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Drip Drip Splash!
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Drip Drip Splash!

by The MoleOctober 8, 2013

Shit just got real on the equities side – quite a bit of downside acceleration today despite various calls for an imminent bounce (you know who you are). See guys – that’s why I stay out of the prediction business. A sudden bout of chronic leptokurtosis can really blow your pretty little charts into pieces. And we haven’t seen nothing yet – if I may say so. This is but a teeny weeny pimple on our ass – just wait for those clowns in Washington to introduce us to the joys of a bonafide bond market default. Yes, the odds for that to play our are minuscule but heck – they may just be dumb enough to pull it off. After all, they’ve gotten away with playing brinksmanship so many times before.

Anyway, you may recall the mantra I have been repeating all week now: We’re painting lower highs and lower lows – until that changes there’s nothing to hang our hats on. If you’re short you stay short and if you’re out you stay out. Now today we are looking at possible support but I’m not so certain that it’s going to be as procedural as some may expect after five years of bullish bliss. Anyway, for the record there’s the 100-day SMA which the S&P 500 cash touched briefly today – on the weekly we’ve got the 25 which hails a few handles lower at 1655. Should those two go – well, then it’s anyone guess.

My P&F is pointing at the 1625 mark and as you know I rarely question those as they’ve treated us very well in the past. However, IMO all bets are off in this environment – a sudden slide could happen and there are practically no bears around to take profit on the way down. Ponder about that for a second and position yourself accordingly. Yes, I know what your thinking – ‘out of the money puts’. Sure, maybe worth a lottery ticket or two but be aware that (as with most OTM options or the lottery for that matter) the odds strongly favor expiration on worth-nothin’ mountain.

The VXV:VIX ratio is dropping into reversal territory – however in the past we usually saw a signal divergence before the SPX responded to the upside. Again, don’t expect things to play out linear – over the past few years the marines usually managed to pull the cart out of the mud at the last moment, but things are so screwed up out there right now that I would not want to make any big bets on the equities side.

I know it’s very tempting to call for a bottom here but whatever you do – don’t go long vega here as we’re scraping the 20 mark. Not that we couldn’t see 25 by tomorrow – but if Congress finally gets the message and equities suddenly shoot higher then you’re going to experience vega crush par excellence. Which will turn both your puts and your calls into Monopoly money. Be smart – shop Evil-mart – okay?

Quick update on yesterday’s NG setup – which nobody probably took as most of you guys were too captivated watching the gyrations on the equities side. Well, we got our long entry and the only hurdle in the way of a nice squeeze higher is that 25-week SMA. This will probably be the spot where this trade either falls apart or takes off like gangbusters. I put my stop below that NLBL and am eagerly awaiting resolution.

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.

Cheers,


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.
  • http://thebhbgroup.com TheBHBgroup

    That is why i am sticking with futures to play this out…after hours can be dangerous if in options.

  • http://evilspeculator.com molecool

    Yuppers – many reasons. As I said – nothing wrong with a lottery ticket or two but odds are they’ll expire worthless.

  • Fearless

    Yeah, a bond market default would warm my heart. That being said, the best scenario long time bears should hope for is a slow but steady bleeding without large range moves. Like I mentioned a few days ago, the entire 2000-2002 bear market did not register one volatility spike on the weekly scale, neither did the entire secular bear market of 1965-1974.

    Based on what I am seeing currently, my assessment is that the bull market was possibly over. Even if we bounce now the technical damage is pretty difficult to repair. All the bears need to do is to ensure both DJIA 14198 and SPX 1576 are taken out convincingly AND ensure no new highs are made. I got out of my long term long holds at and right after the Fed ‘no-taper’ spike, so damn lucky. Time will tell if I repeated the performance of getting out of shorts near the DJIA 6470 bottom.

  • ridingwaves

    almost seems that you can play short until the 11th-14th and the JPM reports along with some other big names, first big component Alcoa is no longer in the dow…so fresh meat needed

  • Skynard

    RutRoo:)

  • SS_JJ

    I <3 the drama. More please.

