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More Fuel To The Fire
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More Fuel To The Fire

by The MoleAugust 31, 2016

Today’s the last session of August and the expected EOM candle wrangling will obviously add even more fuel to the already explosive cocktail of intra-day volatility we had to up with all summer. Part of what transformed me into the humble host of this evil den of market domination is my passion for technical analysis, my quest to recognize and act upon the most probable scenarios, and last but not least my ability of aiding my audience in maintaining an edge on a long term basis. This blog thrives if you do and you are only as good as your last trade. However keep in mind that ‘being good’ in trading does not always mean winning. Sometimes it just means surviving the storm.

2016-08-31_spoos_ST

There is not much I should add to yesterday’s post really. It’s my pleasure to keep you guys entertained but my primary mission is to keep you guys out of harm’s way. And harm in the financial arena comes most often in the form of volatility. It’s the big quick moves that get ya – and on the other side of the spectrum the very slow but grinding ones. We as human beings seem to be ill equipped to deal with either.

On the high volatility side that’s rather obvious. Just look at the hourly panel I posted above and compare it with the featured image. How do you trade something like that? We as retail traders can’t possibly be as responsive as an HFT system located mere miles away from the exchange. By the time we are aware that a market slide (or an explosion higher) is in process most of the damage has already been done. Plus of course spreads widen considerably and often double already painful losses. I think last Friday was only a small taste of what is to come.

Very slow gradual changes are also very difficult for human beings to perceive and thus often render us incapable of responding to. This is due to host of cognitive biases most of us seem to be predisposed to. I have written rather extensively on this subject in the past and some of those posts are well worth a revisit.

Right now we seem be dealing with a mix of the two. On the slow end we all have become boiling frogs immersed in a sea of intra-day volatility. Which has rendered us incapable of reading the tape due to lack of context and thus has produced a bit of an information vacuum. Some of us have chased the tiger’s tail for weeks on end, resulting in a gradual but steady depleting of trading assets. Others (the clever ones in my book) have simply stood aside and let things play out until we once again gain the benefits of sufficient technical context. Collectively we have been relegated to a drawn-out waiting game, thus testing our resolve. Over time this establishes detrimental mental patterns and habits – we always expect to see more of what we have been getting (i.e. earthquakes, rain, drought, bull/bear markets, etc.). So given a flat summer we continue to wait for Godot who of course never arrives. Or by the time you realize he’s arrived he’s already long gone.

On the short term side it’s been either extremely painful or pure manna from heaven depending who you ask. Swing traders love this type of tape and they thrive in it. Mean reversion is the name of their game and we’ve had plenty of that. It’s really not my cup of tea but I do take notice and have attempted to put everything into context so that we don’t fall prey to not seeing the forest for all the trees. My main motivation has been to identify market characteristics and meta data such volatility, breadth, momentum, velocity, market sentiment, inter-market correlation, etc. and compare with historical precedence. Unfortunately given the rather unprecedented market conditions as a result of a global experiment in quantitative easing comparing what is happening is rather difficult. So let’s focus on what we know and what we can control right now:

  • On a long term basis breadth, momentum, and in particular volatility patterns suggest that we are in the final throes of the current bull market.
  • On a medium term basis I am not yet seeing clear signs of a reversal lurking behind the horizon. For more details and then some please consult last Monday’s momo update. A blow off top would actually be more productive from a technical perspective but we may not get one. What irks me however is that things can turn on a dime rather quickly in late phases of long term trends. We need to be prepared to possibly miss out on the first leg down. Once again – betting on tops and bottoms is for fools and financial academics – I’m not sure which one is worse.
  • On a short term basis (i.e. campaigns lasting hours until a day or two) participation across the board has become extremely challenging, and that its putting it mildly. I do not recommend pertinent exposure unless you really know what you are doing.
  • The current sideways range is not produced by a tug-o-war between bulls and bears. Bull markets are never killed by the hands of bears, rather they are the result of a lack of buyers. Early stage bears are nothing but bulls who have turned into cannibals out of fear to be eaten themselves.
  • A big move is coming – if it is to the upside it will most likely be remembered as the final exhaustion spike up. If it goes the other way some intrepid wave counters will later argue how it was clearly the first leg of an unfolding bear market.
  • At the danger of repeating myself: Timing a long term reversal is almost impossible. Few human beings operate on a very long term basis and are good at making pertinent trading decisions. The same applies to the very short term by the way. We operate best somewhere in between.
  • Thus I recommend that we follow the short term panels into the medium term ones and those into the long term ones. My long standing policy of turning hourly campaigns into daily ones will be even more essential going forward.
  • The issue we are currently facing of course is a lack of context, So let’s wait for context. Seasonally speaking we should be heading into more productive territory. Patience is called a virtue for a reason.
  • Going forward it will be crucial for us to adjust our trading activities to ever more volatile conditions. Which at minimum means (much) wider stops and smaller position sizes. I know this is not what you are hoping to hear as you are motivated by outlier gains. My point is that outlier losses should be your primary concern.
  • Volatility is a bit like the truth. Everyone keeps asking for it but few are able to handle it. Yes, that includes, you, you, and yours truly.
  • Going forward doing what seems or feels right is most likely going to be wrong. The crowd is only right during cyclical bull markets. The trick is traversing late stage bull markets and early stage corrective markets lies in taking a series of small uncomfortable risks. You may get lucky but most likely you will not.

