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Listen to the market
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Listen to the market

by ScottMay 15, 2011

Everyone seems to have a great big case of a set in stone market view right now. My experience is that when I start making predictions, I stop being open to what the market is telling me, right now. Mark Douglas (trading in the zone) talks about good trading as “staying alive to the flow of information in the now moment”. Its a good time to examine, in context, what *should* be happening, and what actually is happening.

As far as I can tell, we are diverging from the usual script here, in a subtle way. This thing could still go either way, but cracks are appearing.

The bottom line, as Hochberg would say, is that stocks are about to start a one in 200 year decline in a primary wave 3, the USD will stage a powerful rally, and that gold will fall.

ONLY KIDDING!

I JOKE! I JOKE! For the record P3 is a fairy tale and its not gonna happen. Its as stupid as the zerohedge crowd, which for the record, are pretty fucking stupid.

Well actually, the evidence is totally mixed. I can make both a strong bearish and bullish case here. But for the first time in a while, the bullish case has holes in it. Great big holes, which need to be filled by POMO on Monday, or its off the table.

The stopped clock may be right at long last. The sine qua non of the Prechter P3 theory is the USD will stop its decline.

Sentiment is all lined up. Its a one way street bearish for the USD, and has been for a long time.

Take a look at what the last few days of price action have told us about USD.

What I’m seeing is that after bucky has started to rally on increased volume, it has made two failed attempts to retrace, both of which started, but were totally overwhelmed by the buying pressure, painting bullish engulfing candles. A bullish engulfing candle indicates that the market *tried* and failed to go down. If a market tries to go down, it means that shorts are positioned or sellers are selling, and that their ammunition is temporarily depleted. This effectively gives the dollar bulls a few days of free punches until the bears get their shit together again.

So where does that leave old bucky? Its taking off without giving us a real deep retrace to get positioned long. This is very different, and indicative of a market that really wants to blast off. Its a hammer candle on the daily chart. and a buy setup on break of the daily high with a stop at the daily low.

To make it all simple for you. This is the order you give your broker.

SELL STOP EURUSD 14065 GTD IF DONE BUY STOP EURUSD 14340 GTC.

The only thing that makes it hard to take is the wide daily range, which necessitates a small position size.

Lets look at the indexes.

Up until recently the price action on daily, weekly, and monthly timeframes was as bullish as bullish gets. Add POMO into the mix and its almost a no brainer to be long. I mean, we have the widely anticipated bullish inverse head and shoulders complete, and a thrust to new highs. At this point what we SHOULD SEE IS TOTAL CAPITULATION OF THE BEARS. But thats not what actually happened.

After a strong bust to fresh highs, each daily range was smaller and smaller and then we reverse.

This is a great big hole in the bullish case. but its not too late for the bulls. We have a 50% retracement of the move up, then if the bullish case is intact, we should see a rip roaring rally, a total moon shot.

Lets take a closer look at the action, day by day. And see what *should* be happening and comparing it to reality. I urge you to look closely at the points marked on this chart, in order. Particularly telling is the failure of the upside break of the inside day, marked as (2). When a bullish setup fails, it tells us something.

Out of interest, take a look at the 30 min $spx chart with the market internals. See how the divergences nailed the top and bottom both ways, and are inconclusive right now.

How can I explain the subtlety of the current situation?

Bottom Line (ha ha) is that the bullish case is hanging by a thread here. It really has to explode higher tomorrow, or IMO the bears can have a real chance at doing some damage. We have the inside day setup, short on break of the daily low, long on break of the daily high.

In other news. The emotions are strongest in gold and silver, and again I’m seeing mixed evidence. To me this is a good market to sit out right now, the easy gains have been made to the shortside, and the market has shown that retracements are more shallow than usual. We have a bullish non-confirmation between gold and silver (gold did not make a new low like silver did) and a *potential* short signal in silver on break of the shooting star daily lows. If you are a confirmed metals bear you could be getting short again, but personally I’d be happier shorting from up higher.

The other setups I like today are in USDJPY

Lets look at the weekly first. The concept here is more than just the inside week (which would be enough on its own) Here we have a different type of retest, where we have a move up for 3 bars to a spike high, followed by a move down for 4 bars which failed to break the old lows.

The concept is fast up, slow down, telling us that the ease of direction in the longer timeframe is to the upside.

Then we have a weekly inside bar, giving us a clear trigger point and stop.

The exact same setup is on the daily chart. It could be worthwhile trying to roll a daily trade into a weekly trade here.

In case you couldnt tell, this post is authored by Scott


About The Author
Scott

  • aussiebinlaughin

    Great post, thanks Scott.

