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Only The Paranoid Survive
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Only The Paranoid Survive

by The MoleJanuary 16, 2012

You may remember that one as the title of Andy’s Groove’s book – a great read and I recommend it. Over time it has also become one of my prime directives on the trading side which quite often kept me out of big trouble. Obviously ‘paranoid’ is a strong word – but ‘only the vigilant survive’ sounds a bit meek to me. Anyway, as I still have a hard time sitting for long periods of time let’s right dive into today’s subject matter – here’s exhibit A:

Ignoring all ill advice from my sadistic Chinese chiropractor I spent much of the afternoon sitting at my desk and fiddling with the Prophet chart version of my Market Maker Mind Reader (MMMR). I finally found out a way to plot it in conjunction with the SPX, which you see in blue candles above. This is the inverse version, which appears to be better at correlating major bottoms with signal spikes. Got it? Good.

The point I am trying to make here is that strong spikes outside the upper BB range often match up with major market lows. Very valuable – when you can get them. The 25-day and 100-day SMAs also seem to impose a certain amount of influence on medium term swings. So far so good.

The issue at hand here is the tape of the past two months. In essence – it does no fit the usual recipe. And market megalomaniacs like yours truly hate it when that happens. So, I was happy to see Volar’s attempt at using his quant skills to shed some light into the situation but IMNSHO the data merely supports what I am showing here and further below.

Let’s dig a bit deeper and look at major tops now:

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More charts and cynical commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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You get the idea – I basically flipped the view but it’s a bit different than just showing the inverse, which has to do with the formula I’m using. What I did here first was to connect major tops with either BB or SMA touches – pretty convincing in many cases. Except for those special times when simply nothing happens – I have drawn those correlations in orange. And the pattern is always the same – we push into what seems to be a perfect reversal point and the tape doesn’t even blink and pushes higher. Eventually we get a reversal and it happens way too late.

The current pattern is a lot more messy – we got a very strong outside signal but it wasn’t where it should have triggered. Then the tape marches up while the MMMR signal drops lower and tests the 25-day SMA. What’s going on?

We can’t be sure but it’s quite possibly one of these situations where we seasonally should correct in mid to late January but it’s not happening, thus giving credence to the bullish case. And yes, I have seen the über-bullish AAII readings last Thursday. Trust me – nobody can really figure this thing our right now.

What may happen is shown above in black – at least on the signal line but whether prices will follow suit is another question.

Now if we wind up dropping then I think SPX 1250 is where I would want to try a long position as the Bullish Price Objective remains intact on the SPX. Also recall that the 1250 mark seems to be strongly supported on my time based monthly SPX chart (I posted last week).

Meanwhile in the currency pit we see ole’ bucky giving up some recent gains and now plotting a bearish PO of 79.7 – again lining up with my SMA. That may favor equities – although the recent rally didn’t seem to matter much to currency oblivious equity traders. Anyway, I told you guys to take profits right at the top and I hope you listened.

Here’s a bit more bear p0rn for you guys – look at this but please keep in mind that equities have shrugged off various correlations and momentum signals as of late:

NYSE A/D volume – clear divergence here. 2012 thus far has been below average on the volume side and down volume is increasing while prices have risen.

This is basically almost the same as JNK/TLT – and it’s also divergent and quite strongly so if I may add. I have rarely seen such a distinct divergence not catch up with equities – maybe this is the one big exception.

Bottom Line: Let’s not have an ego about needing to know what’s going on at every stop of the way – in particular at this very junction. Politics, currency manipulations, and various bailouts have pulled traders all over the place and I think we are seeing a bit of hopium here mixed with a healthy dash of emotions and confusion. I will say this over and over again: A good trader needs to know how to pick easy markets. And my dear steel rats – there is nothing easy about this tape right now. Nobody really knows where things are heading in the short term and since we are not near important support/resistance or inflection points it’s very tough to plan our equity trades. So let’s not – or if you do then play it small – like in tiny, itsy bitsy, mini positions. The tape will still be here in a month or two from now – and you don’t want to take on undue risks now and miss out on the easy trades. Recall that this has been our core strategy throughout 2011 and that it kept us out of a lot of traps. So be smart – be patient and shop Evil-Mart! 😉
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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://practicalt.blogspot.com/ Gold_Gerb

    ARgghhhhh, the life of a leech.  such a good lead in.

