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Regime Change
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Regime Change

by The MoleJune 13, 2017

It’s relatively quiet morning thus far which gives us time for another exercise in tape reading. This time we are going to take a more in depth look at equities and cover a few tell tale signs that tell us if and when the market has transitioned into another distinct phase. Let’s start with the Zero:

2017-06-12_Zero

Forget about the signals for a moment and just focus on the price action, in particular on the hourly (left) panel. What do you see? I see a transition that began early this month and separates low volatility trending tape from high volatility sideways tape. Basically we went from an easy ride to ‘I am going to pull my hair out if it doesn’t pick a direction soon.’

But what characteristics define trending tape from a sideways churn? For one you’ll see either a uniform series of higher highs and higher lows or as in the latter phase in the center of the left chart an almost continuous series of just higher highs. Inversely of course you would see the same but toward the downside, e.g. lower highs and lower lows or a series of just lower lows. Spike highs and spike lows are distinct and relatively rare. Candle wick lengths are uniform and all within one standard deviation (if you would measure them). And finally the hourly Zero signal primarily points upward or during corrective periods is comparatively weak.

2017-06-13_spoos_volatility

Compare that with the past two weeks of price action. Clearly volatility is on the increase as also evidenced on the expanding Bollinger in the volatility cycle panel above. There is a lot of overlapping price action with small short term trading ranges taking turn with fast candles in both directions featuring long wicks. This smells like accumulation or perhaps distribution. If it’s the latter then a final push higher is a possibility but it’s extremely difficult being long in such a market, so I would have to abstain until I see volatility die down a bit.

2017-06-13_NQ

And then there’s the NQ which literally fell out of bed last Friday which must have triggered a boatload of stops and probably produced painful losses for anyone holding long positions. The daily panel looks like it may be a long candidate but after considering equities as a whole I cannot justify getting involved here right now.

bitfinex-btcusd-Jun-13-2017-15-22-26

I’ve been following the exponential rise of Bitcoin with much interest lately and Chris over at the Spiral Calendar even managed to grab some long positions on ETH (Ethereum) during a major low. He mused that trading and charting crypto currencies has been a lot of fun for him as they seem to remain unaffected by central bank meddling. However the current market phase is looking clearly exponential and thus can only lead to a massive shake out in the near term future. If you are holding some then I hope you took at least partial profits when it touched the 3k mark.

Campaign Updates

2017-06-13_soybeans_update

Soybeans is still in the running but I have now moved my stop to break even which also happens to be near the recent spike low. First up I’ve given this campaign a lot of time but what led me to reduce risk here is the approaching roll over which may be good for a few wild swings.

2017-06-13_EURUSD_update

EUR/USD is also still in the race but it’s starting to look more and more like a possible short setup. Unless I see a more convincing short signal however I have to keep holding long here. No reason to get psyched out by a difficult market phase. Either trade or don’t trade, but let’s not start mocking with open campaigns willy nilly. The soybeans campaign is a rare exception due to the roll over.

2017-06-13_USDCAD_update

USD/CAD is a goner, which was a bit surprising given prior context but it seems the Dollar is going where I recently suggested it would probably settle near long term support.

2017-06-13_NG_update

Natgas almost back to break/even and it gave us/me a bit of a scare in between.

Regime Change

So in summary I am seeing a marked increase in realized volatility all across the board which qualifies as a bona fide regime change. We’re seeing it in equities, across currencies and even in cryptos, in commodities, in the bonds. What’s worse is that it’s bi-directional RV and that makes trading extremely difficult for us as we now need to adjust our entry approaches and in particular our campaign management. My suggestion for now is to head to the beach and enjoy some early summer days until we see conditions revert to something more directional.


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.
  • OzarkHillBilly

    The Zero has been very helpful to me lately, thank you.

  • ridingwaves

    what the heck-Miners had first profitable qtr in 2 years…

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

    profitable and bullish don’t always ring the same bell :) as bleeding cash and bearish doesn’t either…ex:TSLA

  • Grant

    I would like to see some information on counter party risk. At this point, the s&p has been in a bull market since 2011-2012. If there were to be a 50% market correction, where would the best place be to protect one’s capital. For ex., FDIC bank acct, gold, Government bonds, cash in mattress…. you get my point. My reason for asking: Debt levels are high and it won’t take much for defaults to get rolling. We are due a bear mkt and Trump makes a great target for TPTB.

