Non-Manufacturing Mayhem

There was a reason I suggested OTM puts yesterday and it was among other reasons for the eventuality that another sugar coated non-manufacturing employment report would gap this turd into oblivion. Unfortunately there are forces at work here (i.e. politics in an election year) capable of stomping even the highest probability setup.

Scotty just buzzed me from down below and warned me that she’s running at fumes at this point. Now to some people this would look like a very bearish chart and I have to concede that I would usually count myself in. However, based on the failed setup, the weakness of the signal, the sentiment figures, the divergences on the Zero and other indicators, the recent VIX sell signal (which died), etc. we may be dealing with a train without a conductor here. Frankly, I have no idea who is buying up here.

My more price based view on the spoos shows us a strong push outside the hourly, which I think will respond a bit to gravity before this session is over. The daily is now right at both upper Bollingers. Does that mean we should go try a second short again? Not necessarily – I think the key here is looking at the currencies and in particular at the AUD/JPY:

As I said yesterday, this thing may still want to run and the first real resistance I see is at 82.83 where we find our next NLBL. I would not feel comfortable trying a second short position unless we get very very near that one and even then I may not be convinced until I see signs of a possible reversal. We may see a bit of whipsaw today after today’s strong push higher but let’s be clear – our technical setup on the equity side is dead until we see the AUD/JPY approach 82.83 – and even then the odds remain iffy. The trend is simply too strong at this point and it makes no sense to step in front of a speeding train.

Now what really made up for today’s non-manufacturing mayhem is our USD/JPY setup. The odds were iffy here yesterday but we were scraping support and I told the subs to grab a few long positions. And boy did they pay off! I would be out right now and right here as there will be blood at 76.77 – too much resistance looming above. I expect a few days of hemming and hawing after which time we can try to trade a continuation.

And this goes to show that you can’t be married to one setup on only one particular market – especially these days. Our currencies and commodities trades have been paying off in spates lately and what’s more important: technical setups are a lot more reliable. Plus we are able to manage our positions 24×6 – a luxury we do not get on the equities side as we are confined to only 6.5×5 hours of trading a week. Which are some of the reason why I have been pimping Forex to my intrepid stainless steel rats throughout the past year, and to much our benefit if I may add ;-)

Cheers,

This entry was posted on Friday, February 3rd, 2012 at 12:21 pm. Both comments and pings are currently closed.

  • Anonymous

    welcome to the world of qe3.  when the logical call is to sell, you buy.  awesome.

  • Anonymous

    Hey Mole.  I was on the USD.JPY setup. I took an entry yesterday evening at the halfway point of Thursday’s bar – stop below the previous day’s low. I’m now out for a 3R win.  And I stayed out of the equity short, so it was a good 24 hours.  Time to start the weekend early…

  • Joe_Jones

    Mole, we are still awaiting your recommendation for the forex broker

  • http://evilspeculator.com molecool

    Meh – let’s not get cynical. We don’t want this to turn into SOH, right? ;-)

    Look – good setups fail all the time. It happens and it’s not anyone’s fault. The odds were clearly on our side – as confirmed by many very skilled traders here. But sometimes we encounter conditions out of our control. I take it you weren’t a sub and didn’t take the USD/JPY setup. The reason I’m posting it is not to sugar coat a failed setup – it’s to demonstrate that there are a ton of more reliable setups outside of equities.

    So if you are not trading commodities or FX just yet then take this as an opportunity to widen your spectrum.

  • http://evilspeculator.com molecool

    Yeah that. I have been in contact with a few and the process has been a lot slower than I thought. Please give me a few more days – I will post as soon as I have settled on a firm that I know will represent my readers as imagined.

  • Fibz

    MB trading looks pretty good to me. No dealing desk and low commissions: http://mbtrading.com/forex.aspx

    http://forums.babypips.com/rate-my-broker/42371-oanda-vs-mb-trading-free-opinions.html
    “The NFA no longer lets US brokers use the term ECN if they have retail customers, but it’s the same thing.”

  • Joe_Jones

    Thanks Fibz

  • http://pulse.yahoo.com/_3TX6SWPBB7NJZGBWWGF263DXP4 Gatorfan

    I was about to pull the trigger yesterday on the OTM setup until I saw one thing: a positive cross of the  50 and 200 DMA. That one thing put me on the side lines and historically from my eye-ball analysis indicates a run of between 10 days and 3 weeks.

