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Technical Damage
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Technical Damage

by The MoleJune 12, 2013

It’s becoming difficult to ignore the amount of technical damage that the bulls have been accumulating over the past two weeks. There have been valiant attempts to trigger the now well established Pavlovian buying reflex near obligatory support zones. However each stab higher has been met with renewed selling pressure – and more importantly it happened right at technical inflection points. As the saying goes – the fat lady hasn’t sung yet. But we should be taking notice and I am watching the current gyrations with a mixture of bemusement but also a bit of excitement. Not that I care about the market’s direction per se – but a correction has been overdue and if we wind up getting one it will bestow upon us with a plentitude of technical context we’ll be able to use to entertain us all summer.

I’m running a bit behind tonight, so let’s dive right in. As you can see this morning’s RTV Buy setup on the spoos has now officially gone where technical setups go to die. Once those two short term SMAs were taken out the ensuing plunge was pretty much procedural. If you were still short then congrats to you – there’s not much to do right now as we are touching tentative support near the lower 100-hour BB, however I don’t see a pressing reason to jump ship here (or to start buying for that matter). Let’s see what the close brings us.

A bit more context here on the volume profile chart. Once again the 1605 mark is where we see a volume gap all the way down to roughly 1595 – give or take a tick. Last time the bears attempted to slash through it but failed miserably. Frankly I’d love to see them try again as a breach would probably result in a plunge lower.

More productively I would look for potential buying interest near 1605 – if it fails and drops lower it’s permissible to start accumulating a few (and only a few) short positions which would be considered extremely speculative unless you are already delta negative right now. A drop through 1594.75 will most likely result in a surge lower. Like you guys I don’t have a crystal ball but that’s how I see it play out based on what I see on my charts.

A quick and pertinent heads up – VIX:VXO currently suggests they may try a bit of monkey business ahead of the close. That’s short term and does not affect the overall picture of what I’m suggesting above. Whether or not it happens today – remember that volatility spikes will always generate strong counter moves – it’s a bit like Newton’s third law of motion. FWIW – this one of the reason why most bears lose in bears market – they are unable to deal with aggressive counter spikes which are an inherent side effect of rising volatility (you see this less in late stage falling volatility trending markets).

Natgas may be painting a last kiss goodbye – I would use the 100-hour SMA as my line in the sand. Once that daily NLBL has been breached the bulls are running the show again.

A few FX setups for my intrepid subs – please step into my lair:

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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 the usual social media waterholes.
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  • ridingwaves

    this youtube clip is appropiate right now…

    http://www.youtube.com/watch?v=N1NupxasQWs

  • Bun Dance Kid

    Once upon a time, the bears had a field day. And then just when they thought all those nasty bulls had run for cover…

  • Skynard

    If that signal does not make it above watch out below. Otherwise it could also flatline, which gives us rats a disadvantage.

  • Bun Dance Kid

    Thanks for warning. Tin hat at the ready.

  • Skynard

    If this level holds the bulls need to regain SPX 1650. Otherwise, seeing continued move down.

  • Skynard

    Warning as well, TVIX up 13% right now. VIX approaching 20 mark.

  • amokta

    Were only halfway, to 1600, so near, yet so far away

  • bdoone

    Not much time left for EOD rampers. DOW 15K & SPX sitting just above the 50dsma 1610.56

  • Bun Dance Kid

    Stretch a rubber band far enough one way and eventually… it either snaps or….

  • jmoney3000

    Which signal are you referring to. I am not as well versed as you in the 4 different ZL lines

  • Bun Dance Kid

    the ZL 5min. It’s right at zero now.

  • jmoney3000

    ty

  • Skynard

    Getting fired up, Bucky regained 81, see if it holds this time:)

  • Bun Dance Kid

    … or it snaps

  • Ronebadger

    Working on that VIX Step 1 Signal….wait for it…..

    Hey Mole, IF we get a NEW Step One, I am guessing that negates the previous 1-2-3 signal? Is there a rule for that?

  • http://evilspeculator.com molecool

    I dunno if step one has any importance right here.