  • ridingwaves

    first qtr earnings were stellar, no longer an interest rate market as it seems earnings are now taking the lead…too early for a 50% market correction….just too much money sloshing around….money flowing into index funds could keep the party going for a bit longer than expected…..

    property is probably your best bet but its the bubble of all bubbles…

  • Grant

    Not trying to time anything, just looking for ideas as we are prolly on the verge of a parabolic run in equities which is well… the last stage.

  • ridingwaves

    I agree, need a melt up to setup the melt down
    FDIC is good for 250K..
    as we both witnessed recently they will do anything to keep the housing market up, anything!….its the one card that can’t fall, cascading defaults be damned… Finding income property that makes sense cap rate wise would be great as the fed turned America into a renter nation…

    at some point MLP’s will be the place to be…

  • CandleStickEmUpper

    Thanks for the informative post regarding current changing conditions. I managed to get raped last Friday on the NQ’s. Now trying to slowly make back that loss.

  • http://evilspeculator.com Sir Mole III

    Awesome.

  • ridingwaves
  • Grant

    Is that a picture of a roller coaster? Can’t wait for the drop and then the cork screw.

  • ridingwaves

    it will not end well…funny how fannie and freddie are in receivership since the climb began…..what a farce….
    this is not good either…
    https://s30.postimg.org/r6unsrxfl/commercial_industrial_loan_demand.png

  • Trouzzer_Snake

    Question: What happens when the Fed raises rates tomorrow? I’m currently short /ZN and like my position but is there too much risk to hold through tomorrow?

  • http://evilspeculator.com Sir Mole III

    Tough to say as it also matters by how much. Rising rates isn’t just a binary event – would it be 25 basis points or half a percent, or a percent (yeah, fat chance)? Bonds would certainly respond short term to either event, but longer term only to a larger rise.

  • http://evilspeculator.com Sir Mole III

    Where is everyone lately? Vacation?

  • Trouzzer_Snake

    With odds for a hike at 100% you’d think some of that action is priced in, no?

  • http://evilspeculator.com Sir Mole III

    I think that is why we may have seen so much volatility as of late, so to some extent yes. But I would never put it past the Fed to pull a surprise so please don’t take this as a confirmation to grab long positions here. If it was so predictable I would have gone long today 😉

  • http://evilspeculator.com Sir Mole III

    If there is an obvious exit for your open campaign then it will most likely get stopped out. Thus traders shouldn’t pick obvious stops.

  • http://www.captainboom.com/ captainboom

    Working my ass off. Want to buy some fireworks?

    https://www.captainboom.com/

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

    like that Nick Rage said.
    I paraphrase. you trade long enough, you will see EVERYTHING.

    Crikey!
    https://www.youtube.com/watch?v=ew1L6SLpHgM

  • Scott Phillips

    If counter party risk is a real thing, there is nowhere to hide, literally.

    If counter party risk becomes real you don’t have to worry about collecting from your broker, but you DO have to worry about having sufficient guns and ammo and food and water to survive.

    Best not to even think about it.

  • ZigZag

    Honestly I’m at my wits end. My edge, which essentially combines $tick reading with tape reading, has just not been working well these last few months, mostly as a result of the big FAANGM stocks diverging so much from everything else. It’s been especially pronounced lately, in both directions.

  • Ronebadger

    Rotator cuff surgery yesterday…I’m outa commission for a while :(
    …typing with one hand

  • Phillip Reeder

    Sir Mole, I’ve been a reader of your stuff for a while now and respect and admire everything you have to say, I think there is so much to learn from a trader like yourself, however I’m surprised to see you not involved in the equities lately unless you are seeing something I just can not see at this moment, which has given me a yellow light to pull the trigger several times when I see my set ups, saving ammo for when the time comes. I did get long the night of the election at the very low tick and held until the 2430 level hit, however have not engaged since then.

  • BKXtoZERO

    I’ve been reading quietly. I was thinking that you sure do put a lot of effort into your posts (still) and sometimes I don’t see many comments or not many about your subject matter but you already know this.

  • http://evilspeculator.com Sir Mole III

    You forget I live in Valencia. There are throwing mascletas almost every week here.

