Do Not Chase This Tape

The direction of the tape on the equities side may be unclear but the intent is rather obvious – crystal actually. These gyrations are designed to make you guess and chase after long candles, probably right before they turn back the other way. I know this is not what you want to hear but the best approach when things start going spring break wild is to simply step back and let things play out. As the old saying goes – the only way to win is not to play.

Suffice to say that I’m rather suspicious about this sudden drop as it is not confirmed by the GBP/JPY. Maybe that one is wrong this time but unless you got positioned during the sideways (non participation) churn then it’s too late anyway.

On the daily side the ES is currently trading below its NLSL at 1866.25 – let’s see if we get a close below it. But even if we do then this is a pretty lousy entry. I do like that it’s near its 25-day SMA and perhaps that’ll lead lower. But I would probably put my stop a few ticks half above the NLSL – perhaps 1870.25ish.

What this reversal has going for it however is that the wall at 1880 seems to be holding up very nicely. Frankly speaking this is a very crappy situation as the odds of continuation lower are limited but at the same time this could have been the last fake out higher before it resolves. Tough call and I have decided to play this with 1/2R if we close below the NLSL today – add another 1/2R if we drop below the 25-day SMA and then build positions up as we continue. If we close above the NLSL today then I will take 1/2R to the long side with a stop below the SMA. Sorry, that’s the best we can do right now.

Gold is looking pretty good here as it’s painting an IP after some long candles. It’s not an RTV-L but I do like the configuration. However there’s a better setup on the precious metals front and I keep it for my intrepid subs:

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Let’s hope that we soon see more directional tape instead of a sideways churn filled with dirty surprise candles. It’s wearing everyone out but it usually precedes earning periods, so let’s keep a lid on the emotions and focus on solid technical setups that present themselves.

Cheers,