Inflicting Maximum Pain
So I found myself staring at the E-Mini charts for quite a while this morning. Usually I am pretty snappy when it comes to sorting through the dos and duds of the day – on average I spent in between 2 to 5 seconds on a particular chart. If it doesn’t speak to me right away – meaning if my brain doesn’t pick up sufficient context within that time frame I simply discard it and move on. It’s a daily procedure that has served me pretty well over the years.
My approach is not accidental, in fact I consciously do not want to spend too much time looking at a particular chart, for I am keenly aware of the fact that the human brain has a tendency to see what it wants to see. But sometimes there are those days when I just get stuck staring – because I’m seeing something but simply can’t figure out what exactly I am seeing. I’m sure you’ve all been there – you run into this formation that just looks so juicy, ripe for the picking. But deep down inside you know that it’s just too good to be true.
Back in my old wave wanking days I would have labeled the current formation a 1-2 pattern followed by a third wave lower but allowing for the possibility of a simple zig-zag correction. You know – Soylent Green and Red and such. However since then I’ve learned that any chart I post here is completely useless unless it is ACTIONABLE or at least suggests that action should NOT be taken at the current time. In other words – tell me something I can use to place a trade in the near future – or at least tell me that it’s time to wait. Otherwise tell me nothing.
If you’re a sub and caught up with yesterday’s afternoon update then you’ve got a pretty good idea of where I think we are heading on the equities side. And today’s morning tape only serves to drive this point home: We are clearly in a limbo period which will most likely be resolved quickly and violently before the week is over, early next week at the latest. In the meantime the modus operandi is to draw in as many directional players as possible and to inflict the maximum amount of pain.
Given Draghi’s big day in the sun tomorrow my expectation is that the current sideways churn between 2000 and 2025 will continue. Some say the ECB’s QE plans are already priced in but people say a lot of things and a vast majority winds up to being useless for trading purposes. What I do know right now is that my NQ short campaign has magically survived the recent hike higher by a few ticks – it’s possible it’ll survive until tomorrow but frankly I think the odds of that are pretty low.
What I do believe will happen is another rip higher to stop out any remaining shorts. Why? Because there is little reason for resolution today and the conditions here are perfect for punishment. If by any chance the ES breaches 2060 then the bulls may get the chance to close January in positive territory. But given what I have presented yesterday there’s a pretty solid chance we fall hard before there, at minimum retesting the recent lows and probably continuing lower. This market is standing on very wobbly legs right now and the conditions are ripe for a major correction. This view would be revised if we breach 2060.
What that means for you right now is to do nothing. If you are a Thor sub and are still in the NQ campaign then don’t touch it – our stop is at break/even and given the current tape we are perfectly positioned. You can perhaps grab a ST long position near the 100-hour SMA on the E-Mini (i.e. near 2000) – this may be a good play today with a stop below the 2k mark. But I caution you from getting caught in the swings -just look at the Zero signal yesterday, there was barely any participation. Which means perfect conditions for tape banging and running of clusters of stops.
For what it’s worth: I’m keenly aware of this moment in time and the opportunity that may be at hand. Evil Speculator was founded in the midst of a financial crisis in August of 2008. Back then much of my initial reputation was earned by posting then rather unpopular bearish charts on the Slope and then here, which in the end turned out to come true. In retrospect much of that reputation was earned through pure luck and I spent the following six years earning it through hard work and questioning everything I thought I knew. So be assured that I don’t take making this call lightly. Suggesting major turning points is always tantamount to a rope walk, especially during limbo periods like these. You know that you’re sailing in dangerous waters but at the same time you also know big moves are coming and your motivation is to keep your readers from drowning at minimum and help them bank coin if somehow possible.
Bottom Line: 2060 is the bear’s line in the sand – above it the current attempt to correct will go up in smoke. Anything below 2060 and above 2000 should be considered limbo tape and I don’t recommend you pick sides. If you can get positioned short near (and below) the 2060 mark then you have decent odds opportunity for a rather substantial pay-off. However above 2060 the bulls again run the tape and we are most likely seeing new highs in the coming weeks. Below 2000 the bears run the tape again and below 1960 we are looking at least at a medium term correction. So that’s my Soylent Green/Red verdict with hopefully a bit more actionable context.
Let me be clear – grabbing longs or shorts in between 2020 and 2050 will most likely lead you to getting shaken out today/tomorrow unless you get very lucky.
The only short term setup I like this morning is wheat. Looking like it wants to finally paint a floor and I would be long above the Net-Line Buy Level at 543.5. My stop would be below 539 – I’ll only deploy 1/2R here as it’s an early formation without re-tests or major context.
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