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Quick And Dirty
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Quick And Dirty

by The MoleOctober 12, 2018

Here’s the quick and dirty on the current situation: The past week managed to effectively wipe out three months of upside progress across equities. Beyond the obvious carnage what I found most interesting is something a bit more obscure and thus it often escapes the average trader: A shift in market behavior as evidenced by the failure of three consecutive BDFD lottery tickets. It’s a bit like not seeing the forest for all the trees. Let me explain.

After being active in this racket for nearly 20 years I have gotten pretty good at reading the tape. And when I engage in speculative campaigns I usually know what I am getting into, thus I structure my exposure accordingly. They call it lottery tickets for a reason.

Now my success rate for these types of speculative campaigns probably hovers around the 60% mark and I expect the regulars in my readership will confirm that. Thus I may strike out two in a row here and there but it’s actually quite rare. And I almost never miss three consecutive long entries as I usually pick them rather wisely.

I have breached the sermon of accepting your losers along with your winners here for many years now and I’m sure that lesson has sunk in among most of you guys. What I have not focused on as much, again as it’s a more advanced topic, is that by monitoring your own systematic (not erratic) actions you are actually able to glean how they align with the current market environment.

So in other words: If your win rate drops then either you simply hit a bad streak, made too many mistakes, or Ms. Market is trying to tell you something. I don’t think that I’m in a bad streak as we’ve seen a ton of volatility in the past week, thus we are clearly in a disruptive period. And I am sure most of you would agree that I have not done anything different from what I usually do here, so these stop outs are not due trading errors.

Which leaves option three as the most likely possibility – the market environment is changing. Yes, again. Here I was looking forward to a juicy earnings season with low volatility tape and easy trending campaigns. You know – the general idea of finishing a rather turbulent trading year in style. Well, that’s all in my head and when conditions shift I will have to adjust my activities accordingly.

In a nutshell: Sometimes the market is trying to tell you something, and all you have to do is to listen.

Now the danger here is to jump to conclusions and assume that we are now officially heading into a bear market. We don’t know that yet and at this point all we know is that:

  1. We are completing a medium term correction, evidenced by several BTFD campaigns.
  2. Realized volatility has jumped and thus has created a jump in implied volatility.
  3. Market psychology has taken a huge hit after three months of upside progress has been wiped out in one week.

The implications of all that have been discussed in the past few posts but it all boils down to this: Let price show you the way as speculative entries based on being mentally anchored to either bullish or bearish perspectives can quickly produce a slew of painful losses.

More specifically I would not want to be long right now unless I see a breach of ES 2800 and preferably a retest of that level. On the bearish side there is no reason why we can’t drop through 2700 if 2710 is being breached. Remember that market psychology always trumps technical levels. As Julie pointed out the other day – the market climbs up the stairs and takes the express elevator down.

I posted this chart yesterday but it is becoming more relevant now. The IVTS suggests that a short term buying opportunity is drawing near. It’s not one I would want to take on a Friday unless I get an entry early in the session and can ride out the wins into the close. Otherwise I would probably choose to close out any open equity campaigns.

Medium term however this ratio is suggesting that equities are looking at more pain ahead. It’s one of my best long term momo charts and thus I have to keep it for my intrepid subs:

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

    Yes Friday – too much weekend risk…Agree PROBABLY more downside – after the correction – how long it lasts will also tell you how strong the down move is..seems too many picking a bottom and the “news” channels get all excited by a rebound. Many people will not change their trading style so quickly so BTD prevails….until it doesn’t

  • maxcherry
  • Yoda

    With OPEX next week a VXX beat down would be a high possibility

  • Yoda

    We have a very strong open! What it means to me: Don’t be short risk
    https://uploads.disquscdn.com/images/665baafc37b8b8200b08ffb5254b7e92681ace91c5787a45a50fe89c02093664.png .

  • supervilin

    “Let price show you the way” is the most excellent advice. Good remedy to counteract our biased case building.

  • DaVerg

    they raised interest rates too quickly too fast

    i was in 15 equity positions , in July they were all up on average
    about 20%

    in the past few days they were all stopped out at losses
    varying degree, all of them with substantial losses.

    and I had a HEDGE , an interest rate hedge, but it didn’t do Sh*t, the program
    MISCALCULATED the beta weighting and under estimated the amount
    of shares of the HEDGE ! I am going to write them a nasty letter. If
    I had the correct hedge I would have broken even. But as usual when
    I added more on the HEDGE, the interest rates when the other way. So
    I said, screw this. I am out, not chasing.