  • SS_JJ

    Waiting for that positive div on hourly zl and capitulation numbers on tick before getting out of position

  • ridingwaves

    the bammer keeps talking and the market is going to crash…
    when you have nothing to say, be silent..

  • Skynard

    No, keep that loud mouth going:)

  • SS_JJ

    hehehe…

  • http://evilspeculator.com molecool

    Both sides have maneuvered themselves into a corner. There are no winners and only losers here. If they extend the debt limit and suspend the shutdown then it’s fiat erosion as usual and long term we all lose. If they don’t then we’ll face a bond market default. Either way we lose – I’ve said to you guys for years now that the jig is up. There is no scenario in which we walk away clean.

    So forget about Obama or the GOP – they are just pawns in an international game. You are not seeing the forest for the trees. Do not get sucked into the daily brainwash.

  • Skynard

    Lol, not even paying attention to those muppets. Just had some time to watch my account grow:)

  • Ronebadger

    They always go to the brink, waiting for the first guy to blink. Then they vote for an emergency spending bill, covering the next month or two. THEN, they “start” talking, as they have no choice…you end up with some watered down BS that just kicks the can down …. need I go on?

  • SS_JJ

    They’ll do whatever suits Wall Street best at the end. Always did and always will. Come thinking of it the dollar devaluation is actually a good long-term thing for America. US workers ain’t competitive price wise and innovation is on the back burner since credit froze. America needs to bring back manufacturing jobs for those that are not so qualified.

  • ridingwaves

    my bad….this kabuki theatre is unreal..I’m writing in the MoM party on next vote, they can budget, stop fights, whack you on the ass when you get out of hand, clean house, run a business, organize, plan…518 mom’s would work better as peak stupidity in govt. has wrecked Americans more than peak oil

  • Skynard

    Welcome backs bears:)

  • SS_JJ
  • ridingwaves

    Vix was .80 higher when spx here earlier…hmmmm

  • Ronebadger

    Question: I’ve been watching lately, the Detrended Price Oscillator (21) in the 5min time frame…looking for divergences, to see if the are worthy to play. Anyone have and experience/opinion with DPO? I know, I know, just like any other oscillator, like STO, etc.

  • http://dartht.blogspot.com/ Heisen_Gerb

    yo, markets closing bitch.
    (was at a conference all morning, will check all the comments later).

  • http://evilspeculator.com molecool

    Come on – who are you kidding – you’re were cooking crack again.

  • http://ibergamot.blogspot.com/ i Bergamot

    You guys are forgetting the most reasonable option:
    This was the plan all along!
    Why not?;)

  • convictscott

    Where is that Penn asshat – shame I banned him 😉

  • newbfxtrader

    Uh I thought 1705 or something was a guarantee! He promised.

  • Ronebadger

    I miss him too…I thought he was good fodder for the bears…err, bulls…uhhh, not sure

  • SS_JJ

    absolutely agreed

  • http://evilspeculator.com molecool

    I heard that he’s trolling on other blogs pretending to be Fearless.

  • bullregard

    Anyone else seeing TOS slowness after the last update?

  • ridingwaves

    I’ve had a long vix long bio play going for about 7 days, today my bio plays all hit trailing stops..that pf chart target mole posted seems like a good place to get out of vix L

  • AmazingLarry

    Thanks, it’s great to be here. 😀

  • Guest

    Cripes, I take a late summer vaca and Gerb has morphed into from rat to a freshly diseased blue-ice-cooking whack-a-mod!? Eeeek.

    Is it safe to return, Mommy?

  • AmazingLarry

    Cripes, I take a late summer vaca and Gerb has morphed from a rat to a freshly diseased blue-ice-cooking whack-a-mod!? Eeeek.

    Is it safe to return, Mommy?