    A post on a holiday.  excellent dedication.

  • Anonymous

    Yeah with back pain to boot! Now pony up and get the goodies. Especially that last chart…..

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

    For heroic action above and beyond the call of duty.
    the purple evil heart is hereby awarded to Mole.

    http://i40.tinypic.com/1zzrpev.png

  • nyse

    Good post Mole. Hope your back is feeling better. 

  • http://evilspeculator.com molecool

    Is ANYONE watching those kick ass ZeroFX signals??

  • http://evilspeculator.com molecool

    (wipes away a little tear)

  • Anonymous

    On it boss! Loving it.

  • Anonymous

    Big move for me this weekend getting settled in with a new desktop. Running Mac now and what a difference!

  • Anonymous

    Hey dont trash talk PCs. Stop clicking on stuff that says it will enlarge your ….Pay for your porn!

  • Anonymous

    I make my own desktops. I can make a PC that will run circles around a mac desktop of similar price.
    http://store.apple.com/us_smb_78313/browse/home/shop_mac/family/mac_pro
    I can make one with 64GB ram for that price.

  • Anonymous

    What about running mac os on pc (hackintosh) – best of bothworlds?

  • Anonymous

    I have done that for friends. But not for myself. I am used to windows. I know it better.You can run windows on a mac too. Easier to setup. But the desktops are so pricey. You can easily cofigure a desktop PC with say 24 GB ram several TB hard disk etc for the same money. Cheaper if you make it yourself.

  • http://evilspeculator.com molecool

    Mmmh – I may take you up on that!

  • Anonymous

    i find mac os less glitches/lock-ups than windows (vista), but use windows day to day.
    Just trying to fix hp dv9000 laptop – GPU overheating, difficult to keep cool!

  • Anonymous

    No seriously. I understand the frustrations of many “normal” people running windows laptops. But thats not for us. We need all the ram we can afford and all the hard disk space we can get. Configure a mac pro and try the same price for a dell and see the vast difference. As long as you dont install crap you can enjoy the stability and responsiveness of high memory configurations.

  • Anonymous

    No problem!

  • Anonymous

    Microsoft lost more people to Mac because of Vista than any of thier other OS. Windows 7 much better. Windows 8 (running beta on my pc tablet) will make your life much easier.

  • Anonymous

    @ Mole Check it out. Also see how much 32 GB ram really costs. You can subtitute in that configuration.
    http://www.anandtech.com/show/5196/holiday-2011-mainstream-high-end-buyers-guide/4
    http://www.newegg.com/Product/Product.aspx?Item=N82E16820231487

  • Joe_Jones
  • Anonymous

    Got it pretty cheap. Long story but was discounted $500. PC’s will be a thing of the past. They are constantly breaking down and are not stable. Did you notice the material of a mac? They are made of aluminum to dissipate heat.

  • JJ FX

    Long AUD/JPY after the 2nd 5-Min alert, took 12 pips at the previous high. Thanks Mole! Coulda hung in there for a better ride but I got what I wanted.

  • Anonymous

    LOL! It’s like night and day. Tired of replacing displays and mother boards.

  • Anonymous

    Hmm. Your room is hot and dusty? Remember that Macs used to have separate hardware. At that time they claimed it was faster and better. Not really. So now they have switched over to PC hardware. The same processor and graphics card that powers a HP or dell also powers your mac. So there is no difference there. Sure you can buy a better case that cools better and that should solve your problem. I just use a LCD tv as my display. LCD tvs can take a beating and keep on ticking. Large monitors are too expensive. A mac display is probably a rebadged something but I dont know much about displays. I agree you do get what you pay for but the price difference is atrocious on desktops. I always had to give away my PCs not because they stop working but it gets old (for me thats three years) and you need newer hardware to keep up.