  • http://thefxspeculator.blogspot.com Onorio

    Thanks for your input Scott. One question…did you ever try use Heikin ashi candles on your setups?

  • http://pulse.yahoo.com/_HTC36TQZERN5Q5R6JDRLLSMBGY Dan

    You're on the right track however your T/A needs a lot more work before you can begin to trade off it on a profitable basis. Keep on experimenting and back-testing. Once a decent edge is discovered it will hit you like a ton of bricks. Remember not to get too caught up on candle analysis as it will present you with too many limitations. Once your edge is discovered and implemented, you will see a great improvement in your order-flow reading as well. A combination of the two will set you on the right path towards the consistency you've been seeking. Best of luck.

    – A helpful source

  • http://www.streetcoup.com Matt

    Thorough post, highly appreciated. I see the very same pattern in the SPX. It touched a crucial resistance at 1370 (which had been support right before markets started tumbling) and now it's selling off from there again. I will be fully short if that annotated trend line breaks. Here is my take: http://www.streetcoup.com/2011

  • convictscott

    You sure about that? I have made my living trading candlestick patterns for a long time. I post all my trades, with stops and exits here

  • convictscott

    Never tried them, no. I trade exclusively off the pattern setups, but I like to put them in context with what price is doing, develop a narrative of what should be happening, and what is happening. I also secretly count waves, but I'm trying to quit 😉

  • convictscott

    I wish I had something more conclusive to say, but we are trapped in what Mole would call “1-2, 1-2 hell”

  • convictscott

    I noted but forgot to mention the similarity between the congestion areas you note in your chart.

  • http://thefxspeculator.blogspot.com Onorio

    Pretty much the same stroty, iside bars and dojis usualy provide great
    reversals. Imo Heikin ashi cuts some noise in the candles setup, you
    should try, i would like to compare with your setups but i don`t know
    much about your setups 🙂

  • http://thefxspeculator.blogspot.com Onorio

    http://chartupload.com/viewer….

    look how engulfing candles followed by dojis provide the reversals, while long body candles provide trend continuation.

  • finansreven

    I like the comments about the Zerohedge crowd that you and Mole have posted in the lates days.

    That site has some of the most crazy right wing haters I have seen on the Internet. And the tone of their post is full of venom and nasty as f**k. Just see how the writer Leo Kolivakis is treated when he post some bullish ideas:

    “If Leo is serious, and not merely posting his shallow, laughable,
    mindlessly pro-Establishment, pro-central banking, pro-fiat,
    pro-corruption, pro-Ponzi, pro-sociopathic elite power abuse bullshit
    merely to goad everyone who has a tenth of a brain or a nanogram of
    justice and justified outrage, then I say that Leo is one of the most
    pathetic, venal, short-sighted, contemptible, self-declared Quislings
    and collaborators with evil with whom I have ever personally interacted,
    and fully deserves to be hanging on the end of a rope from a lightpost
    along with his pathologically evil heroes Ben Bernanke, Timmy Geithner,
    Jamie Dimon, Lloyd Blankfein, and a host of others as well.”

    And that was a quote I found today. Leo also got ill a few months ago, and the venom I saw where people was hoping he would die, is some of the most disgraceful things I have seen on the web.

    I like the idea of Zerohedge: A news site with knowledgeable writers that are not part of the main stream media. But alternative thinking gives alternative crazy crowd, and it is an embarrassement to read the comments section there.

    I also startet to lose respect for the ZH site when they started promoting those silver bear films that were made by someone selling silver.

    I really like the Evilspeculator site. The content is king, and the posters are reflected and smart people who don't have personal agendas after posting their opinion, and we are all interested in learning from eachother.

    So be careful so we dont get the nutcases over here.

  • http://profiles.google.com/acabrera768 andres cabrera

    I agree fully. It is of most importance we do not attract any of them over here. no  poking at or mentioning their absolutism, which I'm sure they do not see, but yes let us not set a trail back over here.

  • http://thefxspeculator.blogspot.com Onorio

    Here is the deal, using ichimoku as a leadind system we could use heikin ashi candles to enter or to get out of a trade.

    The dojis usualy provide good enty points, in this example we take short positions on the candle after the doji with a stop on the doji high. The stop might be trailed on the top of the previous candle.

  • fraterperdurabo

    Great post – trying not to be biased here but I can almost feel the upcoming drop in my bones. TLT on the weekly looks very bullish after having bounced off $94; now above the weekly 50 MA and the daily 200 MA. Looking for it to try to break recent high (which failed Friday).

