Bear Squeeze Thursday Wrap Up

What a day! And before we talk about it let’s look at things a bit more in context. And for that I actually zoomed out a bit on the Zero chart before taking this screen grab:

Quite frankly, this chart should be kept on your drive as a textbook example of a bear trap and bullish reversal. So what do we have here?

1. First we have a very distinct bullish divergence on the ZL pane. Something I pointed out to my subs as a possibility leaving a ‘door open for the bulls’ to drive the tape higher. Although prices dropped a bit further that day the signal was not impressed and pushed toward the zero mark. So the old cynic in my suggested that it wasn’t time to entire give up on the bulls just yet.
2. Yesterday’s tape further confirmed my suspicions – not only did we start to paint a floor pattern that even Martha Stewart would have approved – we also remained completely flat on the ZL, which cracked that door open a bit more.
3. Finally we have today’s action – after melting higher overnight the ES futures opened at 1320 and never looked back. We kept pushing away from VWAP as we climbed higher along the upper standard deviation line like a cable car in the Austrian alps. On top of that the ZL signal kept spiking higher, culminating in a 1.96 signal at the close.

And there you have it – classic bear trap. Of course we did not close above the 3/1 highs just yet and that leaves the door open for the bears to somehow turn this into an a-b-c. At this point the odds are with the longs again but heck – it would require a turn on the dime to make that happen. Instead of guessing let’s simply watch the Zero tomorrow. If the signal falls apart like a French soufflé then the bears may get their day but at this point we are again looking for bearish evidence before considering the short side.

Geronimo of course did its thing – it won one trade and ran out of time on the last one, costing it one tick. Considering that we didn’t see many swings today I call that a good day – straight up days are not optimal for scalping strategies but I’m glad it carved out some profits.

And that’s all I have for today, not too much to add for the moment. Let’s wait until tomorrow before we make a final assessment as to what the medium term trend is expected to be. But at this point the onus is on the bears to show some mojo here, the longs proved that they have what it takes to escape the jaws of death. I can’t say that for the grizzlies unfortunately.

And on that bombshell I hand you over to Scott – but with a warning – he kind of screwed up and thus he’s going to whine like a little girl today. You have been warned.

Mistake Laden Thursday

I’m here feeling like I got hit by a car. I put a set of alpha rules about globex which I’ve been developing into action instead of the tried and true setups I posted here. Lets assume you actually followed the setup I posted instead of doing what I did.

Not only did I let a juicy profit get away, but I followed it up with a (small size) top picking exercise. A classic example of one bad trade causing a cascade of trading errors. I was clearly biased, and have failed to notice what Mole pointed out that the IMPLICIT manipulation of this market is that when down moves happen traders are more cautious in banking profits. The market has changed and I had not.

So where are we at? You should NOT be short at this point. After pipping the old highs we are back to a coin flip situation where its impossible to know how the market will react to these levels.

That being said, we have internals strengthening into the close. Today was unequivocally bullish.

If I was long, which I *should* be and so should you, I’d be banking some profit and seeing how the assault on the old highs develops. Some caution is warranted at this point because AUDUSD and copper didn’t follow the move up.

Scott [and not Mole who never made a trading mistake in his life – ever – well, almost]