  • http://dartht.blogspot.com/ Darth_Gerb

    didn’t he hear you? Technical Damage.

    hey, some new tires, and a battery, it’s still drive-able.

    http://www.strangevehicles.com/images/content/101251.jpg

  • Ronebadger

    I think we start all over again with the VIX signals, and it’s gonna be bearish as H-E-double hockey stick. Somebody’s gotta check some history on this…I can’t get the data right now.

  • http://evilspeculator.com molecool

    Meh, you smack a layer of paint on that puppy and she’ll almost pass for brand new again.

  • http://evilspeculator.com molecool

    Zero indicator signal on the E-Mini during the last two sessions.

  • amokta

    Returned to Rent-a-car depot, Baghdad Airport

  • Bun Dance Kid

    Not looking for definitive answers here, just trying to gain more of a feel for the tool… but I’m seeing +ve div in the ZL 5min and a turnaround in the hourlies, which I understand to mean: be alert for a snapback rally tomorrow or overnight. But I feel a bit like a cross between a charlatan tea leaf reader and a baby with a razor blade… I now know just enough to be a danger unto myself.

  • convictscott

    That will buff out!

  • http://ibergamot.blogspot.com/ i Bergamot

    In Soviet Russia the drive-by car shoots you 🙂

  • convictscott

    What I suggest is using the zero as a signal to start “stalking” a trade, thinking about price action in context for a good risk/reward trade. Using any indicator, even an excellent one like zero in a “bullish divergence – go long” manner is a recipe for disaster. Even with the best of analysis trades never really get better than 60:40 odds, and the feeling that “this particular trade is a lock” is nearly always pure illusion.

    IMO What you should be doing in using the zero is waiting for a divergence, then start waiting for a setup in the anticipated direction, THEN wait for PRICE to confirm your view by breaking the high of a previous bar (or a series of highs). If 5 min emini trading is your thing I can highly recommend Al Brooks, who has a superb 5 min e mini method with solid setups and is a very nice guy.

    In this instance – what do we have? We have a market which is going down in an unconvincing fashion, with 2 sided price action (many overlapping bars, attempts by the bulls to gain control back) We define that as a WEAK TREND. In a weak trend the obvious thing is to be nimble, scalp for 1R, not to try and hold for the day. Go through the chart below in order, paying particular attention to the FIRST FEW CANDLES OF THE DAY. In a bear trend, you want to sell pullbacks. In a weak bear trend you want to scalp rather than swing and be alert for potential transitioning to a trading range or secondary bull move.

  • Bun Dance Kid

    Awesome response Scott. Greatly appreciated. Thank you. I sure have plenty of homework to do.

  • convictscott

    Pay particular attention to every single 5 minute candle. Each bar can be a trend bar, a range traded bar (doji) or an attempted but failed reversal (shooting stars and hammers). Reading each bar in context gives you enough information to confirm what sort of day is unfolding. Zero is an extremely valuable tool but in this instance it only confirms what price is SCREAMING, that it is a shitty, low participation bear move.

  • convictscott

    Also, when trading 5 min charts I try and have ONE SINGLE THING in mind all the time. A continual running question “is it trending or is it in a range” In a trend you look for any excuse to get with the trend. In a range you want to buy low, sell high, and scalp. Each bar must be examined for evidence for how it fits with the current hypothesis.

  • Bun Dance Kid

    Even more awesome! I’m printing all that off to study with the dedication of the Karate Kid painting a fence

  • strider

    excellent info. appreciate your time on explaining this

  • convictscott

    Also. You MUST stop trading now. I strongly suspect you are currently trading without a coherent method, asking for advice on trades…. and no doubt trading larger than you should be and have already lost money.

    If you continue as you have you are 100% certain to blow up your account, as I blew up my first accounts and virtually everyone blows up their first accounts. Wandering into the markets expecting to make money straight off is like walking into a hospital, walking up to a nurse and saying “I hear there is easy money in this brain surgery business, mind if I give that a try?”

    The nurse doesn’t bat an eyelid, just smiles and says “sure thing sir, here’s a scalpel, do all the surgery you want, just let us know where to send the paycheck. Good luck!” Trading is roughly as difficult as brain surgery, and takes roughly the same amount of time to learn. To think otherwise is to be a fool, and the markets are particularly harsh on fools.