  • convictscott

    It is a philosophical question. What is an oscillator? It is a derivative of price that paints a low when lots of bars are choppy and overlapping while we are going down, ie we are going down in a choppy fashion. Typically, depending on calculation, they paint a high when we are going up in a strong fashion. They paint divergences when we go up in a choppy fashion, which sometimes can be topping price action, and sometimes can be working off overbought momo before a vertical ascent.

    By definition is is not possible to tell the difference between these two very difference scenarios with your oscillator, but when you look at the price action it is generally obvious if we are painting divergences that are topping action or just a pause before another leg. In other words, you have to apply your brain to it anyway. Given that you have to actually look and make a judgement on the price action, it is generally much simpler to train yourself to recognize the price action which would paint a divergence.

  • amokta

    Spx down 30 handles in 2 days
    The bear eats while Washington sleeps?

  • http://dartht.blogspot.com/ Heisen_Gerb
  • SS_JJ
  • ridingwaves

    watch out it looks like their pulling out the Yellen vixanator move tomorrow…

  • newbfxtrader

    https://www.tradingview.com/x/oaUyTrJq/

    Peter Levchenko you can try a shot at this one. usd/jpy not there yet.

  • Skynard

    /ES completed back test, you can fire:)

  • SS_JJ

    good for PMs 😉

  • Skynard
  • phylum

    “hi, we’re from the government, we’ve come to help you” ….duh:)

  • http://dartht.blogspot.com/ Heisen_Gerb

    given the hernia of today..
    if the appendage falls out of the chem suit, can it get back in again?

    http://s14.postimg.org/sgu3omn5t/Oct08.png

  • phylum

    Yen X’s at an interesting juncture (as he rubs his crystal ball …. shit it’s ….. oh, never mind)

  • Sean

    Looks like tomorrow should be fun… the bulls better hope Yellen’s nomination is enough to get them across that mine field, otherwise it looks like a long ways down from here… in chart below, hourly/daily/weekly ma’s & 25/50/100 are red/green/blue respectively.. gray/yellow is from the volume profile…

    Took a small spec short after the 100h retest (thanks Skynard)… stops are tight, so low risk, and still expect a lower low from today to create a positive divergence before a move up near-term… but we shall see.

  • Peter Levchenko

    hey. Ive taken off most of the remainder of my USDJPY long at 97.45 just now. This was the opening level for the week and abit of resistance here 97.50. I am running a very small position with 97.20 stop just in case we get brutal short covering rally through 97.50 today.
    Re US shutdown and default, I still remain adamant that firstly the fact people are even debating a US default shows complete misunderstanding of how much of a cataclysmic event a US default would be. I mean a full-blown default, not some sort of technical default on a small issue. I mean if teh US actually defaults, your biggest worry should not be whether you have sold the spoos with your broker, put it that way… The chance of that happening is 0.000000000000000000000000000000000000000000000000000000000000000000001. Whilst politicians supposedlty cant agree on anything right now, do nnot fall into the mass opinion of confusing that with them being morons. They are not, they are just playing scummy political games as they always have using the country’s debt ceiling as a bargaining chip in negotiations. eventually even if they do not agree on the obamacare, they will sign some sort of extension to the debt ceiling, or something because clearly the government being closed for a PROTRACTED period of time is NOT in interests of democrats or republicans. Perhaps the newsflow gets worse from here before it gets better, but in FX land there will be an opportunity to get long USD before this is over…and tbh the way it is finding support so far vs CHF, JPY, EUR, GBP is encouraging.

  • Peter Levchenko

    re GBPJPY. I believe one’s focus should always be aligned with the theme that the market is trading. The market is trading the USD as a theme right now, so trading GBPJPY just seems suboptimal to me.. .In reality USDJPY and GBPUSD are moving opposite ways right nows, because the market is trading the dollar broadly vs everything. and Sterling is taking a backseat as a theme this week so far… I like USDJPY higher, and I think GBPUSD will look to base 1.6005-1.5950… (or it should find support there at least, otherwise it smells), but I rarely trade GBPJPY directly on its own.

