bearish if you give my advancing channel any credence. One needs to remember that the current levels would be considered relatively bullish readings in 2014. BUT let’s not resort to relativism here. Based on this particular lens I’d concede that we have considerable bearish potential remaining.

But we’re just getting warmed up, the notion of a bull trap here is gaining more credibility based on what’s shown below:

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2016-09-20_hg

I’m doing things a bit backwards today as I’m finishing this post with some setups. I think copper is a reasonable long idea here with a stop below 2.14.

2016-09-20_gold

And gold may be ready to make a move – once again the direction is less clear. For now I’m short, expecting one more drop lower below the 100-day SMA. But if it manages to recover to above 1321.1 I’ll be grabbing a small long position. This is a very interesting setup as the dynamics shift strongly within just two handles or so. As such the benefit to risk ratio is high but at the same time the potential to get whipsawed is equally high. Worth participating but keep your position sizing small.

Event Risk

And as usual our quest for banking some humble profits in this crazy market isn’t made easier by the powers that be:

2016-09-20_event_risk

We’re being treated to a veritable double whammy this week, starting with the Fed reporting its rate decision tomorrow at 2:00pm followed by Thursday’s early morning spanking we’ll be receiving from Mario Draghi on my side of the Atlantic. So I don’t expect a quiet session today with some major volatility spikes tomorrow and Thursday.

Implications

Quite simply I’ll be watching the tape today until shortly before the show begins tomorrow at 2:00pm. Should my open positions fail to make sufficient progress I will most likely close out and remain in cash until the dust has settled. You may consider doing the same.


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • Tomcat

    Anyone got gas???
    [NATGAS]
    http://schrts.co/MM2Qf3

  • ridingwaves

    Actually its a triple whammy with Abenomics lesson #10 for Japan…same day as fed decision

  • ridingwaves

    raise hand slowly,,,

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    No. I *do* see three tails.

    http://stockcharts.com/h-sc/ui?s=%5ENGV16&p=D&yr=0&mn=3&dy=0&id=p98093677994

    All of our lives, we have fought this war. Today I believe we can end it. Today is not an accident. There are no accidents. We have not come here by chance. I do not believe in chance. When I see three objectives, three traders, three tails. I do not see coincidence, I see providence. I see purpose. I believe it our fate to be here. It is our destiny. I believe this day holds for each and every one of us, the very meaning of our lives.

  • http://evilspeculator.com Sir Mole III

    Shit – didn’t realize that one. Thanks for the pointer.

  • Mark Shinnick

    Underground talent; Write a dramatic film script :)

  • ridingwaves

    Be careful Mark….

    Gerbils are social animals, and live in groups in the wild.[4] They rely on their sense of smell to identify other members of their clan, so it is important to use what is commonly referred to as the “split tank method” when introducing gerbils from separate litters. Gerbils are known to attack and often kill those carrying an unfamiliar scent

  • AboveTheNoise

    I found that the ugliest patterns work, whilst (always wanted to use that word) the beautiful looking ones fail. I’ve been meaning to track all the times I thought too good to be true, went in cause I couldn’t resist the beautiful setup, and got slapped a few hours later. Thankfully I no longer believe in the beauty of market patterns, only the coin in the bank.

  • Mark Shinnick

    I’m glad someone said this, thanks….seems true enough to me.

  • AboveTheNoise

    I thought about it but would hesitate to attribute pattern failure to machines. We operate in a great deal of randomness in the markets (much more than people think), and even though patterns can show an edge at times, they are often random.

  • http://evilspeculator.com Sir Mole III

    I can’t really argue with that – you do get lucky sometimes but when a configuration looks too perfect I get very antsy.

  • http://evilspeculator.com Sir Mole III

    As one who has spent considerable time and resources on machine learning and fractal pattern discovery I can attest to the high amount of randomness/noise in financial time series.

  • evilasevildoes

    in and out

  • Mark Shinnick

    I’m aiming again for some short miners.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    ..you may squeeze some blood out of that turnip…maybe.
    😉

    [BPGDM]
    http://stockcharts.com/h-sc/ui?s=%24BPGDM&p=D&yr=2&mn=0&dy=0&id=p37932219670

  • ridingwaves

    mm’s just toying with both sides here last 2 days..
    maybe being out of action 3 days prior to illuminati decisions is the best play..

  • BKXtoZERO

    taking tails as bullish? you are thinking break out for Nat Gas?

  • http://evilspeculator.com Sir Mole III

    Somebody is a sucker for punishment 😉

  • Mark Shinnick

    Sometimes feels that way….for sure with any entry mistake.

  • ridingwaves

    seasonality and late to cover short specs could add fuel to that fire

  • http://evilspeculator.com Sir Mole III

    Coiled up even tighter now…
    .

  • Yoda

    I hate FOMC’ weeks

  • Ronebadger

    typical

  • http://evilspeculator.com Sir Mole III
  • Tomcat

    What is there to hate, they provide volatility which as a trader is always welcomed… I wish we had this every week…

  • Yoda

    days before FOMC are just a ping-pong game

  • AboveTheNoise

    Shit just got real… Owned.

  • almez

    gold seasonality will work against you and in the past year, the fed annoucements have always caused gold to jump in value. The december meeting is the most important to gold/dollar value. I would be short miners if it weren’t for the pullback we have experienced, which will dampen fed action.

  • OJuice

    That was awesome.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Let the blood-letting begin, but remember – it was all setup.

    http://www.propagandamatrix.com/diocletian.html

    “ELITES CREATE ENEMIES IN ORDER TO RE-ORDER SOCIETY IN THEIR OWN TYRANNICAL IMAGE. THEY DO SO BY COMMITTING ACTS OF TERRORISM AGAINST THEIR OWN BUILDINGS AND BEAURACRACIES, THEN CHOOSING THE SCAPEGOAT.”

  • Tomcat

    Agreed!

  • Tomcat

    But if we are ping-pong (long/short whenever our model dictates) players I don’t see the issue.

  • ridingwaves

    Economic theory being put to the test with Abenomics now…..SHTF is next stop

  • ridingwaves

    Japan Check, the Fed next up to bat….got popcorn?

  • Tomcat

    loving this “movie”

  • Tomcat

    fireworks gentlemen, we will have fireworks today

  • Mark Shinnick

    Never got the planned entry ….turns out for good reason :)

  • ridingwaves

    me thinks gold is going to 1600 with this push….fed stands pat and to the moon…

  • ridingwaves

    feels like someone is in the know the way commodities are rolling this morning…buyers are lined up…

  • Mark Shinnick

    Coils, I suppose are cognitive biases too. Like other pattern….they often defy their defining lines.
    Not saying they are no useful to note, however.

  • kudra

    Long DUST and TZA

  • kudra

    no rate hike is baked in. huge moves in response to no hike seem unlikely.

  • Mark Shinnick

    Similar plans too…but no trigger yet.

  • kudra

    I’m usually early and often dead wrong.

  • Mark Shinnick

    Excellent self-awareness thing…check out MOLE’s NEW POST.

  • ridingwaves

    I have XIV approaching 50 if no hike….

  • Mark Shinnick

    Whew… I just see 38 for the time being…