  • http://practicalt.blogspot.com/ Gold_Gerb

    I appreciate the candor of the post, and the maturity of the group.
    -GG

  • http://evilspeculator.com molecool

    Interesting – I don’t play those ‘golden crosses’ and I would be very cautious about falling prey to recency bias. I think Volar did the stats on them and any edge is purely imaginary. In any case I assume you are referring to a 200-day SMA, right – not a DMA, which is ‘displaced moving average’. We are all about precision and discipline here at ES ;-)

  • Anonymous

    woops!  sorry, i didn’t mean to sound dejected.  in fact, i’m only slightly short the market based upon my overall exposure.  i stopped trying to short SPY/ES two weeks ago, when i got blown out.  i was just sort of commenting on what i think price action is telling us, QE3 is here for sure.  price is saying buy, even though other indicators and statistical means are arguing for a short.

    i was a sub, and may become a sub again.  at the time i was just trying out your service and my background is actually in FX trading, so i definitely find your posts insightful (being a sub or not, what you offer VERY generously for free is actually quite informed).  i’m sorry if that sounds like i’m “leeching”, the bottom line is there are hundreds of “free” commentary out there, however, yours is only 1 of maybe 3 i read regularly, if at all.  thanks so much for putting the time and effort in it, and i’ll be back subbing soon again i’m sure!

  • Anonymous

    Well, it is a bad habit for a trader to blame losses on anybody or anything than yourself. In fact, I think it is a fatal flaw.
    Blaming QE3/the Fed/GS/the government/”the boys” or whatever for losing a trade let’s you off the hook and frees you from the responsibility to reflect on your own trading. If you enter a trade, you need to take complete ownership of that decision so you will be able to analyse what went well and what didn’t.
    Has this been a good trade? Absolutely! It was a situation where we had a great risk/reward ratio and a good chance for the market to turn as indicated by Zero, the volume hole and abundant complacency. A lot of factors indicate some kind of correction is ahead and this has been a good place for it start. Top picking, on the other hand, is always a risky business with low probabilities of being right (something that should be offset by risk/reward). This has been a good trade even if it lost money. A good trade can lose you money (and bad ones can win you money), because the game is not about money but trading well and this has been a good setup.
    The only thing that could have made this a bad trade would have been taking too big of a position. If you did do so, it’s your own fault and not the Fed’s. Money management is one of the essential elements of successful trading. If you don’t adhere to the rules, you’re not a trader taking a business risk but a gambler betting everything on red.

  • Galazkiewicz

    Although I haven’t tested this personally, the link is to a chart from Jeff deGraaf (previously from ISI, now RenMac).  I don’t use crosses at all, but here’s the test:

    http://screencast.com/t/M52o6ryxy

  • Anonymous

    sorry, i think my comment is being misinterpreted.  the short trade call was a good one yesterday.  the market didn’t cooperate.  that’s how it goes.  to satiate my internal desire to debate, i argue that the fed is pushing the market outside of a normal statistical distribution, but i’m not blaming them or anyone or anything else on my trades.  (even so, i’m not in any trade directly short the market – nor did i initiate a position short the market yesterday)

    bottom line, i wasn’t saying this was a bad call – it was a flippant and off-hand comment saying i think qe3 is here, welcome to the world of trading qe3 where markets are going to be pushed outside normal statistical means.

    but thank you for your trading advice – i agree with everything you pointed out.

  • Anonymous
  • Anonymous

    The problem with that statistic is that it’s unconditional, referring to Volar’s post about conditional statistics a few days ago. For instance, I think we would need to factor in volatility, though these crosses appear to occur mostly in situations with VXO < 25. 
    Another factor could be the slope of the SMAs. 4 out of 6 times the 200-day was sloping up. This time (and in May '09 (!?)) it has a downslope. There could be other factors like sentiment ($BPSPX?) that might be worth testing, too.

  • http://evilspeculator.com molecool

    That is completely untrue – I would suggest you go back and re-read Volar’s post as it made a concise point about conditional statistics.

  • http://evilspeculator.com molecool

    I am talking to them right now as well actually – but please wait until I finish my research.

  • http://evilspeculator.com molecool

    Exactly – thanks for making that point.

  • http://evilspeculator.com molecool

    No worries mate – I just wanted to make sure you are not letting emotions and hindsight dictate your trading. One guy on my mailing list today asked me to not send him emails anymore because ‘he would never short the market ahead of an employment report’. Typical case of recency bias – had the report been miserable today would he still have sent me the same email? ;-)

    See, that is why a vast majority of retail traders lose.

  • Anonymous

    In what regard? The point is to not ignore the underlying conditions of the market.
    One has to assume that there is a difference between a GC occurring after a major low like in March 09 and one occurring after an extended rise of almost three years with optimism that appears to be at a high even by historic standards.
    The first questions is what variables can/should be used to show these differences and the second would be whether or a correlation can be found between these variables and the GC pattern’s outcome.
    I don’t see how that is “completely untrue” as you put it.

  • Anonymous

    not only is it recency bias – but it’s actually rather contrary to NFP statistics.  NFP days tend to correspond with inflection points in the market – and more often than not (also statistically), they tend to trend the opposite direction of the open (gap up, lower close – gap down, higher close).  the past two NFP’s haven’t done so – and we’re seeing today, again, contrary to statistical results, a gap up, and continued strength.

    with all of that being said, being short or long the market prior to employment data has very little to do with it – if he had said something like, “it’s beyond my risk comfort to take a position before such a volatile report”, he might be more deserving of a pat on the back for being a rare “smart” trader.  :)

  • Joe_Jones

    This bear is dead

  • EvilTrader

    OF COURSE IT CAN BE WRONG BUT….
    Just read this from a reliable source who is a sub of a HF trading alert site :’”FTAlert: pros are selling big time into this. we can still test the highs but liquidity is being taken out ” 

  • Fibz

    maybe why it’s hard to get rid of long positions at bid today.