  • Peter Levchenko

    re GBPJPY. I believe one’s focus should always be aligned with the theme that the market is trading. The market is trading the USD as a theme right now, so trading GBPJPY just seems suboptimal to me.. .In reality USDJPY and GBPUSD are moving opposite ways right nows, because the market is trading the dollar broadly vs everything. and Sterling is taking a backseat as a theme this week so far… I like USDJPY higher, and I think GBPUSD will look to base 1.6005-1.5950… (or it should find support there at least, otherwise it smells), but I rarely trade GBPJPY directly on its own.

  • phylum

    R.I.P. Chopper ….

  • Dyellowflash

    Hi Mole, can you update the daily zl, thanks!

  • convictscott
  • http://evilspeculator.com molecool

    Damn it – after all he’s been through it’s the cancer that gets him. Even as a baby he looked like a tough bastard:

    http://resources1.news.com.au/images/2013/10/09/1226735/629849-d3c45962-30a5-11e3-b7cb-d59f86ac4a97.jpg

  • yades

    guys, is anybody using NinjaTrader7 connected to Interactive Brokers to run algos? I am using a 3rd party software called TWSStart to avoid loosing connection during the week. However I noticed: (1) that every day at 10pm GMT connection is lost for 5-10 minutes (2) every Thursday around 3pm GMT connection drops, and a reboot of NT7 and IB TWS is neeeded.

    I would like to know if:

    a) anybody experienced these issues and found a solution to stable/continuos connection throughout the week?
    b) IBController is any better than TWSStart?
    c) it would be best to connect to IB via Gateway for a more stable connection?

    btw I am running all this on win7, thanks for your feedback!

  • Fearless

    We are in uncharted territory as the DJIA stayed entirely below the acceleration line for 12 consecutive sessions as of yesterday’s close. Historical data dating back to 1928 showed that no such instances occurred prior to yesterday. To poke above the acceleration line today, the DJIA will need to put in a high above 14960. That would be one heck of a short squeeze. Based on successful ‘sandwich’ trend trading setups in the past, I am thinking the DJIA will attempt to make it to the 20 DMA (which coincides with the 80 DMA by the time it’s hit) at approximately 15200 – 15250. That’s when the polar bear will put on a short again and ride it until stopped out (or at Bollinger band snap back setup that I covered in my trend trading post in 2011). On the other hand, if the market decides to continue sliding here, I still have a short (10% of original size) running since the sandwich setup on September 27. Continue sliding however should be a low probability as we had DEFCON #3 yesterday in 4 days.

  • http://evilspeculator.com molecool

    Yes, we are doing just that and after trying TWSStart are using the Gateway.

    1) Download and install TWSStart (http://twsstart.free.fr/)
    2) In Ninjatrader set up a new connection called IB-Gateway. Use Interactive Brokers as Provider. Set the port to 4001 and use client id 1.
    3) In TWSStart go to “Startup Settings”. Use “SDH Alternate 1” as data handling method and type in your user name and password.
    4) In TWSStart go to “Monitor Settings”. Enable “Monitor Connection”. Host 127.0.0.1 , Port 4001, Client ID 123 (or any other than the one you use in your NT connection)
    5) In TWSStart go to “Java Settings”. Enable “Start IB Gateway”.
    6) In TWSStart go to “External Programs”. Configure the start of “IBGW4NT7.exe” from your TWSStart folder.You find the file in the TWSStart folder you created in step 1.
    7) Go to “Load TWS” in TWSStart and click on “Run”.
    8) Start NinjaTrader and connect to “IB Gateway”.

  • Sean

    Maybe, but the other indices look like they have more to give (the spoos below are dutifully obeying the 25h and 100d ma’s) and maybe the DJIA can/will take more of a beating because of its small number and type of constituents… like you though I have a small short and no longs at this point and waiting for better entries.

  • Skynard

    Market a Yellen:)