  • http://evilspeculator.com Sir Mole III

    Point well taken. Actually I was long very early in the rally but got shaken out after being too stingy with my stop. After that I screwed up a very obvious entry opportunity, which i even featured on the blog (we keep it real here). Since then things have turned a bit too volatile for me, so I’m biting my time.

    No excuse really – a mixture of bad luck in the beginning and screwing up once after that. It happens – nobody is perfect 😉

  • http://evilspeculator.com Sir Mole III

    Almost everything is correlated these days. Good luck finding something that has no explicit or implicit alpha to equities.

  • http://evilspeculator.com Sir Mole III

    Hey guys, it’s been slow here this week and today is FOMC day. So I may put a quick one together later today if I see a few juicy entry opportunities. In the interim I suggest you read the previous rather crucial post which apparently received very little attention.

  • http://evilspeculator.com Sir Mole III

    “Multiple People Shot, Including House Majority Whip Scalise, At Congressional Baseball Practice”

    Everyone has gone insane.

  • Mary

    No. Not everyone. Not even close.

  • http://evilspeculator.com Sir Mole III

    Yikes that sucks. I messed up my left hand recently and now it’s my right hand’s turn. Before that I had messed up my elbow, At this point my injured body parts are just taking turns.

  • http://www.captainboom.com/ captainboom

    It does seem as if some parts of civil society are breaking down. I’ll reserve further comment, as I simply don’t know enough about what happened, and what the motivation was.

  • OJuice

    /HG looking decent here if it can catch a bid. A convincing break over 2.60 would open up potential for 2.84 I believe.

  • ridingwaves

    XBI trying to break out….

  • Ronebadger

    yeah…welcome to the club…

  • ridingwaves

    no problem for him since he has a killer health plan that citizens pay for along with pension for life after 1 year…..congress critters are just Mafia couriers.
    the day American citizens wake up and say enough will be a bit too late…

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

    Security really messed up on that one. No one every questions security foul-ups.
    Hmmmm. I wonder why?

    https://upload.wikimedia.org/wikipedia/en/0/0d/RabbitFire_Lobby_Card.png

  • OzarkHillBilly

    Don’t forget cigarettes and alcohol.

  • OzarkHillBilly

    I bet it gets crazier before summer is over.

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

    Disqus quit updating on my end yesterday; I didn’t realize it until a few minutes ago.

    I don’t post much, because I consider your site to be sacred ground, and I don’t want to sully it with too many off topic comments and such. I’m sure we’re all familiar with other blogs that degenerate into pure BS.

    I’ve been here just about everyday since I started doing some trading again. Went almost entirely cold turkey for over a year, with just a handful of trades, and didn’t allow myself to look at any trading blogs or market related websites even though I was still working from home, in front of a screen all day.

    Still paid for my Zero subscription every month, however, as a show of support for what you do. Always appreciated.

  • ridingwaves

    L AVXL S 5.59

  • http://evilspeculator.com Sir Mole III

    It’s just like almost every single day some terrorist attack or some shooting. Feels like the system is running on fumes and at some point it’ll suddenly implode.

  • ridingwaves

    but the fumes are strong with the fed running the table…..it’s almost like everything that is wrong with the system is being masked over because something imploding is going to happen.

  • ridingwaves

    Fed does expected…
    alluding to Mole post below…people need to get in nature now more than ever….too much noise and digital pollution while being saddled into debt serfdom….sorry, debt sleeps with the devil, you can’t stay in bed too long with him or it consumes you…actually having no debt is like getting extra yield in life investing

    UPDATED At least 5 reported dead in shooting at UPS facility in San Francisco

  • http://evilspeculator.com Sir Mole III

    25 basis points – what a crock. At this pace it’ll take 10 more hikes to raise it by a 1/4 percent. I don’t even know why people are paying attention to this freak show.

  • http://evilspeculator.com Sir Mole III

    As I said below – everyone has gone insane.

  • http://evilspeculator.com Sir Mole III

    The big implosion will happen anyway in the end. They bought themselves a decade, maybe two. But look at the systemic problems the Fed has created. Look at this ridiculous real estate market with valuations that are outside the reach of > 99% of the U.S. population. Houses in CA are now reaching $400,000 while over half of Americans have less than $1000 in their savings account. The system is clearly broken but few want to admit it because then we would have to do something about it.

