No Vale La Pena

I think today’s session is a great example of why the word ‘never’ should be stricken out of any trader’s active vocabulary. Now I openly admit that I did not take that long signal last night, although being technically valid based on our inside day rules. And had I taken it I would have been rewarded with ample profits. However, sometimes there are trades that are technically valid but in the context of the overall picture are what señor Cabrera may refer to as ‘no vale la pena’.

And that may come a bit as a shock to you as I have often preached about trend trading disciplines which clearly state that an overbought market can keep running long past anyone’s expectations. That said – my personal trading style imposes certain limits in the face of extreme readings on the momentum and sentiment side, and in essence that notion lies at the core of today’s post. The chart above shows us the current volume profile – we are looking at a whole lot of nothing looming above.

The Net-Lines chart however also shows us right at the 1377 NLBL and unless we reverse right here and now (tomorrow at the very latest depending on today’s close) this one claims we are going to 1400. Which also happens to be near our P&F bullish price objective.

Unfortunately the large volatility drop today makes things a bit more complicated for us – please step into my dusty lair:

The problem lies with the fact that we are FAR outside the BB now. Obviously a lot can happen until the close but if we stick around down here then it’s possible that we may see higher reading tomorrow but still outside the Bollinger. And that would yet again reset our VIX sell signal (relative to equities) count and in the meantime drive things higher on the equities side.

If that confuses you then let me make it easy for you – we are at least two days away from a bonafide VIX sell signal, and even once we get it things may take their merry time to turn. Remember that any sell signal would argue against the ongoing trend – so we need to be careful. Also since we painted new highs today the dynamics have shifted and thus we need to adjust our trading.

Here’s the MMMR again – now plotting historic readings. Frankly, I don’t know what to make of this – it’s unprecedented. Technically speaking we already had an extreme reading yesterday and the fact that we pushed even higher puts us at notice in that we should not attempt to call a top here. Things may go a bit loco before we see a reversal. As a matter of fact – given such extreme readings I would recommend playing it very small or to wait things out in cash. It’s very tempting trying to play hero here but only with lottery ticket money if you get my drift.

If you have been a sub for the past month or two then you probably recall me mentioning the 2011 A/D ratio fractal, which I am proud to say has thus far been spot on. You may also remember that we were waiting for a few bearish spikes ahead of a reversal and harbingers of possible impending trouble are now officially on the map. Of course calling a top here and now is a foolish endeavor – as we are at new highs we do not have a technical price pattern justifying being short and as such we need to remain patient and wait for just that.

Some interesting activity on the 10-year treasury map. We are officially below a daily NLBL and it’s permissible to be short here with a tight stop slightly above 130’190. As you know I am completely 50/50 on this trade as I have no directional confidence at this point – maybe she drops and maybe she doesn’t. Until the tape tells us what’s what I’ll be short here and as soon as I get stopped out at 130’190 I’ll swing around and be long again. What can I say – my only allegiance is to my trading account.

EUR/JPY – that’s really the only FX setup I am seeing today, which is a bit surprising given all the hoopla on the equities front. Anyway, technically speaking (can you sense my confidence here – LOL) we are at a daily NLBL plus we are pushing above the upper 100-day BB. Could run into 110 or reverse right here and now. So you know what to do – be long until being stopped out below 108.44 (give yourself a bit room though).

Bottom Line: You can sense a bit of apprehension in my post and I’m not trying to hide it. There are easy times and there are dangerous times which have the potential to throw your trading account back into the stone age. I would put the current tape solidly in the latter category.

Having learned a few tough lessons in my time I choose not to participate during times when extreme sentiment distorts and weakens my technical setups. At this point I am watching equities resolve, patiently waiting for a better (and easier) moment of when to strike. If you can’t help yourself and must ride this thing into the bullish price objective then I would at least recommend you do it with only a small portion of your account. Don’t get overextended and you won’t get hurt – plus you may wind up sleeping better.
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Cheers,