I did a pretty fair job guiding you guys through the last bear market and I will do my best to help you navigate whatever they throw at us in the months and years to come. For now I caution you to control your bearish enthusiasm and instead focus on daily operations. Learn to control your emotions and focus less on the quantitative aspects of trading, instead focus on the qualitative ones instead.

Finally, and I have rarely ask for this over the past eight years: Support this blog in whatever fashion possible. Community and daily collaboration will be extremely valuable going forward. Even more important will be psychological support which is the most neglected aspect of trading. If we think we are prepared for what is coming then we are fooling ourselves (and that includes me). There is strength in numbers. And sometimes you just want to be able to let off some steam. Trading in isolation runs the danger of feeding your own echo chamber.

I could go on but you probably get the idea.


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.
  • evilasevildoes

    nice post mole

  • Mark Shinnick

    Whew…so true about slow gradual change / cognitive bias.

  • Yoda

    Started a long position in GDXJ. Playing a bounce at 100 d sma.
    http://stockcharts.com/h-sc/ui?s=GDXJ&p=D&b=6&g=0&id=p33906800899

  • kudra

    You liking gold yet, Mole?

  • Mark Shinnick

    Ok, I reentered short, watch out for DX which is driving the bus at the moment; near expected resistance.

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

    Quality Post.

    signed, long LONG time follower.
    -GG

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

    what *is* it about the junior miners? some kind of sickness?!
    😉

    it worth a bounce shot. nothing more.
    [GDXJ]
    http://stockcharts.com/h-sc/ui?s=GDXJ&p=D&yr=1&mn=0&dy=0&id=p78587550768

    EDIT: that blue line support in June will be overhead ceiling now. $3 pop on a $40 stock while trending downhill? good luck.

  • Yoda

    It’s worth a try.

  • Yoda

    Absolutely. For me, it’s a reminder of where I got it wrong.

  • Edd

    Ha! Wasnt it Yoda who said “no try, do or dont do”
    I will join you in NUGT at 19.52 MOC if we get there.

  • http://www.linkedin.com/in/sharondsessions/ Sharon

    Thank You very much. Always, good to have insightful memory joggers. And, I certainly agree that trading or just watching the market roll by, is really wonderful perched right here. I personally most hardily recommend the Evil Speculator – Daily Chuckle. It has assisted me to remain as sane as possible these last few months of chaos in my life. You are all and each one of you very special.

  • http://evilspeculator.com Sir Mole III

    He got you there!

  • http://evilspeculator.com Sir Mole III

    Glad to hear you got your situation sorted. As they say here in Spain: poco a poco… 😉

  • http://www.linkedin.com/in/sharondsessions/ Sharon

    Yes, got my lease renewal choices from the apartment office. Rent only went up by $20 per month on a 12 month lease. Will be signing a 12 month lease as soon as it is available. Life is Good.

    Happy to be an Evil Speculator participant. Looking forward to a very long and prosperous adventure here. 😉

  • Tomcat

    I think it will be more along the lines of 10-15% move in either direction by the sep meeting FED meeting, but that’s just my two cents. My bet would be higher because I only see one hike this year, in Dec.

  • CandleStickEmUpper

    great post Mole

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

    I’ll be watching my model.

    http://stockcharts.com/h-sc/ui?s=%24BPGDM&p=W&yr=5&mn=0&dy=0&id=p17713748407

    If the 55 level holds, another bull move is in store. at least a bounce.
    -GG

  • Yoda

    Could it be that we got a double bottom on the 5 min spoos?

  • Yoda

    no.

  • captainboom

    $20/month = $240/yr What percent increase was that? Pretty common to see at least a 1 – 3% increase in rents per year, if the property is actively managed. Depends on how hot the market is as well.