  • Fibz

    you could run linux on a pc… that would make it stable and basically the same as a mac – also free. i haven’t restarted my linux pc in over a month.

  • Skates

    Windows 7 is ridiculously stable, I cannot remember the last time it blue screen, if ever on me.

  • Joe_Jones

    FYI: C and WFC reporting before the opening tomorrow

  • Anonymous

    Yeah. Pretty much the same experience for me. But I have to admit Vista gave a lot of people heartache and had them run to Macs.

  • http://www.investingcontrarian.com fresbee

    http://fnn24.com/?p=38934

    Chinese GDP is getting the market to rev 

  • Anonymous

    Welcome. Have another sip of the Mac Kool-Aid…

    I’ve been running Macs since 1984. No reason to ever dick around with Windows, and I love having Unix under the hood. LOTS of cool stuff you can get and use. (Of course, I wasn’t trading back then. Probably would have had to use the dark side.)

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

    Fish. meet barrel.
    blam! blam!

    http://i42.tinypic.com/24nqhp3.png

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

    yeah, those boobs are really big on the cinema display!
    😉
    charts aren’t that bad either.

    http://spfh.files.wordpress.com/2009/11/funny-laptop-portable-pics-16.jpg

  • http://evilspeculator.com molecool

    That is what I did but I paid almost $4k for a 4-gig 4-core system threee years ago. A bit expensive but the hardware is very high quality. But he’s right – for the same money I could get a fucking 32-gig system with 12 cores these days…

  • http://evilspeculator.com molecool

    Great links – thanks!

  • Anonymous

    T’s complete now I think. Which way to the next T?

  • Anonymous

    Right about that! worked on unix for many years and to be quite honest all the problems started when companies saved money and went to PC’s.

  • Anonymous

    Give windows 7 a try. You will be pleasantly surprised. I am not gonna BS you and say its as stable as Unix but stable enough for trading purposes. I only reboot my PC on weekends when markets are offline and honestly I dont remember the last time I had a blue screen. I do build my PCs myself and dont put any garbage(especially games) on it.

  • Anonymous

    HP’s are known for that problem. Newb is right, the best way is to have a system built. The heat kills laptops.

  • Anonymous

    The way I see it its better to spend 2K and get a decent system now and upgrade for another 2k 3 yrs from now instead of spending 4k on something that gets outdated in 2 yrs.

  • Anonymous

    Laptops are not built for trading abuse. Desktop with say 32Gb ram and a few TB hard disk and hooked up to a 32″ LCD TV 1080P now were talking….

  • Anonymous

    And when I buy laptops I erase the hard disk and reinstall windows and office. Thats how much I hate the garbage the PC makers put on it. Their loss. More and more people are moving to Mac because of that. But if you are sophisticated enough to run Unix windows 7 should be a breeze.

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

    up.
    IMHO, 80.
    it’s a freight train.  (currently 79.70)

  • http://wetorp.blogspot.com/ Wetorp

    I think the opposite, apple will be a thing of the past. All products are way overpriced and you get outdated hardware. I havnt had a PC breakdown for 10 years (since XP launched). The key? Skipping Vista and not filling the PC with crap 😀

  • http://wetorp.blogspot.com/ Wetorp

    You cant compare to Vista, it was just sad. I still dont get why people didnt stick to XP.

  • Anonymous

    zerofx stuck at 12:41 AM EST

  • http://evilspeculator.com molecool

    Fixed.

  • http://www.investingcontrarian.com fresbee

    http://fnn24.com/?p=38993
    Earnings estimate

  • Anonymous

    ding ding ding! EUR/AUD makes new lows and we have touch 1300!! Lets party!!

  • Anonymous

    well since I was triggered at 1.2250 I’am now going to set the stop at b/e leave the other triggers alone, one at .2350 and another one at .2200

  • Anonymous

    rally mode. i wonder whether dax is capable of breaking out above 6400 and NQ above 2440 or so. or is it just another may – july 2011 like distribution time.

