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Caveat Emptor

Caveat Emptor

by The MoleFebruary 19, 2013

President’s weekend is in the bag and it’s time to start thinking about where spring may lead us on the equities side. Obviously we’ve had a good run here in the past few weeks, courtesy of simply following this rally higher and not attempting to step in front of what was clearly a speeding train. Successful trading doesn’t have to be complicated – more often than you think it’s best to turn off your brain and simply follow the trend. However, all that said – we are now heading into low oxygen altitudes and the odds are starting to learn toward at least a short term reversal.

If you are a long term subscriber then you may recall my CPCE Deluxe chart which has served us well over the years. A few weeks ago I pulled this one out of my bag and suggested that a meaningful reversal would probably not be anywhere near unless we got a touch of that diagonal support line. Well, depending on how you draw it we’re getting pretty close – and that suggests a medium term reversal is on the horizon – perhaps a week or two out.

From a purely statistical perspective it’s also worthwhile remembering that the E-Mini is now painting its 8th consecutive week higher (assuming it holds until Friday). To give you an idea of how rare this is statistically speaking: Since 1950 we only count nine instances in which we painted 7 consecutive weeks higher, and only seven instances of 8 consecutive higher weekly closes. The odds for a weekly reversal are currently near the 99 percentile, but that doesn’t mean it’s impossible we see a higher close. To put things into perspective – last week the odds for a reversal were ~ 98% but here we are!

Earlier this month I warned you about the Fed’s POMO auctions scheduled throughout February. We knew the odds of continuation higher were rather high but even given all that easy Fed cash I would be very cautious about the long side here until we see a little correction. It’s just too tempting to shake out some Johnny-come-latelies. Caveat Emptor!

Quick update on natgas – we grabbed a contract at the ST SMA breach this morning and it’s been chugging higher like a champ. I’d start scaling out a little at this point but am ready to keep a few contracts running into 3.32.

Bonds – the 30-year may be breaking off that diagonal resistance. If you are in this trade then be prepared for a test of that 25-day SMA.

USD/JPY – I’d like to put this one our map. It’s not a bonafide setup just yet but it’s worthwhile noting that it breached a daily NLBL for the first time in weeks. Maybe it’ll jump higher tomorrow – let’s see.

We’ve got nice setups today – let’s jump right in:
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USD/CHF currently sitting on its 100-hour but I’m actually hoping for a touch of that 100-day SMA, which would be a nice inflection point. Obviously it’s passable to take a 100-hour SMA breach here if it happens – always possible we won’t touch that Maginot Line on the daily.

GBP/JPY looking weak – below both ST SMAs and also below its 25-day right now. Use that daily SMA for getting positioned – I think the bulls still have home turf advantage but it’s looking interesting right now.

EUR/CAD is a bit shot out on a very short term basis, and that daily NLBL should be good for some resistance.

EUR/AUD – it’s been a big tease but that 25-day is rising rapidly and it’ll have to make up its mind soon. Watch that 100-hour – actually we are currently below both ST SMAs.

CAD/JPY – another Yen pair which has been dropping. Support below at the 25-day SMA.

And the greenback is back from whence we came – I guess we’ll have to do this one more time. That diagonal should provide support but I won’t be married to my longs if I start seeing it slide lower. Good spot to add or get positioned either way.

Soybeans looking strong! I think the chart is self explanatory.

Finally copper which has been selling off hard and is now back at its 100-day SMA. We want to see some support here although based on prior observations we may drop through a little. I would play this only with a small position – and wait until you see signs of a floor (or a drop below that lower 25-day BB).



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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  • Curiousmind3861

    sorry for the newbie question, what is the implication for USDJPY breaching a daily NLBL for the first time in weeks? does it mean some kind of correction might be coming for this rocket fueled pair?

  • momac

    Mole, there must be something wrong with my email for the trend day alerts,  is there an email address to contact you about it?

  • Pervergence

    s ES  1527.5

  • bdoone

    check your spam folder

  • momac

     I don’t think it’s the spam folder,  I get the emails whenever Mole posts a new thread, and I was getting the trend day emails for a few days and then they stopped.

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

    The odds for a weekly reversal are currently near the 99 percentile, but that doesn’t mean it’s impossible we see a higher close. To put things into perspective – last week the odds for a reversal were ~ 98% but here we are!

    Never tell me the odds. (AKA Never say Never)

  • Joe_Jones
  • Joe_Jones

    Wow to how “they” crushed the VIX in the last seconds of trade

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

    I don’t know about 30 years, but equities are beating 20 years
    new high in the ratio.


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

    Yawn indeed. Maybe I should make a bullish comment to get some action going?

  • bullregard

    Can VIX be negative? As in, “in soviet Russia you have to pay to get on risk”.

    EDIT: I wonder why this pervasive bullishness imparts so much sadness? Are we permabears at heart?