  • https://evilspeculator.com molecool

    Troll…

  • aussiebinlaughin

    i blew out (properly) due to trading with bias, so I completely appreciate The Master (mole of course), your good self, RBW & Volars (sorry if ive forgotten anyone else) thoughts as they give analysis based on your chosen methods, not predetermined bias which is why 95% ( or is it more) traders end of on the losing side. So conclusive is never an option…is it? Odds and sticking to your system is what makes me respect someone, regardless as to if i agreee with them or not. Im good at my job, not at trading (yet) so i humbly appreciate all you guys taking the time to post to all us leaches. Well, to be fair, im only a semi leach, not permanent. .

  • convictscott

    Onorio, I'm heading to Europe for a month for a holiday, when I get back I'd like to do some work on the heikin ashi. I'll hit you up about it then 🙂

  • convictscott

    Mate I blew out 6 times in a row trading with bias. Its very hard putting bias down

  • http://thefxspeculator.blogspot.com Onorio

    Ok Scott, enjoy your holidays 🙂 you know my mail if you need something.

  • convictscott

    Its very simple. 99% of traders lose all their money. The reason for this, when you strip the bullshit away, is not the stocks they buy or whether they are long or short. The reason traders blow up is because of THE WAY THEY THINK.

    We make money in trading by fading emotions. Any time at all you read such emotive stuff, from either bull OR bear, its time to take the other side of that trade.

  • convictscott

    Shows a lot of promise

  • gsavli

    hi scott, a bit off topic, but do you know anything about when those new al brooks's books will come out, i see they are still not published (amazon, bookdepository don't have them yet).

  • convictscott

    TLT is an inside week. On the daily there are two theories

    1) It is in a topping process and will reverse hard
    2) It is working off overbought momentum for the last week before resuming a powerful upmove.

    Theory 2 is much more likely at this stage. Its easy trading because if it breaks to the upside it should NOT reverse below the congestion of the last week, and if it does, something very different is in play.

    This is a good trade, not because the direction is clear, but because there is a clear and black and white place to admit when you are wrong

  • http://practicalt.blogspot.com/ Gold_Gerb

    Great post Scott, and thanks for signing your commentary! (woohoo)
    Your candle story telling is the best and very complimentary to the rest of the crew.

    Other's out there are watching the support line too.
    Terry Laundry – http://i53.tinypic.com/2h51kz5
    IMHO, even if it breaks, there's always the possibility of sideways battles.
    OpX is Friday. should be a rip roaring week.
    -GG

  • fraterperdurabo

    Scott – really appreciate your feedback.

    The futures are trading down 5 pts – high of 1,332 – so *ceteris

    paribus*I'd say the probability for TLT to gap up and breakout

    tomorrow looks very

    favorable.

    Long TLT

  • http://practicalt.blogspot.com/ Gold_Gerb

    ah, I could use a good mention of panzers and solyent orange.

    I'm a fan of fib fans.
    E-Mini Sunday evening
    http://tinypic.com/r/aufojm/7

  • http://practicalt.blogspot.com/ Gold_Gerb

    #2check out page 3 – http://ttheory.typepad.com/fil

  • Biowolf

    You seem to have some kind of feud going on with Zero Hedge I dont know the details. Personally I like that site. I also like your post.

  • convictscott

    I like the zerohedge site, it has many excellent posts. What I dont like is religion. The “fiat money is worthless” crowd over there have adopted a theory as fact.

  • Biowolf

    Your message could not be delivered.

    The recipient's account is temporarily over the maximum allowed mailbox size.

    <biowolf@telus.net>

    We hope this information is helpful.

    For more information, visit us at <<http: help.telus.net=””>> or talk to an agent

    via Live Chat at <http: chat=”” http://www.telus.com=“”>.</http:></http:></biowolf@telus.net>

  • convictscott

    I just got a skype from my old mentor Ivan Krastins. He pointed out there is a different type of sell setup (which I dont trade) in play on the dow currently.

  • https://evilspeculator.com molecool

    Hey, didn't you go on vacation?

  • https://evilspeculator.com molecool

    I also like that site – in small doses. What I absolutely detest is the crowd that's dominating the comment section.

  • Biowolf

    Your message could not be delivered.

    The recipient's account is temporarily over the maximum allowed mailbox size.

    <biowolf@telus.net>

    We hope this information is helpful.

    For more information, visit us at <<http: help.telus.net=””>> or talk to an agent

    via Live Chat at <http: chat=”” http://www.telus.com=“”>.</http:></http:></biowolf@telus.net>

  • raised_by_wolves

    Actually, the candle patterns that the Convict trades have been thoroughly back-tested and have positive expectancy.