  • Anonymous

    Ok, what does the market know that I dont know…

  • Anonymous

    i am asking myself that same question. cause the overall picture still feels like japan. all the countries deep in debts, deflationary forces still at work.

  • http://iberianviews.blogspot.com/ catracho

    Dax could reach 6400 quickly..and above that is vacuum..so beware shorts…

  • Anonymous

    I feel the need to warn my fellow rats that the spread bond chart between French and German debt via bloomberg that I provided Friday is telling you that this event of “downgrade” as long been cooked into the cake. The Euro is a beat up dog, starved, and a really angry animal right now. I would really advise not sticking your hand in the cage (shorting it) but also if you cannot stomach going long, then JUST DONT. Just stay away from it until it looks more stable. I am long Euro (EUR/AUD) (EUR/CHF) but I have already taken half profit from EUR/AUD. I have the benefit of playing football manager 2012 to keep my head clear. Soo yea going back to the game.

  • Anonymous

    We’re supposed to be in a recession yet when I was in apple’s 5th ave store the place was jam packed. Also a store is opening (has opened?) at Grand Central. Average rent in New York is 2K and people are shopping at apple, there is something I’m obviously missing.

  • Fibz
  • Anonymous

    Long the dollar again on this pullback.

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

    wow.  GG guessed right!

  • Anonymous

    nifty H&S over the past 6 hours on ES – FYI

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

    that pattern is barely 2m wide.
    not likely to bulls-eye that swamp rat with your T-16.
    😉

  • Anonymous

    Attempting /ES short from 1298. Not much enthusiasum from ZL.

  • Anonymous

    Blow-off? Would love to catch it:)

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

    how many opens has it dropped red first hour,
    then lifted all day long?
    SPY may close the gap.  ultraparanoid shield up.

  • Anonymous

    no alert  today, first time thats happened

  • Anonymous

    So you think it’s fibbing?
    http://screencast.com/t/tSOShB2kBWw
    SLV makes me nervous.

  • Anonymous

    I didn’t get one either. Mole?

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

    yes, if I set mine to log scale, I get what you get.
    overhead resistance fib line.
    if you’re nervous, maybe you have too big a position?

  • Anonymous

    How come the market only goes up.
    Looks like Euro crisis over, US out of recession, China back to business-as-usual?

  • Anonymous

    It’s simple: news don’t matter. 😉

  • http://evilspeculator.com molecool

    I think I know what happened – will check it and let you guys know.

  • Anonymous

    What’s up with nat gas?

  • Anonymous

    You’re right! I should reduce my position by 6%*. 
    *based on my rules.

  • Anonymous

    Huge storage overhang because of weather, new wells will continue to be drilled because of lease structures, I dont think you see rig counts drop until price is below $2

  • http://evilspeculator.com molecool

    I just sent out the trend day alert manually – please check your emails.

  • http://evilspeculator.com molecool

    At least somebody gets it…

  • Fibz

    the market is on auto-pilot. every and now and then someone adjusts the sails.

  • Anonymous

    got it, thanks

  • Anonymous

    TRIN has been around 1.00 so far for the session, so this doesn’t look like a blow-off to me, more like a slow melt-up with not much force behind it. ZL seems to confirm that thesis.
    Looking at the charts, I find that intermediate-term tops have usually been accompanied by a spike in TRIN after a period of low readings like today. So, I wouldn’t be surprised if we would be seeing such a spike in one of the next few sessions and a reversal afterwards.

  • Anonymous

    zerofx stuck again

  • Anonymous

    The
    new “fracking” technology, which in the last four years has unlocked a
    100 year supply of natural gas in shale fields, that until recently,
    were considered unproductive.

  • Anonymous

    Probably the
    way this ends is that the oil industry buys the entire natural gas
    industry. Prices are now so cheap they can do this for pocket change

  • 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„¸

  • http://evilspeculator.com molecool

    I was working on a post – it’s up again.

  • Anonymous

    Strange tape, a bit dropy!