  • captainboom

    Found myself thinking about BobbyLow/Time Bandit yesterday. He still around? I’ve been out of commission most of the summer doing ‘real’ work. Almost back in the saddle.

  • Ronebadger

    Trading Mom? Fearless? Volar? (Springheel Jack has his own site now)

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

    There’s was a parting of ways.
    I won’t analyze it, or put it in context. I’ll just hand you the last known link.

    https://disqus.com/home/discussion/evilspeculator/do_nothing/#comment-2785274630

  • Mark Shinnick

    There is no fucking way this is not at times a mentally stressful occupation. All the personal fundamentals need to kept in-place to survive the gauntlet.

  • http://evilspeculator.com Sir Mole III

    If they believe they are better off on their own instead of dealing with some occasional criticism (whether or not it was perceived as being fair) then that’s their choice. We always have to be careful that this place doesn’t turn into its own echo chamber. I have been repeating this for years: The failure rate among retail traders is huge – we are talking far in the 90th percentile. This isn’t a game – this is war. We often need to challenge each other and if you’ve got a thin skin then you probably do not have the psychological make up to be a trader. Most importantly – seniority here does not give you a shield against criticism. You guys are free to tell me that I am full of shit if you can back up that opinion with some actual evidence. If you do then I’ll be the first one to agree.

    With that said – BobbyLow was a very talented trader and valued contributor. We lost a good one there and I regret seeing him leave. However I would tell him the very same thing today should I find myself in that situation. Finally this: A many trading blogs have come and gone over the years – Evil Speculator is still standing. We have made it through quite a bit of financial history and I believe we have made our mark. I’m convinced that many of us are better traders today because of this place which is the main reason I continue to keep it going.

    As you can imagine it has at times been extremely frustrating and discouraging – we’ve had our ups and downs. But nobody cares about how I feel or if I’m in the mood for a post – everyone expects me to keep things running and I have embraced that as my responsibility. In closing I would however ask everyone to do their utmost to spread the word and make this place a positive exchange of knowledge and ideas. There aren’t many places like this left and once it’s gone it will be gone forever. If you like it here then this should be your incentive to drop by and participate. The more you put in the more you probably get out of it.

    If nothing else – do it for the GoldGerb. He practically lives in the lair and we don’t want to see him roaming the streets in rags rambling about Fibonacci retracements.

  • http://evilspeculator.com Sir Mole III

    Trading mom I’m sure will be back… she may just take the summer off.

  • captainboom

    Ouch. Thanks for the update. There have been many times where I wanted to post, or started one, where I’ve then pulled the plug before posting. It’s so easy to be misunderstood in the comment section of a blog.

    I try to keep Carl Sagan’s words in mind… Worth reading if you are not familiar with it.

    https://en.wikipedia.org/wiki/Pale_Blue_Dot#Reflections_by_Sagan

  • http://www.linkedin.com/in/sharondsessions/ Sharon

    Got it – another famous – Daily Chuckle

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

    ROFL.

  • http://www.linkedin.com/in/sharondsessions/ Sharon

    2.291% from 873 to 893

  • ridingwaves

    that Gold Gerb is known as a Fibber? Damn it Man
    https://www.youtube.com/watch?v=izGZenABw84

  • almez

    TLT is up, GLD is sideways, SLV is doing alright, UUP is down…so time to go to GDX? (TLT moving up means bond yields moving down, so more monetization)

  • Billabong

    A very timely post going into the US Labor Day weekend. I’m almost surprised there isn’t a positive market bias going into the weekend. There is also the NFP release on Friday.

    Your post lays out a clear game plan that’s easy to follow. I’m guilty of (“Some of us have chased the tiger’s tail for weeks on end, resulting in a gradual but steady depleting of trading assets.”) taking set-ups to only see them fail time after time for the last two months. Fortunately, the positions were manageable (as soon as the tide turns cut your losses and keep them small). The NYSE Summation Index has been deteriorating for weeks and the BPI had 9/12 sectors above 80% a few weeks ago and now only 6. There are a lot of divergent indicators and warnings out there but not a steady red light.

    As your post discussed the psychological issue, it may be time for refresher training and for your newer members an opportunity to read a few of the great books on trading psychology by Alexander Elders, Mark Douglas, Brett Steenbarger, and Curtis Faith to name a few…

  • Billabong

    Follow-up. A few days ago I discussed follow-through or running away to trade another day. I ran away…

  • Billabong

    USD/JPY is one of the drivers…. As weird as it sounds, /SI is being driven by /HG. Strengthen/weakening $$$ is currently the key…

  • almez

    Ah, so USD/JPY strengthening (dollar strong) is driving some of the metal selling today?