    Successful trading is about having an EDGE, sticking ruthlessly and consistently to it. Evidence is that delaying gratification by 6-12 months while you research an edge (you don’t have one yet), develop a campaign management and money management strategy, back and forward test that strategy, and understand what type of markets your strategy works and does not work in (because nothing works all the time) will greatly increase the odds of your success. In any case, right now you are at 100% odds of failure, so any improvement is worth taking 🙂

  • Bun Dance Kid

    Probably the best advice anyone could give me. I have crashed and burned many times in the past and know exactly what you’re saying. I’m still sitting on gains from my most recent trading, but more by luck than judgment. I have taken some hits that I shouldn’t have because I keep making the classic novice mistakes, so I appreciate your prediction of failure. I’ve rejoined this site because I think the comment and setups here are the best I’ve come across. I have no doubt I can learn a lot from sticking around. But I agree I need to make sure I have some trading capital left to play with once I’ve graduated to flying Evil instead of Seat o’Pants. Thanks again, Scott, for taking the time and trouble.

  • amokta

    Often, the best action happens overnight 🙂
    Lets see!

  • Bun Dance Kid

    Just had a proper look at this diagram. Epic. Will be using this as a beacon to help me improve my reading of the day’s candles. Thank you.

  • Skynard

    Indeed it does:)

  • x5x5x5x5x5

    Jesus Scott – you and mole are great – just the free shit here is so valuable – much less the sub stuff. Thank you both!

  • Skynard

    Damn, was that the final nail? Reversed AUD on a failure of hourly BL. Now short, stop above 100.

  • newbfxtrader

    wait for the 9.30 news release.

  • Skynard

    Lol, just dropped 20 pips on dollar weakness.

  • Skynard

    Extreme, extreme on the daily. Full long now.

  • Skynard

    Technical damage coming:)

  • Skynard

    Looks like a new headliner maybe:)

  • Skynard

    Crazy shit tonight, treasuries/dollar rally time me thinks. Should be interesting if the dollar inverses the market now.

  • http://dartht.blogspot.com/ Darth_Gerb
  • convictscott

    Why don’t you take another session of emini and mark it up and post it?

  • Skynard

    /ES target 100 daily, nothing but air now.

  • http://dartht.blogspot.com/ Darth_Gerb

    AUD/JPY – remember when 93.50 was just the most unstoppable level?
    and just a 5 short months ago.

    ah, the memories.
    http://s13.postimg.org/upr42cd93/audjpy.png

    -DG

  • Skynard

    More buckets please, for the coin:)

  • http://dartht.blogspot.com/ Darth_Gerb

    you sir, are going to need a swimming pool, methinks.

    http://images.colourbox.com/thumb_COLOURBOX4593116.jpg

  • AmazingLarry

    Patiently waiting. Bucky is totally sucky.

  • Ivan K

    You certainly have made great progress Scott … as you know, my preference is for a far less ‘active’ process … the attached 25 minute of the same action produced similar, if not better returns, with less a work aka decision making!

  • ridingwaves

    looks like 1567 is in the game..10 yr overlay would be interesting.

  • ridingwaves

    Deep Red in Asia most likely offered a lot of setups.
    Thanks for all the great information you post!

  • Darkthirty

    not gonna let ES break 1600?

  • Skynard

    Looks like a test, think we see lower prices IMO.

  • Darkthirty

    I need some sleep, but all in short. Just pulled 36 straight @the FD

  • ridingwaves

    definitely…vix should bust out hard tomorrow..

  • Darkthirty

    yay!

  • convictscott

    Definitely less work involved here

  • Ivan K

    I trust you also noted the ‘odd’ timeframe I used … helps with slip of the negative variety.

  • convictscott

    I checked back a few days in comparison with 30 min. Appears to be a demonstrable improvement. Great stuff.

  • Skynard

    That was one evil Asian session:)

  • Ivan K

    You may find that you ‘learn more’ by taking some of the ideas and setups and doing a rigid back or forward application and sharing your findings … the old saying of the more you put in, the more you get back in return.

  • http://evilspeculator.com molecool

    It certainly was!

  • http://evilspeculator.com molecool

    SPECIAL MORNING ALERT!!!

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