Scaring The Children

I’ve said it many times before and I’ll say it again – I love using the Zero. To my knowledge no other indicator shows you true participation on the E-Mini futures like the Zero does it. Today’s a great example – you recall I was long near ES 2121.75 with a stop a few ticks below 2120. In retrospect a teeny bit too tight.

Then this happened – my stop got snagged by just one tick. Bastages! Time to get short, according to plan, right? Well, not so fast…

Fortunately I looked at the Zero first. If there ever was a divergent signal this was one – non existent participation on the way down. I got back in – a bit late at 2122 but so far it seems to be working out just fine although I’m expecting a VWAP test shortly.

Ditto on the NQ – except here I got in at 4498. My ISLs are now below each respective spike low.

This tune really has nothing to do with the topic except that it may scare your children. Which is exactly what we call dips like these accompanied by a complete lack of participation. My policy in these cases is to wait for a strong snapback but not too late to jump back in (e.g. above a major NLBL, SMA, Bollinger, etc.).

If you got swiped today then you may be interested in signing up for the Zero. I have people following it religiously for nearly eight years now for a reason. But don’t take my word for it – I welcome any Zero sub to chime in here in the comment section. Tell us how you fared today!

Update 4:33pm EDT:

That was quite a reversal and after some short lived paper profits I got taken out at break/even (I was actually having dinner or I may have squeezed out a handle or two). Unfortunately things happened way too quickly near the highs although we did get a Mole reversal arrow. I did expect a VWAP test (see above) but things went back to flat.

Which goes to show that the Zero can help you traverse rough waters but it’s not the Holy Grail – sometimes the tape simply runs off and it would be unrealistic to assume that you manage to make the correct conclusion if things turn on a dime – which they clearly did here today. Moving forward I would strongly discourage you from playing the spoos with anything but negligible position sizes (i.e. lottery tickets) as we are now heading into the final two sessions preceding a Memorial Day weekend. Which means more bi-directional tape banging like this and it will be easy to have even your best placed stop run over.

In general equities keep traversing a very difficult market environment. Any directional progress (to either side) happens in sudden bursts after days or weeks of sideways churn. Only to be followed by more sideways churn or FU sessions like today. Not to sound like a broken record but I caution you guys to continue taking very small position sizes, if you should decide to play the swings (that means you Skynard!). Although the bulls continue to dominate this is transforming itself into a very different market than what you have become used to over the past six years. Stay on your toes…

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.

Cheers,