    I also looked at volatility hedges, like VX and TVIX. But I was liquidating
    positions too fast and watching multiple stuff, it got crazy real fast.

    Even having a plan, which I did, doesn’t mean things will go according to plan.

    being retired, means I will never make it up

  • ridingwaves

    don’t give up….their are plenty of cheap symbols to make it up out there right now….

  • Mark Shinnick

    Well…until further evidence, equities held at fuzzy logic supports, lending renewed confidence to buyers. So far, it was but a modest BTFD type correction still exactly in-trend and in-character….perhaps suspiciously so.

  • Mark Shinnick

    Yeah, also a bit more study and applied intent to take more personal control over your holdings. The “hedges” themselves are also targeted…they saw you as a victim long before the reality. The investment game is far more pernicious than most of us are conditioned to realize.

  • ridingwaves

    bad timing on interest rate hedge, as that is the reason for this whole down move….margin calls caught up to market at auction time…..plus the first auction saw tepid demand….thus opening created….

  • Yoda

    We’ll probably have to wait until OPEX is over and done with in order to get some clarity about the next direction. I expect a lot of fuckry next week, with plenty of whipsaw monkey business, likely ending up with the usual VIX stomping.

  • Mark Shinnick

    Beautifully designed; again, no accidents there!

  • Mark Shinnick

    Its funny how this worked out; I made a shitload short equities, others a shitload PM. Nobody realistically tracking undertone of events and respecting warnings on this blog would have been injured. That’s really my own purpose for being here.

  • ridingwaves

    120% agree there…actually what Master Yoda says above seems likely…..

  • maxcherry

    FWIW, the third week of Oct is up 71.88% of the time since 1986

  • BKXtoZERO

    perhaps there is no harm in advancing stops as your campaigns rise, certainly enough not to wind up with a loss. I guess you are looking for long term gains.

  • BKXtoZERO

    Excellent post Mole, also thanks for great contributions yesterday by everyone else.

  • DaVerg

    all income generating instruments for monthly expenses, of which, didn’t make up for the massive losses unfortunately

  • DaVerg

    dropped too fast, on short term basis. One day a number of them took a big hit but others were ok. Then next day the others took a big hit. It was like massive tsunami taking out one city block at a time , one day at a time.

  • BKXtoZERO

    re-entered NUGT 14.48… stop 14

  • BKXtoZERO

    That sucks…. sorry. I have such a short term time horizon that I don’t trust a trend for more than a day. I always mean to “go long” hold a while… but I haven’t been able to have that kind of discipline. The hedge was the part that went sour so I guess your lesson is in what type of hedge going forward.

  • bankwalker

    RUT breaking down …

  • ridingwaves

    first time XLF testing 100sma weekly since 11-2016…earnings were good today, looks like conference calls were not….next week important…JPM desks may be the big short right now…

  • https://evilspeculator.com Sir Mole III
  • https://evilspeculator.com Sir Mole III

    Yeah, I enjoy seeing the comment section active.

  • https://evilspeculator.com Sir Mole III

    OH FUCK – that’s horrible. What hedging tool did you use?

  • https://evilspeculator.com Sir Mole III

    The problem with volatility hedges is that the pricing of TVIX and other ETPs goes by their own rules and is NOT – I repeat IS NOT – directly linked to the VIX but an exotic index called SPVXSP. And that one only gets adjusted according to what’s going on in the VX futures.

    Here’s a little guide I bookmarked myself:

    https://www.screencast.com/t/ITLD9HOHPKTz

    Anyway, the crux of the matter is that hedging yourself with IV ETPs is a horrible idea as you will get screwed due to lag plus a million other things. This is actually the underlying concept of what drives VIXEN among other things.

  • https://evilspeculator.com Sir Mole III

    Here’s a link to the index: https://finance.yahoo.com/quote/%5ESPVXSP/

    Not that it really helps you much but if you plot this one against the VIX you’ll see large deltas occasionally. A better play is to hedge via the futures, as you did, but it’s not perfect either as there also can be deltas. And those deltas expand especially after the IVTS pushes > 0.9.