    What cracks me up the most is that every step on the way, clearing out the system was considered as too drastic and should be avoided at all cost. By rewarding the culprits instead of punishing them we now have a zombie economy that runs on hype and fumes. Where do we go from here? Simply continue to flush the Dollar down the toilet and wipe out whatever remains of people’s savings?

    in the interim people keep attacking and killing each other because of [fill_in_political_culprit_of_your_choice]. Nobody is able to see the blatantly obvious factors that are destroying our country. I have said this years ago and I’ll say it again: you cannot build economic wealth on the basis of ZIRP. It has never ever worked and never will. All it does is to polarize society and the consequences are delivered to us now on a daily basis.

  • Tomcat

    0.25% is HUUUGE when you consider the debt US has. But reality is, Yellen’s hand will be forced by the orange puppet who needs low interest rates for his policies to be effective.

  • ridingwaves

    grabbed some NUGT here..scalp
    just in case of more insanity…:)

  • http://evilspeculator.com Sir Mole III

    Yeah, unlike Obama…. sigh…. when are you guys going to stop gobbling up disinformation and start thinking for yourselves? This has nothing to do with Clinton, Bush, Obama, Trump, or whoever comes next in four or eight years. The shit that you’re being told is just a sideshow while the real deals happens behind closed doors far from the public’s attention. Follow the money and read a history book or two (preferably an edition pre-2000).

  • http://evilspeculator.com Sir Mole III

    In comparison to the political chaos of the past 20 years even NG looks like a stable investment – LOL

  • OJuice

    Just watched “Mr Robot: Season 1” on Amazon Prime. If you watch shows, I think you might like this one.

  • http://evilspeculator.com Sir Mole III

    I was pretty disappointed by the last season. But the first one is awesome.

  • OJuice

    Good to know. Sounds like it suffered the same curse as True Detective.

  • http://evilspeculator.com Sir Mole III

    Just take a bit of time off until you see your signals come back into sync. And perhaps use the time to find an edge that DOES work during times like these.

  • OzarkHillBilly

    But it did have this scene, appropriate for some traders.

    https://www.youtube.com/watch?v=G9tIXj3ac9k

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

    Look away for a few minutes and the dip is already bought. Like magic…

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

    The dip was bought? or bears taking profits?

    he he.

  • Tomcat

    Mole, with all due respect because this is your blog, but you gotta take your head outta of your ass and think of what the impact is for other people and not just yourself(s). I mean we trade for fcksake. But the low interest rate environment has killed what was once known as middle class. Did you know that many many people used to rely on the CD rates before FED decided to smother them and bail out the big boys. Anyway, we gotta stop thinking about me me me all the time, and gotta think about are fellow citizens. My point is that this what seems minuscule raise may seem small to us as traders, perhaps even irrelevant, but its on the right path to bring the CD/savings rates back to normal levels, where the avg man/women can built safety net.

  • Scott Phillips

    25 basis points IS .25% isn’t it? Or have I been stupid for years?

    Enquiring minds want to know

  • Scott Phillips

    Ha, neither of those are my thing 😉 I’ll take some heavy weights, a few sparring partners and some cute girls.

  • Scott Phillips

    May I present a very rare item. Quant fund *designed* to outperform when SPX shits itself, while still returning decently in the other times.

    It’s essentially a tweaked version of Dunn Capital, using implied options values to calculate stop loss points and gradually scaling out of losing trades to smooth equity. Win rate is 25%

    https://uploads.disquscdn.com/images/005588bb0176283b2c4067f2b92997bb8e605e5c0b46d7a3fee5e9bdc9242a25.png

  • http://evilspeculator.com Sir Mole III

    Nope – I guess I need to lay off the crack. Yes, it’s a 1/4 of a percent. One basis point is 0.0001 in decimal form.

  • http://evilspeculator.com Sir Mole III

    See further below – I said exactly that. I’m all for rising rates to SEVERAL PERCENT and flushing out the entire system.

    You still don’t understand the point I’m trying to make but you’re getting closer by following the money. I suggest you focus on that instead of looking for political boogeymen.

  • ridingwaves

    maybe SPY finds 238….or 2380-90 area SPX…