Reviewing The Damage

Always be careful what you wish for. After enduring what seemed like an eternity of indecisiveness and rangebound gyrations market participants across the board were ready to welcome a resolution in whatever direction. Of which we received an ample helping last Friday and most likely the way many had long feared and perhaps hoped to avoid. Let’s review the damage first and then see if it’s time to pick over some of the disoriented victims. After all as traders we’re virtual carnivores, which means we hunt best when confusion reigns high but the odds are in our favor. Assuming there’s prey to be slayed of course.

In my mind one of the basic tenets of first becoming and then remaining a profitable trader, in particular in this day and age of information overload, is that what everyone knows is not really worth knowing. Now I’m not implying that you should turn yourself into a chronic contrarian and start doing the exact opposite of what the herd may be doing. Rather my point is that you should thrive to ignore what everyone is talking about as that by definition is ‘old news’ and thus has zero value to your trading activities.

Take for instance last Friday’s big sell off. Abiding by my own medicine I have over the weekend religiously avoided any pertinent talk/discussion and instead focused on keeping a level mind. I frankly don’t care about the myriad of reasons and justifications being offered out there, because quite simply none of the sources offering them had previously anticipated the relentless (and 95% bot driven) sell-off that would ensue (and no perma-bear warnings don’t count). As such they have inherently proven their inability to predict any future outcome. And that’s fine because predicting the future, especially in the financial markets, is an exercise in futility.

Look In The Mirror

Of course I could easily convince myself that all my critical and semi-bearish posts over the past few months have meaning and should have prepared us for last Friday’s wipe out. But let’s not kid ourselves – I had been previously long and got stopped out at break/even. And I can live with that, and so should you. Because the one thing I have been consistently right about and, to my credit have been repeating like a broken record, is the fact that big surprise moves like these are and will always be unpredictable.

Yes, I did point out that this bull market is in its last throes and that we should keep our position sizing small and our stops generous. But that quite frankly should be considered basic Trading 101 given the recent volatility patterns. And if I hadn’t advised my readers to start trading like hedgehogs many months ago I would be better off finding something better to do with my life.

Now I’m offering all this to make a specific point. Going forward you will most likely start seeing a psychological shift among especially retail traders as once again the hope of an ensuing bear market fills their minds and limited attention spans. Gamblers usually love action and excitement – seasoned traders however avoid it like the pest.

My advice: Don’t get caught up in it and instead focus on what is directly ahead of you. Don’t listen to rumors, don’t pay any attention to the news. If they have proven nothing else over the past century of financial reporting is that they have no clue, only show up after the fact to sell you lofty explanations justifying what has already happened, and are sometimes even paid to lead you in the wrong direction. Therefore you’re probably much better off without them.

Time To Strike?

Now right now today I do not yet see a solid entry opportunity as we’ve moved quickly and violently and thus lack the benefit of sufficient technical context. However, taking out a very small long position right here near the 100-day SMA, albeit risky (especially given the unfolding Clinton health drama), is a possibility and may just work. It’s quite possible we jump right back from whence we came but it’s also equally possible that we drop further into the abyss later this week. At the danger of testing your patience: It’s simply impossible to know after the first move down, especially since it was mainly bot driven. What really matters of course is not the first stop run to the downside – it’s what happens afterward. Do we see willing buyers here or is everyone so shell shocked at this point that they rather remain in cash until the dust has settled?

Where Are The Bulls

Recall that the early stages of bear markets are not initiated/driven by bears but by a lack of bulls. And that is the question we should be focusing on in the coming days and weeks. Ignore what the bears are saying – you know their script. Instead listen to the buy side (a little) and then watch what it does.

Now when I was hoping for a renewed entry opportunity on silver I had no idea it may be near where we got long over a week ago (and then banked some very nice coin on the way up). Quite frankly an entry here is premature but given the magnitude of this drop I’m willing to take out a very small position here with a stop below 18.7. There’s a very good chance it’ll be taken out and if that happens I’d be interested again if silver descends below 18.5. My reasoning here is mainly based on the daily panel – a touch of the 100-day SMA would be excellent and may serve as a base for entry.

There are two entries however I am pretty jazzed about right here right now:

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