Let’s See If This Has Legs
Hat tip to Skynard who played this one like a fiddle after having accumulated short positions since yesterday. If you read this morning’s post then you recall that I didn’t see an entry and missed out on the slide lower. Unfortunately I was busy running an errand in the first hour as I may have grabbed some shorts near a rather blatant divergence on the Zero Lite:
Yeah, I know what you’re thinking: Shoulda, coulda, woulda – easy to say after the fact. And you would be right. However this is not the first time the Zero paints divergences when it matters the most and it’s my fault for snoozing on a potential entry. But be this as it may, I saw some questions regarding today’s signals and thought this to be a brilliant opportunity to step us through some of the salient signals.
The big one in my mind is of course the swing higher (blue arrow) accompanied by a flat Zero Lite signal. Not a guaranteed spot to bet short by any definition but we did scrape 2112 which you recall being near our inflection point (i.e. the diagonal I had painted). You also see a clear divergence on that big spike on the SPX (left panel) we got yesterday.
There were also a number of Mole reversal signals (tiny blue arrows which I pointed at with yellow arrows). They usually tell us potential mean reversion points and in light to flat tape they often work like a charm. The only problem are periods when we get a very strong signal (to the up or downside) and the algo that drives them gets overwhelmed. Now as I’m typing this I’m actually thinking to simply turn them off on very strong advancing Zero signals. I have not changed the Zero for many years and it’s one improvement that may be worth undertaking.
In general I recommend to ignore those little blue arrows when the tape starts trending. Best to wait for a clear divergent signal first. So far we don’t have one, which may mean we continue lower today or tomorrow. Which is really where the rubber meets the road, right? How often have we seen those quick sell offs or ramps to the upside. What matters is the follow up, so let’s see if this thing has legs.
Zero subs: Keep an eye on the signal – IF we are to continue lower we don’t want to see the Zero Lite spend much time above the zero mark (blue line) today and tomorrow. Look out for signal divergences, meaning advances with a flat or dropping signal and of course the opposite, sell offs with a flat or advancing signal. Those are usually early harbinger of bull/bear traps. Watch some of the videos if you need a refresher course.
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