  • Tomcat

    Continuing on my bearish thesis on $NG for any attempt to close on the $3 mark. If that level is breached, all bets are off. Bulls continue to rely on potential hurricanes and “colder” winter forecasts.

  • ridingwaves

    u know it’s not a bad gamble, I had been looking at those 1309 tails for over a month, posted chart from last month, the dollar is running into resistance at 96.50…gold bounced off 1308.75 pretty good…the only kink is the 1295 thought and big boys are coming back from the Hamptons next week..might be best to sit on hands for me until we see there money is going..

    ridingwaves 7 days ago
    The smack down on gold was so televised even I saw it coming, a no good surfer/software folk from that wacky state called crazyfornia……I do have to boast that lately my market lens has been near perfect…
    Where you going Mole? that beach looks good? Enjoy your vacation! you earn it and more….
    I think the precious has first test at 1309 on the 2 long tails via weekly…after that, a scare the bugs to 1295 to stop run them wouldn’t surprise me at all…

    https://s31.postimg.io/pz98ppaa3/gold_pullback.jpg

  • Tomcat

    I like your blue line

  • ridingwaves

    G-20 meeting Sunday thru Tuesday….

    taking rest of week off…cheers and enjoy the long weekend all…

  • almez

    Currently the forecast is for warmer temperatures into october. Does this mean that weather is more mild? This is still bearish for NG

  • http://evilspeculator.com Sir Mole III

    Nice Mole signals today 🙂

  • http://evilspeculator.com Sir Mole III

    Oh yeah – the long weekend. Totally forgot. Mmmh – I’ll probably do a short one tomorrow but take Friday off.

  • Ronebadger

    bit of a divergence last 2:30 to 4PM

  • Mattia Cattani

    I’m new in this blog and as a trader I guess still in the 90th percentile… Still a lot to study and I hope I will never stop! Maybe one user less, but sure one’s new..
    Nice Job Mole!

  • http://evilspeculator.com Sir Mole III

    Welcome Mattia – don’t be shy and participate. The alternative is spending money on books and expensive seminars and you can guess how that usually ends up. Trading is an acquired skill similar to that of playing the piano. There is a lot more to being a trader than learning how to read a chart, just as learning how to read musical notes doesn’t turn you into Glenn Gould.

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

    Welcome.

    There are no shortcuts and
    Watch your emotions, they can be a sign of overtrading.
    http://blog.ydp.eu/binary/vapofopipi/pic814082.jpg

  • Tomcat

    A couple of thoughts this fine morning:
    1. As much as I like the gold setup, I hate that too many traders (TV pundits, etc) like it too. In my experience that doesn’t usually result in a winning trade.
    2. As good as I think I am defining my entry points, I am just as horrible with my exists and even more horrible with keeping losers. I have gotten better through the years, but vast improvements are still needed. In this case I was referring to my short $CL. The saying goes that no-one has gotten hurt by taking profits, but if you are taking profits too early and keeping your losers longer, that is not a recipe for success.

  • Tomcat
  • Ronebadger

    Pretty decent trendlines on 1hour ES

  • Ronebadger

    Uh- huh…

  • Tomcat

    So that last night, hillarious

  • OJuice

    High yield moving this morning. Might be leading the indices to a break of their range as well.

    Edit: still in my long from the 26th. But fully expecting to be stopped out.

  • Mark Shinnick

    You are at the right place. What faces you is the learning and conditioning of your nervous system with a relatively simple set of tools only you can discover and develop by which you perceive and act upon market reality. However, its the mental/emotional status that governs all of that basework which ultimately predicts for your survival, and awareness / protection. That is what I find we are often looking for around here between the lines to help each other out.

  • kudra

    GDX is running higher. Strong bounce.

  • ridingwaves

    I know, I’m supposed to be enjoying the sun, nectar babes and beer but I love this place plus my wife isn’t ready to go anywhere yet..

    the NFP print might be light tomorrow thus gold bounce…if it comes in far below forecasts, no rate raise until December….last big data point for the fed sith overlords

  • ridingwaves

    spx 2160 breaking here so maybe 2145 will come fast and furious

  • Mark Shinnick
  • Mark Shinnick

    “Speculative bets that the Dow will run higher from here are at a record high.”
    http://www.businessinsider.com/speculative-long-bets-on-the-dow-spike-2016-8

  • ridingwaves

    2158-60 is like a labor day fence..
    back to vacation…