  • Kudos

    zeroFX, good stuff. Learning to use it. saw the 3 event print then i remembered don't bite at the first and wait for a second spike. Mole, your really on to something

  • convictscott

    Thursday

  • convictscott

    Agree, given that the long bond futures (which TLT is an approximate of) have gapped up. Have you tried doing your charting on the underlying bonds that TLT is made up of, you might get clearer signals?

  • Bob the Horse

    European Banks have just broken last months low which theoretically opens up a retest of the 150/155 area, another 8% lower.  I have a longer-term target on 135 on this index which would pretty much mean the PIGS situation is in the price.  I would go long banks at that point. which theoretically opens up a retest of the 150/155 area, another 8% lower.  I have a longer-term target on 135 on this index which would pretty much mean the PIGS situation is in the price.  I would go long banks at that point.

  • volar

    i have not read a comment over there for nearly 2 years

  • volar

    great post scott. for the first time i a long time we are having 0 participation at new highs

    as for the FX, do u still think a re-test is due for bucky?

  • fraterperdurabo

    Haven't but I will. Thanks.

    TLT flat pre-market.

  • mothwhoflysbackwards

    Man am I up early. Saw the market was down and thought too bad I sold my FAZ yesterday. Then I discovered FAZ was down and ERIC (ditched my puts on that friday) was also down.  
     
    Anyway, FWIW, I have found (not the only one I am sure) that the Market often follows the banks, so I think we finish up today. Also, whenever FAZ opens above its top BB it seems to close lower and just little and diminishing zero signals … my call (have no dog in the fight) we end up. And yes I snoozed buying FAZ puts…. slow typing …. the above is more true now then when I first started to write this.

  • mothwhoflysbackwards

    Man am I up early. Saw the market was down and thought too bad I sold my FAZ yesterday. Then I discovered FAZ was down and ERIC (ditched my puts on that friday) was also down.  
     
    Anyway, FWIW, I have found (not the only one I am sure) that the Market often follows the banks, so I think we finish up today. Also, whenever FAZ opens above its top BB it seems to close lower and just little and diminishing zero signals … my call (have no dog in the fight) we end up.

  • mothwhoflysbackwards

    Don't know why it double posted… hey you guys are right,disqus does suck!

  • ronebadger

    I LOVE Disqus!!!

    Thought that headline might wake you. Anyway, just an observance for anyone to comment. First hour today is the third time the hourly SPX probed the 1330 area, and the HourlyZero indicated lower and lower values.  Any meaning to this? (I admit to being a novice Zero reader)

  • ronebadger

    My “I Love Disqus” comment disappeared?!?  Along with some other more serious comments!

  • fraterperdurabo

    1,330 has been the load-up zone so not surprised we bounced, the question is what happens at 1,340. I'm positioned for a run in the long-term bonds and picked up some more TLT longers this morning.

  • amokta

    Great Post as always CS
    (im just observing the markets/paper trade – need to put the capital elswhere right now, plus was not being consistently profitable, so didnt want to keep losing capital. But maybe i will miss out on P3, its just like markets to grind out people before the big moves!)

  • OllyVaradi

    Disqus ain't working on Chrome just now – hasn't been for a few days. Anyway,……..

    The Zero is suggesting that there's a decent swing trade opportunity, or have I got that all wrong?

    Some help here guys….

  • Joe_Jones

    POMO in full force this a.m.

  • Kudos

    I only use chrome, not saying that disqus is good, but it seems to be working for me

  • tradingmom

    I don't think I've ever seen such a strong positive signal before.

  • BobbyLow

    I use Chrome and it's been working for me although there were a couple of occasions last week when I had a difficult time posting.

  • mothwhoflysbackwards

    I don't know what exactly you mean by swing trade, but as of right now it seems zero is buying the move up off the lows. No divergence and the signal is getting larger with out a return to the zero line. I don't really do swing trades … unless your girlfriend is hotter then mine!

  • BobbyLow

    More currency manipulation at play.  All is well in the world when all you have to do is to sell one currency and buy another one to make it happen. 

    Banks have had a snap back – could be counter trend bounce.

    In the mean time my June SPY Puts are getting ripped via Vega because there is no risk in the market at this moment.  (Party on)

    We'll see if this continues or was just another Monday Morning Shake Out.

  • BobbyLow

    I'm back with you on the Long Side of TLT.

  • finansreven

    Ok, I'm taking a sho(r)t at spx 1341.15.

    Stop at 1345.80.

    I am having a hard time seeing who the marginal buyers are when we are over 1340.

    We will se if this was a train wreck.

