Count On Volatility

I would like to expand a little on the topic of my Thursday post which submitted that 2015 will most likely be remembered as one nasty sideways high volatility wood chipper, inflicting massive losses on both bulls and bears alike. As we are gradually transitioning out of a QE fueled artificially engineered bull market fear and confusion are slowly replacing an abundance of greed and complacency (just look at the daily VIX before August). And that really should not be any surprise to anyone – it’s been a lot of fun and laughs over the past seven years but the end of the line is in sight and it’s now time to pay the piper. Please understand that I make this point without any ulterior motives or allusions of possessing any predictive powers.


All we have to do is to listen what the tape is telling us on a daily basis. There really isn’t much to it – assuming you somehow manage to quiet down the incessant cacophony of your own ego emitting a never ending stream of opinions and distractions. After all in this, the greatest game of our time, we are often our own worst enemy. But even the thickest mind should should have a hard time refuting that we are not in any trending phase right now and that in fact intra-day volatility has become the name of the game. It remains to be the one constant we can depend on these days. Whereas the direction of the (mostly bullish) trend and BTFD was the modus operandi over the past few years, catching the next sharp turn remains the only way to extract yourself a modicum of ill gotten gains. Thus as successful traders your primary concern should not be direction – it should be volatility.

Which appears to be expanding – and has been slowly all year. Not that the VIX would have offered you any indication whatsoever as to clear and present downside risk I was highlighting right here at Evil Speculator on a regular basis starting as early as late last year. Everyone out there was simply in a holding pattern, waiting for one last push higher – just like drug addicts begging for just one more hit before committing themselves to face cold turkey.


It’s been a while since we’ve experienced conditions such as these and the only other analogy in recent history is the big shake out in 2011. If you compare what happened then you’ll find the same pattern:

  1. Sideways topping pattern after a massive squeeze that lasted months.
  2. Fast drop to the downside.
  3. High volatility shake out period.
  4. Resolution.


Now if you look at the current year you see an almost identical pattern, however there are some crucial differences I would like to point out as well.

  1. Starting late last year we experienced a sideways topping pattern with increasing volatility. Again the VIX was ignoring it all, except during quick drops which served as buying opportunities. However things were already starting to slow down in 2014 – the buying frenzy that preceded 2015 was the result of a big correction which spiked the VIX all the way to 25.
  2. The fast drop played out just like it did in 2011 – even the magnitude of the correction is roughly the same.
  3. The current high volatility directional guessing game is per the same script and what will follow late this year or early next year is the final resolution.

Of course the direction that the fourth phase is going to take us is the topic in everyone’s mind, and as always (un)educated predictions are as ubiquitous as lofty theories as to what the Fed or the ECB may do or say next. But before you go and throw your own 2 cents into the big smoldering stew of opinions ask yourself this: How accurate have your own predictions and assumptions been in the past few months or in the past few years? Were you the one who traded the SPX all the way from 667 to 2100? If so then please go ahead and bet the house. I for one will continue doing what I have been doing pretty effectively since I started to see the light sometime in early 2010 – simply follow the tape and leave academic theories to the professionals. After all – I just work here and the day you start taking things personal or seriously is the day when you should call it quits.

Never take advice from anyone in a tie. They’ll bankrupt you. Don’t ask a general for advice on war, and don’t ask a broker for advice on money. — Nassim Nicholas Taleb

The future is now – so don’t bring a knife to a raygun fight. If you are interested in becoming a Zero subscriber then don’t waste time and sign up here. A Zero subscription comes with full access to all Gold posts, so you actually get double the bang for your buck.


Endangered Species

I’m seeing nothing tangible across any of our verticals today. Time to listen to my own advice and let the runners run whilst waiting for new instructions. You can never force the tape – no matter what system you trade you will face periods hibernation followed by a flurry of activity. All markets follow an inherent rhythm, and while this is more apparent on some charts it is often obfuscated by sideways volatility. The spoos are a great example of this.


If you look at the daily panel on the right you will see that we are still in a volatile period and have been so for a good part of this year. Price hides this fact as your mind has a tendency to look for directional changes whilst categorizing sideways movement as inert. But if you look closer you realize that we have been running like a hare all year – it’s just that we were running in circles for a long time and then suddenly the floor gave way.

Right now we are shifting a little as volatility is starting to exhibit a more directional component. You are seeing three or more days in one direction, which is then reversed with two or more candles in the other. The psychological impact of the current market phase is that of frustration mixed with greed and fear. Each side clearly sees what it wants to see although there is no salient evidence pointing in a particular direction.

The modus operandi of selective entry near clear inflection points employed here in the past few weeks has been serving us very well. Our long position is far from being out of the woods but we are now able to move our trailing stop from 1880 to 1900. Anyone with an opinion has long been taken the woodshed and if you are still participating here today then pride yourself in the fact that you are part of a very small minority. Over the past few years successful retail traders have become an endangered species. Heck perhaps we should apply for federal subsidies 😉


May I add that our trusted Zero has been a real life saver in the past few weeks. Over the years the invaluable guidance it offers has kept us out of more traps than I can count. If you have any doubts about that then I encourage you to watch the videos and judge by yourself if you want to be trading with or against us. I for one am happy to welcome you on either side.


Soybean Oil is starting to look positive and our stop now moves to break even. A long term floor could be in place here which is why I am trailing conservatively. If we pop a little higher then this will be converted into a daily campaign with plenty of space to run.

The future is now – so don’t bring a knife to a raygun fight. If you are interested in becoming a Zero subscriber then don’t waste time and sign up here. A Zero subscription comes with full access to all Gold posts, so you actually get double the bang for your buck.



Nicely Done

Quite a ride over in equities yesterday but miraculously the long positions I placed early in the day survived various shake out attempts. Thus far things are looking positive but don’t get too comfortable as we may see another attempt to scare the children today.


That was close! My stop was two ticks below 1860 and it almost got taken out. That would have been annoying to say the least. The good news is that we’ve produced a whole latter of Net-Line Sell Lines which on the hourly which should offer layered support on a retest.


AUDJPY – I very much like the configuration on the daily and am currently waiting for a little drop lower toward the 100-hour SMA to grab some long exposure.

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