  • http://practicalt.blogspot.com/ Gold_Gerb

    :-(

  • Anonymous

    Non Smoothed Hourly bounced off descending trend line.

  • Anonymous

    you say it but you didn’t change your avatar….bearish divergence?
    :p

  • http://evilspeculator.com molecool

    Good to know – thanks.

  • http://mugabe.myopenid.com/ mugabe
  • Anonymous

    http://content.screencast.com/users/AMCabrera/folders/Jing/media/f0c7bb90-4452-4105-9dab-4706e2b75b49/2012-02-03_1410.png
    Men of this beloved blog. We are reaching the perfect temperature. This morning I really hope the overly eager that wanted to short this morning held off as I knew that for the rest of the day was a ramp and camp sort of tape when I saw it bust the middle dashed line for the red oval. BUT, I hope some of  you have saved your appetite for the real entrée, because the piggies are at 1340-1350 mark that I said would be the perfect place to go short and good practice for discipline trading. Smile guys because remember everything is zero, the late comers will be the hardest hit here.

  • Anonymous

    Finally broke above.

  • Anonymous

    vix…VIX!!!! outside bb

  • Kudos

    It was this morning, not anymore

  • Anonymous

    Kink of curious about the ZL action taoday. If the signal represents participation, would the swings in a conciese manner be considered distribution?

  • Anonymous

     Yes I believe you are correct, next week will be feasting time IMO

  • http://twitter.com/ActiveTrader ActiveTrader

    I still believe by Wednesday, February 8 we will see the closing high for this rally, then have weakness until end of February. A pretty reliable forecast that I follow points to Wednesday as the closing high for this rally; however, I will not just blindly short on Wednesday unless other technical tools confirm the current momentum is weakening.

  • Anonymous

    Glad /GC was shorted again, covered my ass. Looks like it is ready for a big move as well.

  • denali92

     We do seem to be following the month leading up to as well as the actual price action of the day for Aug 2009 and Nov 2010 – both of those periods we peaked on the employment day and then rolled over at some point the following week…. though the downside price action did not start till the Friday and both times, we bottomed early in opex week.

    So the analogs also support your idea.

    -D

  • http://twitter.com/ActiveTrader ActiveTrader

     I agree.

  • Anonymous

    KBMCK – 1344 reached….now what? …you seemed to know

  • http://twitter.com/ActiveTrader ActiveTrader

    FWIW, the forecast suggest weakness should begin on Thursday.

  • Anonymous

    why not just show the obvious chart here
    (TNA bar-to-bar comparison has been “eery” last days)
    http://shadowspace.netau.net/img/compx-2011-v-2012.png

  • Anonymous

    Maybe grasping at straws but now the smoothed hourly has a 3 touch divergent descending trend line.

  • Anonymous

    The Bear is Dead

    Long Live the Bear !

  • Anonymous

     I’ve seen periods where Golden Crosses (S&P) were first greeted with a sharp sell off as if the Pros were baiting their traps with Golden Crosses.  Have not looked at them in years however

  • EvilTrader

    < -1% huge gap down monday ?

    That would be the start of perfect Bear vengeance.

  • Anonymous

    based on?

  • Joe_Jones

    >-1%?

  • EvilTrader

    < -1%, i mean a negative gap greater (absolute value) than 1.0%, like minus 1.5%.

  • http://practicalt.blogspot.com/ Gold_Gerb
  • Anonymous

    I thought about that too, JJ, but decided to stay focused. :)

  • Anonymous

    I think Monday still has some upside bias but by Mondays close we should be lower. IMHO

  • http://evilspeculator.com molecool

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨ 
    ¨°º¤ø„¸  N E W  „ø¤º°¨ 
    ¸„ø¤º°¨ P O S T “°º¤ø„¸
    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • Joe_Jones

    I kinda lost focus today. Felt like I’ve been stabed in the guts.




    Zero Indicator


    Darth Mole Alerts

  1. poll

    • What is your average spread on the EUR/USD?



      view results

      Loading ... Loading ...


  2. NinjaTrader
    Kinetick

    search warrant



  3. recent misdeeds

    1. Happy Turkey Slaughter!
    2. One Chart Says It All
    3. Monday Snooze
    4. Monday Morning Briefing
    5. The Slow Walk-Down
    6. It Keeps Going And Going And….
    7. The Bots Are Back!
    8. An Impending Trend Shift?
    9. Fade The Noise – Play The Game
    10. Tuesday Morning Briefing