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Dead Cat Dollar Bounce
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Dead Cat Dollar Bounce

by The MoleAugust 22, 2017

I wish it wasn’t so but every single campaign I am currently holding or considering as an entry is tied to the greenback, at least to some extent. This unfortunately is the state of affairs in the age of perpetual quantitive easing, which over the past decade has become the primary purveyor of perceived growth and the number one determinant of market direction. Cut off the easy money injections and down goes the market, simple. Everyone knows it and the longer this drags out the more violent the patient is expected to respond when finally forced to face cold turkey.

2017-08-22_gold_no_entry

Now on the surface the current formation in gold looks like an awesome long entry opportunity as it has revisited our previous entry zone and seems to be painting higher lows and higher highs.

2017-08-22_USDJPY

But when considering any campaign in gold the first thing I do is to check the USD/JPY with which it is most closely correlated. And that one looks like it may be in the process of producing a bounce. If it doesn’t then significant downside would most likely result as it’s sitting near medium term support.

2017-08-22_gold_LT

And a bounce in the USD/JPY usually means a drop in gold. Then there’s the long term perspective shown above. The diagonal on the weekly panel looks like solid overhead resistance which it thus far has failed to overcome. Of course it’s possible that this time will finally be different, but again this will most likely be dependent on what the Dollar does next.

It’s possible to be short gold here with a stop > 1303 but I have decided against it as it is impossible for me to guess which way the Dollar will go over the coming week. If it was trending up or down then things would be easier but at this time it’s a coin flip and I don’t enjoy gambling very much.

2017-08-22_spoos_update

Our E-Mini short campaign is still in the running but it seems like we just may be in the process of establishing a floor after that clean touch of the 100-day SMA. Boy, wouldn’t that be easy! My trailing stop remains where it is of course as it appears to be very well placed.

2017-08-22_copper_update

The copper campaign meanwhile has turned into a runner and it’s time to lock in some profits. My trail is now at about 1.2R and I’m trailing it at about 0.6R MFE. Copper is a difficult contract for fishing an entry but it’s brilliant once you’re on the bus and it’s racing higher.

2017-08-22_GBPUSD_update

Less fun on the forex front. Cable looks like a dud, clearly due to the fact that the Dollar seems to be strengthening a little. Most likely we are looking at a stop out here sometime today.

2017-08-22_AUDUSD_update

AUD/USD is a mixed bag right now. Could still play out but clearly it failed to take advantage of that big shake out to finally turn on its after burners. 50/50 on this one.

2017-08-22_EURUSD_update

EUR/USD looking iffy but fortunately here I’ve already locked in a tiny bit of profits after advancing my stop to the next spike low. Very hard to make an educated assessment of the odds here, just look at that hourly panel which has turned into a sideways mess.

I hope that we’ll at least get rewarded with a solid bounce and advance in the Dollar, however after that first dead cat bounce it’s started pushing sideways considering its options. Come on Yellen, say something hawkish! You can always revise later


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.
  • Mark Shinnick

    Yes, I’m looking to reshort about half boatload 2x and 3x equities at some point maybe today. Been looking for reshort of miners because $ had been appearing supported, but that market also a cluster fk as you mentioned.

  • StockTalker

    Shorted this rally, s /NQ 5844.

  • Mark Shinnick

    I see all that resistance there pretty spot-on, is yours a scalping plan or more of a position type trade?

  • StockTalker

    One day or 2 day trades, volatile market on the horizon.

  • Mark Shinnick

    Got it.

  • BobbyLow

    Great post Mole which brings up a question about correlation and overall exposure to R. Since it appears that most everything has been correlated since QE, a person carrying 3 Open Positions at 2% R is actually carrying a 6% R.

    OTOH, if a person is carrying 2 open positions that have a negative correlation then there is possibly a 0 Sum result. This could be like a Pairs Trade which I’ve never understood the value of.

    I guess what I’m trying to say is that other than individual stocks that can blow up on their own, what’s the difference of having 3 Futures, or Index Positions open at the same time at 2% R each or just have one position open at 6% R if a person had balls enough to do so? Isn’t the actual total risk practically the same?

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

    Great post.
    Copper is difficult.

    I thought it was funny when one editor mentioned,

    “do you think they dig a hole on one mountain and get copper, then dig another hole on another mountain and get silver? No. they usually come out together!”

    https://uploads.disquscdn.com/images/ef2f52e3fe1335ae9c2809f6499a784e9e853a8950d4d92833fececf2b07b238.png

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

    from what I read “it’s a drag”

    Pair trading can be a useful tool but it is not for every investor. There is the risk that both sides of the bets turn out to be wrong, and there is no limit to the possible loss on a short position. Also, to “initiate and unwind one pair trade you have to buy twice and sell twice, plus you have interest to pay on your short position so you have a large drag due to costs,” said Preet Banerjee, a consultant to the financial services industry and personal finance commentator.