  • ridingwaves

    VIX in contango before this down move was telling…
    backwardation is the norm….

  • BKXtoZERO

    So would this mean participation on the bounce and none on the sell off?

  • bankwalker

    long /NQ 7121.50

  • BKXtoZERO

    Exiting my short lived purchase of stocks at EOD

  • BKXtoZERO

    Time check for Gerb fans

  • https://evilspeculator.com Sir Mole III

    The VIX isn’t in contango – the ETPs are implicitly as they are tied to the VX futures.

  • https://evilspeculator.com Sir Mole III

    Too little too late. Odds are we are seeing a FU gap on Sunday night. Yes, Ms. Market is a harsh mistress…

    https://uploads.disquscdn.com/images/0329df4dde4ca4dea852486ccd4eda95952cd3af686ea7c366f3b8edfb6adf59.png

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Time. Check.

    My ISP was down today. Their 12am-6am automated maintenance window was an underestimation. So, I got the quick tour of setting up a hotspot through Mrs. Gerbs phone. Oh the joys of technological dependence. (Not)

    ..What a way to spend Fall break.

    Julie’s out, but I do want to point out the larger 80 sma envelope posibilities, and the 233 SMA itself.

    Make the weekend, the best you can.

    ps. Mole, great commentary. (one of your top 10).
    -GG

    https://uploads.disquscdn.com/images/7130d814446f40f3c398f6c08194e826269c2b5e9d61284990133c834366a953.png

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    beat you.

    barely.
    =P

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    whoops, apparently NOT.
    (great minds..)

  • Darkthirty

    What’s the odds AH is a bloodbath?

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    depends on Uranus.
    😉

  • Darkthirty

    Been eating legos again?

  • ridingwaves

    it was before the move, definitely on the 8th…nearer term values months were higher than following months..

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Darkthirty

    You bees rayciss!

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    I believe it.
    the 5 year BPSPX is telling. very rare to go deeper.

    https://stockcharts.com/h-sc/ui?s=%24BPSPX&p=W&yr=5&mn=0&dy=0&id=p34026304719

  • BKXtoZERO

    Long some SQQQ at the close. Long NUGT from today’s low. Have a good weekend all.

  • bankwalker

    exit /NQ 7174.00

    +52.5

    nice ride

  • https://evilspeculator.com Sir Mole III

    Thanks! I labeled it as a favorite so people can find it in the future.

  • BKXtoZERO

    It only took you 3 failed campaigns to not fight the market. It usually takes me 20 or 30 before I come around. I can see why you are in charge Sir!

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    An old article that I kept.
    Amazing, it’s still online.
    https://static.seekingalpha.com/uploads/2014/1/3/saupload_Jan32014STSPX19972000.png

    Luckily, I was a younger pup 20 years ago.
    Whether or not the top-is-in or not, do you have a plan?
    https://static.seekingalpha.com/uploads/2014/1/3/saupload_Jan32014STSPX19972000.png

    Food for thought.
    https://seekingalpha.com/article/1927911-you-need-a-plan-for-next-inevitable-bear-market

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    The Fall rains have arrived in Phoenix, thank you hurricane Sergio.

    I absolutely love radical spike high/lows. I believe they expose the internal
    cycle of Markets. Hopefully, you didn’t lose your head.

    A Big Two thumbs up for the movie Venom,
    I had low expectations with a surprising delivery of comedy.
    I counted over 430 special effects contributors in the credits.
    -GG

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • DaVerg

    i used inverse interest ETFs to hedge the portfolio, but i understand your point on volatility instruments.

  • DaVerg

    TBT

  • HD

    It has paid to be bearish all year. SPX bumped the 2-4 TL. Bear market is defined below.

    If you liked the “Trump rally” you’re going to love the “Trump crash” Will start with just the Wave 2 bear market and adjust to bigger wave when/ if needed. Some interesting HWB’s and fib clusters.

    https://uploads.disquscdn.com/images/e7a77a7b2451b891d9bbc7fef142c1c2f3a5ae0688e7820ae410d4079658178f.png

  • BKXtoZERO

    Stocks down. Gold up. So far so good!

  • http://gerb-reloaded.blogspot.com Gold_Gerb