Don’t Ever Chase The Tape

Boring markets usually lull hapless victims into a sense of safety and complacency. I see it here in the comment section all the time – time and over again retail is looking for ‘action’ and perhaps a bit of drama instead of leveraging the market cycles I described yesterday. Case in point is today’s whipsaw move on the spoos:

Our Zero indicator provides an excellent way to visualize/understand what has been happening over the past few days. Make no mistake – strong hands got positioned a long long time ago, probably near the recent bottom of SPX 1926. They have been riding the bus higher in style and are not in a great hurry to get out of their longs – at least up until now.

Weak hands however have been watching the advance with envy, patiently waiting for a dip to materialize – which of course has not happened. Some of them may have even jumped on board in the past few days as we were painting new highs. And those are the same folks who you just saw run for the hills in panic when the tape suddenly went divergent and then reversed.

Look at the volume profile on the E-Mini – you do NOT want to get into long positions here. Yes, it is possible that the tape jumps higher but is it probable? That’s actually what a professional gambler would ask before committing any assets to a new play. Many traders however remain blissfully ignorant on how intrinsic market behavior. This is nothing new – these things have been playing out day after day, week after week, month after month, and year after year.

The only reason to be long right here and right now is because you have already been long and can afford to sit out any bumps in the road. Most likely your stops are sitting somewhere a comfortable distance away. You probably sleep better as well as you don’t worry about risky trades which you regretted placing minutes after doing so.

I have been trying to drive this concept into your heads for a long time now. Boring time (a.k.a low velocity/volatility cycles) are there to watch, observe, and if the odds seem to be in your favor – get positioned. Funky time when things move is usually when retail traders show up for all the excitement but very few actually put in the hard work in order to get positioned properly. Trading somehow devolves into a random activity based on your daily whims and today’s favorite charts. Does that sounds like you – perhaps even a little bit? Well, then you have work to do – we have all laid it out here before – if in doubt check the ‘goodies’ page on the very top. Plenty of material there and it will be time well spent.

Technically speaking today’s spike higher provides us with additional context bear ES 1948.25 where we now have a brand spanking new Net-Line Sell Level. Unless we continue dropping today and pass right through that it ought to be good for at least some support tomorrow.

On the hourly I’m looking at ES 1950 as we have the 25-hour and 100-hour SMAs nearby. Right now we also have a NLSL right below which should be good into the close.

As you know we have been expecting for a little shake out although there has been little evidence to support dipping into short positions. Which was good policy as you may have been quite nervous as we were pushing into new highs today. Frankly speaking there is very information here to justify major activity. If you are still long from further below then you simply are advancing your trailing stops higher a respectable distance away. If you’re waiting for a short opportunity, well – I’m seeing some issues on the volume profile chart but it’s not enough to justify a major reversal.

Before I am tempted to trade against the daily trend I need to see more evidence – period. As a matter of fact – I’m seeing us near 1950 right now as I’m typing this and I will use this for a small short term long position with a stop a handle or so below.

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Cheers,