    “I think the average retail investor would be better served focusing on asset allocation, rebalancing, and diversification.”

  • BobbyLow

    I agree GG especially regarding “Pairs Trade”, but I think a key word you used is “investor”. I don’t think there are many if any of us here who are investors. But as traders how do we diversify or allocate if everything is correlated? I don’t think we can.

  • bravenewworld2011

    The only thing I saw worth shorting yesterday was volatility. Paid for some new appliances for my remodel!

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

    $SPX 2446.5 – would be 50% of that big red candle body.

    shouldn’t be too hard. Was also 2446.20 back in June 09 high.

    http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=0&mn=6&dy=0&id=p82386495422

  • StockTalker

    Weekly ADX right now on the /NQ, system tells me short this occurrence. Could be some blow off first but following my system.

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

    AAAAAAND, it’s done.

    only an Oliphant could stop this Bull Market.

    http://i.dailymail.co.uk/i/pix/2016/01/31/10/30C0285600000578-0-image-a-44_1454234909729.jpg

  • Mark Shinnick

    Yeah…it’s something of a relief to my lens …really needs to renew the BTFD storyline to do its job effectively, perhaps with some more volatility bottoming.

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

    Jack! so good to see you.

    where’s the Rum?

  • JackSparow

    likewise.. I do read your post everyday!
    been off the wagon ;).. only sparkling water these days..

  • http://evilspeculator.com Sir Mole III
  • Mark Shinnick

    Perhaps, look into incorporating volatility into the timing calculation; that has helped me refine short and long entries into a tighter range of risk.

  • HD

    Whether you play the spike or the equal and opposite predictable crush in volatility, the /VX is a very nice product.

  • HD

    $SPX nearing the 2450 psychological level, also near +34 fib bounce. The previous rally was +37 points. See if sellers come in.

  • http://evilspeculator.com Sir Mole III

    Hey guys – one sub asked me about the 2450 inflection point and I realized that I had forgotten to post this chart this morning:

    https://uploads.disquscdn.com/images/e37a3d6cf6714ad0aa3af0c6151ff58510c6cb5eed1bcb3f0119cef55185193a.png

  • http://evilspeculator.com Sir Mole III

    Not just psychological – see above.

  • http://evilspeculator.com Sir Mole III

    OH yes.

  • HD

    nice chart!

  • http://evilspeculator.com Sir Mole III

    I got more where those came from 😉

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

    Gold 1320 for a quick hop.
    $1400 would be the Real Fun ™.

    [$Gold]
    http://stockcharts.com/h-sc/ui?s=%24GOLD&p=W&yr=3&mn=0&dy=0&id=p08084551787
    -GG

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

    ..Gartman, you just got to wonder..

  • StockTalker

    /SI holding nicely

  • Mark Shinnick

    Its been a good BTFD exercise with good breadth, and some more inverse equity index downside yet to go. I really don’t care about catching any longside within this particular context.

  • bravenewworld2011

    2454 volume hole was a barrier. I like these setups, seems like they are always gap and go or big breakdown. Never really fucks around.

  • Mark Shinnick

    Yes, very time efficient :)

  • https://scottphillipstrading.com/trade-setup Scott Phillips

    Bobby, I do some pairs trading with Ernie Chan in my 401K. It’s a high sharpe ratio, but problematical strategy which tends to make smooth steady gains and then have tail risk fuckyoudays.

    For example a few months ago it posted 28 consecutive days of gains, then in a single day blew all that up.

    Generally these strats don’t use stops. The rationale is that if you are expecting trend continuation that’s only going to work 40% of the time, so it makes sense to have a stop if you are wrong. The counter idea is that if you are expecting mean reversion at 2 standard deviations, if price moves even further away from you to 3 standard deviations, you should be expecting even more mean reversion.

    You can see his stats here http://www.qtscm.com/accounts/

  • Ronebadger

    At today’s practice round for this week’s Northern Trust Tournament. Signatures on hat: Rory, Phil, Jason Day and two Johnsons – Dustin and Zach. I shuttled the pros between the clubhouse and the driving range. Phil sat behind me and Rory sat next to me, twice. https://uploads.disquscdn.com/images/f9ceab844a59637f9aa60957b7e45f489dfea02788fa45753d165baaa4990681.jpg https://uploads.disquscdn.com/images/e4315dd66716a48273118d4206e2dafa020128eeba8e23dacae1df470a4b45ca.jpg https://uploads.disquscdn.com/images/b1d2b0b3d464fe80f81dd6f858b9adbadbbd6ea918769d01c03950022d3e43a1.jpg

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • https://scottphillipstrading.com/trade-setup Scott Phillips

    As Mole will tell you, this depends on a particular statistical relationship existing between two pairs with a mathematical test. These relationships can’t be guessed off charts, or assumed. For example USDCAD and USDMXN are suitable right now. And that can change anytime.

    When you test most of the potential pairs trades, they test out as “geometric brownian motion” a fancy word for nearly random.

  • Ronebadger