  • ds2

    Aside from the gap down pre market, it looks like the wedge is still playing out.  Q and RUT not as strong as SPX.

  • fraterperdurabo

    Ditto. Grabbed some SSO putters.

  • Joe_Jones

    I'm looking at shorting after the retest of the intra-day high

  • Joe_Jones

    OK going short now

  • https://evilspeculator.com molecool

    NOT a Mole thing.

  • fraterperdurabo

    $95.10 has been a tough resistance to break and we need to get out of this

    congestion zone for a quick run. G/L!

  • ronebadger

    Nice trendline, so far, on hourly SPX from Tuesday's high to an hour ago.  Apparently, others here see the same thing….busting below 1329 is what everyone is waiting for, huh?

  • DarthTrader

    According to Cycle Theory we are very close to the high for the next couple of years.

    http://www.screencast.com/user

    Oct 10th 2002 the S&P low (768.63) of the 1st half of the last decade  will be  3142 days ago on May 17th.  Yes that is Pi * 1000 days ago. 

    A similar relationship is the Sept 6 2000 High with the March 6th 2009 low was 3108 days apart of Pi * 1000 – just 34 days from a full Pi * 1000 signal . .

    See chart above for line connecting the two extremes date on each signal 

  • finansreven

    Moving my stop to BE. Now, I have to have patience and ride this one out. No loss if stopped out, but might catch a good move.

    Also considering having a sell stop order at Silver under 34 level. Maybe at 33.85.

  • BobbyLow

    At this moment, Down Volume Slightly in control – Same for Decliners over Advances but it's still all about the Dollar.

  • Kudos

    Buy /DX, sell some puts on some oversold stocks

  • OllyVaradi

    I remain short from DJ 12,900 & 12,735. Got stopped out on a small short from last week but got back in at 12,633. All positions protected with minimum BE stop, so free money IF we go down.

    Not sure what's happening here. Expectation for this week was a solid red, i.e. high of week Monday – low Friday. Lots of indecision abound so I guess we may continue with sideways chop until something more exciting than the IMF Head Shed's morning glory.

    Which brings me to another point…..I'm not a conspiracy theorist BUT…..whilst this bloke's got previous for being a sex pest, coming out of the shower and thinking, “I'll have you love,” does seem a bit stretched. Would it not be in the US's interests to have the head of the IMF in their pocket and open to any manner of wild suggestions that may or may not benefit the US fiscal predicament, potentially to the detriment to the rest of the world. A Weekend at Bernie's (Madoff) might persuade him.

  • Joe_Jones

    If we cannot reach VWAP now, the EOD should be bloody.

  • fraterperdurabo

    Maybe they just paid her off to taint his reputation. These things seem to stick despite possible innocence.

  • fraterperdurabo

    I'm buckled in for a quick elevator ride down to 1,320.

  • Joe_Jones

    There is a gap to fill @ about 1312

  • ronebadger

    DEFINITELY

    Higher highs and higher lows for dollar, since last week

  • finansreven

    And there my short silver (XAGUSD) kicked in.

    This is gonna be an interesting finish 🙂

  • ds2

    TLT still climbing since about 10am.

  • fraterperdurabo

    Sold all TLT longers and SSO putters and banked some sweet Monday coins. Like TLT but holding off for next dip; don't think we'll see a break of $95.60 zone today.

  • https://evilspeculator.com molecool

    Can we not say 'putters' – it's annoying and it confuses the noobs.

  • https://evilspeculator.com molecool

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨
    ¨°º¤ø„¸  N E W  „ø¤º°¨
    ¸„ø¤º°¨ P O S T “°º¤ø„¸
    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • fraterperdurabo

    Sure – I'll clean up my language.

  • DarthTrader

    On February 10th, 2011 the International Monetary Fund (IMF) issued a report calling for the removal of the U.S. Dollar as the global reserve currency (Read more on it at CNN <http: 02=”” 10=”” 2011=”” dollar=”” index.htm=”” markets=”” money.cnn.com=””>). The U.S. Dollar has been under extreme bearish pressures as QE2 policies from the Federal Reserve have intentionally deflated the currency’s value. To try and break the camel’s back, Dominique Strauss-Kahn desperately tried to push this agenda through

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~`

     So Dominique Strauss-Kahn  tried to break the Camel's Back by sticking his head in the Lion's Mouth and got it bit off.  Coming to the USA he must have had his head way up his ass</http:>

  • raised_by_wolves

    (NFLX)+(BIDU)+(PCLN)+(AMZN)+(AAPL)

    http://content.screencast.com/

    Nine lives?