  • Pervergence

    Didn’t fearless say watch out when the VIX hits 10……

  • bullregard

    July ’93… VIX at 9.08

  • ridingwaves

    Dell earnings fall 31%, beating estimates
    Mole, is when we should post the news headlines…it’s comical…

    it’s almost like: 

    Man prematurely ejaculates but still has sex…..

    QCOR is just the gift that keeps giving…I know no one trades symbols here but this short squeeze has legs….

  • bullregard

    /ZB going back to sometime in 2002. Here is SPX:/ZB.

  • https://evilspeculator.com molecool

    Hey there – please send me an email to admin@ and we’ll sort you out.

  • SirDagonet

    chart question re soybeans… go long on a breach of 1494.75? or above the diagonal ~1470?  Short on breach of 1455?

  • https://evilspeculator.com molecool

    The yen has been weak as ass lately and the Japanese are loving it. If the Yen starts gaining against the Dollar (and the EUR) it could either mean that the Yen is getting stronger or the Dollar (and EUR) weaker. The Yen just got the ‘wink wink notch notch’ by Bernanke last weekend, so this is interesting – perhaps that trade has become too crowded.

  • https://evilspeculator.com molecool

    Really depends on how you draw those lines – preferably with a crayon. 1480 is a safer one but it all depends on how you play. You could also just use the SMA as your maginot line.

  • https://evilspeculator.com molecool

    Is that a fair chart given Bernanke’s machinations?

  • bullregard

    No! But what is fair?
    I look at it like this: “pain (price decrease) incurred on 30 year bonds through selling does not match (percent-wise) the euphoria in stocks”. It could mean that, yes, some money get out of bonds into stocks, but some stay on the side… maybe waiting for a better entry? 
    All around is plain ridiculous… I’m grasping at straws.

  • bullregard

    Trying to be fair… The /ZN tells a different story.

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

    Government bonds is much bigger market than stocks, takes some tome to get going.
     I tried to borrow 10k at 3% for 30 years from everybody I know. They just laugh at me. But millions of people give it to treasuries without any second thoughts. Hmm.
    Whats important is a fact that there is no active investor alive, who have seen a bear market in US Treasuries. But that is not THE biggest problem. Why?
    Because the hard right edge of Long Bond chart is not active investors, but pensions, IRA’s, mom-and-pop etc., who have no clue what shit they got themselves into.

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

    I don’t know what Bearded Clam is buying, but visibly its not Government Bonds. O, I remember – its Mortgage Backed Bonds (see MBB chart below). What? Also at 6 months low? How can it be – 85bil per month freshly printed Dollars… Printed Dollars? /DX must be in a crapper by now. No? Wrong again, you know where dollar stands, and I know your bet on where it goes.

    Guys, am I the only one who see complete lack of logic/correlation here.
    Call me crazy conspiracy theorist or just a smelly yellow fruit, but I think this QE-n is a total put-up job.

    Fine, I have a theory. Feds are not stupid to buy bonds here – let the price fall and pick it up on a low print. Nah, too cute
    Or – Big boys are selling bonds faster than Fed buying. Sell? But to whom?
    Or – Bermonkey relaxing on a way to golf club, transfers money from left pocket to right one, books it as a profit, collects a fee…
    I really don’t know, but my bullshit-o-meter has been stuck on red for months

  • bullregard

    Thanks for the reply… I’m re-reading my post and I realize it’s wrong, does not make any sense… I’m tired. Had a few good weeks now, maybe should be time to sit and recollect for a while. 

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

     Hard to argue with this article, because its all true, and also all in a past. The only thing I would add is that “people” stopped gambling on housing and started fixing it, as well as consumer deleveraging whether they wanted it or not.
    I personally got a kick out of old-timers comments about 1960’s, as it confirms my own thinking on long-term bull markets.
    Here is a short blurb on this subject, from yours truly BS Reporter:

  • newbfxtrader

    FX is telling a different story. Eur/USD did not breakout. Neither did aud/usd. GBP/USD well its headed for the abyss. Yen is still weak but it may be time for a correction there too.

  • http://iberianviews.blogspot.com/ catracho

    You mean the “weak dollar, strong equity” and vice versa? true the correlation has been in place for a while..but signs that it is breaking..gold, equities have largely ignored FX aside from YEN weakness…

    EURO actually looks like it IS starting to break out.. cable is UK specific
    AUD may have bottomed..

  • newbfxtrader

    Hmm I will keep an eye on it. Lets see if 50 RSI holds on eur/usd. I am guessing not.

  • Skynard

    Wow factor on silver:)

  • https://evilspeculator.com molecool

    ¨°º¤ø„¸F R E S H „ø¤º°¨ 
    ¸„ø¤º°¨ M E A T“°º¤ø„¸

  • https://evilspeculator.com molecool

    Are you still in this one? 🙂

  • Skynard

    Pulling out, taking profit.

  • convictscott

    caution with dow theory non confirmation on the lows with gold