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Risk Appetite Back With A Vengeance
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Risk Appetite Back With A Vengeance

by The MoleFebruary 13, 2018

This is not going to end well, folks. Barely a week after a massive wipe out in equities risk appetite apparently has returned with a vengeance. You may recall that last week I was musing about the relatively lackluster response in the Dollar and how precious metals as well as bonds happily continued downward while equities were getting the spanking of a decade. I am still not sure where exactly liquidity disappeared to last week but it seems that risk appetite has bounced right back.

My friend Chris Carolan over at the spiralcalendar posted a very interesting piece last weekend referencing his work in the late 90s on long term seasonal cycles of high inflation and low growth to falling inflation and high growth. Apparently his work shows how these transitions occur as paired tops and bottoms. And guess where we are heading right now? Yes, a long term bottom.

Quite frankly much of that stuff is beyond my pay grade and I don’t try to spend too much time worrying about long term economic cycles lest it negatively affects my daily trading activities. But that said – it doesn’t take a degree in macro economics to figure out that concurrently falling bonds, stocks, and precious metals don’t exactly signal ‘business as usual’. The systemic risk gauge continues to push into red readings and then some, and that means we are most likely going to see a significant market correction sometime this year.

What that means for us as traders is that we’ll need to adjust our trading activities toward a more bearish reality accompanied by a massive increase in volatility. The latter has already begun to make itself felt and I’m afraid this was just one of the pre-quakes.

Now back to the Dollar which signals that investor/trader sentiment has quickly reverted back to its exuberant mean. Looking at that trading range on the USD/JPY makes me wonder if 106.75 has any realistic hopes of slowing the current acceleration lower. Last week’s candle higher seemed nothing but obligatory.

The Euro also pushing higher again and the formation on the short term panel is looking bullish as hell. So my expectation here is that we’ll see continuation higher over the remainder of the month until we once again reach our LT inflection point near 1.254.

The E-Mini may look like a juicy dip buying opportunity, and as you know I’m holding a bull debit spread. But I do have grave concerns regarding the technical damage that now stands on record. The words ‘dead cat bounce’ comes to mind and I wouldn’t want to be long futures here. Either way, even if this continues higher there will most likely be pushback near 2727 – easy number to remember. If it can be overcome then this bull market may just have another lease on an already extended lifespan putting even Takeshi Kovacs in ‘Altered Carbon’ to shame.

Words To The Wise

This is not a market phase during which I’m interested in making many bets. So I’ll probably just watch for a few days to see how things play out. I would very much love to see an advance higher in equities followed by a very convincing spike high. Because if there was ever an opportunity for a bearish reversal play then it would be at that stage. Low odds but massive pay out it plays out. It goes without saying that I’ll be watching IV on all fronts like a hawk 😉

But right now today I recommend that you all curb your bearish enthusiasm and wait for instructions. The initiation leg lower is now behind us and the market will now have to prove to us that it’s ready to shake out more of the accumulated excess of the past decade. If it does then it will be not only a cleansing experience (and thus positive over the long term) but also an awesome trading opportunity I don’t plan on missing out on.

 


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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  • Yoda

    As a trader and user of the zero indicator I much prefer turbulent times.

  • https://evilspeculator.com Sir Mole III

    Hehe…

  • Darkthirty

    Zero working alright yet? I’m having trouble across the board with T/A correlations since Friday’s bounce………. This mornings open sure looks like a normal “market’ open?

  • Dyellowflash

    Went long at the mkt open. Zero looks strong yesterday.

  • Darkthirty

    Erectile tissue, meet woodchipper

  • Nate

    OWWWWW

  • Dyellowflash

    Crap. Dow moving 100 pts per min. I had TP my futures and switch to options…

  • ridingwaves

    CL is getting close to buy spot at 57. 50 area, I’m a buyer

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

    “What that means for us as traders is that we’ll need to adjust our trading activities toward a more bearish reality accompanied by a massive increase in volatility. ”

    Amen Captain.

    https://uploads.disquscdn.com/images/9da2e3277a548aada51aa5a0be819c16d57766564c5a45a9c7f854663ce5f33e.png

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

    That is a serious position you must have on for the swings to be $10k when ES has been within 10 point range.

  • Dyellowflash

    SGD is 70% of USD. The Dow had been moving over 100-120 pts per swing 4 times. Its now probably 6 times. I had lost count, but exited at about midway at 5k and use the money on options for Friday. But today’s zero looks weak so far. Hmm…

  • BobbyLow

    I’m currently sitting on my hands as far as energy is concerned and I’ll be looking to buy on the way up somewhere between 59 and 60.

    I added to my Gold position this AM. Overall market is a little more nutty than usual right now. 🙂

  • Tomcat

    There has been a heavy correlation with ES since the sell off. So if you are bullish CL you probably should be bullish equities.

  • Tomcat

    Nicely done BL. I am looking to take the opposite on the GC June contract given it is contango. Needs to come up more though, maybe until you book a nice profit 😉

  • Dyellowflash

    If anyone feels that u really must take a trade in this kind of mkt, my dow entry pt for long is 24500 at this point. I am going to bath and sleep. Nitey from Sg.

  • ridingwaves

    ridingwaves 4 days ago
    Chinese New Years next week will allow the boys to max out any pump…Market closures are 15, 16 19 for Shanghai, 16,19 for Hong Kong…

    I see a big pump coming…

    so far this month outside of one trade I have killed it…

  • ridingwaves

    Once they put that swine loving corrupt liberal idiot Mel Watt in charge, I knew the taxpayer would be reamed. Of course they removed the last guy because he was actually trying to shut down the mother of all taxpayer whales…..Fannie and Freddie-housing people so fat cats can make a load of cash off taxpayers….These entities are supposed to be done….unwound….wheres the beef?

    https://www.marketwatch.com/story/washington-is-budgeting-a-51-billion-taxpayer-bailout-for-fannie-and-freddie-2018-02-13

  • Edgy
  • Tomcat

    Where is Julie to liven this place up???

  • HD

    Spooky quiet, turn around Tuesday. Are we getting the same tape as last week?

  • HD

    Mole, I’m confused why you wouldn’t want to participate in this market?

  • BobbyLow

    I totally agree. This latest correlation is what it used to be like before Quantitative Easing when Crude would go along with the ebb and flow of Equities.

  • BobbyLow

    Didn’t the Trump appointed Treasury Secretary of the Treasury Mnuchin have to approve this bailout? I wonder what kind of swine he is? Mnuchin isn’t a liberal is he? 🙂

  • Darkthirty

    What are you seeing? I’m not finding anything that isn’t a crapshoot

  • BobbyLow

    He’s probably talking about Equity Swing Trades lasting more than a Day.

  • Nate
  • ridingwaves

    he’s a pigmen too, I believe a GS alumni also but the above action started a long time ago under previous watch, Mel Watt is not a shining beacon of congressional hope, pigmen ties too….
    congress is a place aliens go to die….
    these 2 entities are supposed to be bye bye but have been kept alive via political leanings that see taxpayers as the fix…stop propping up house prices via a taxpayer funded conduit….

  • HD

    A day in this market is a swing trade. Respect his POV. So wondering what has changed. I was thinking this may be as good as it gets for a while.

  • HD

    Fibs

  • Darkthirty

    618 as 2 of 3? I-ii of 3of 3?

  • BobbyLow

    Yep Mnuchin is another Goldman Sux Guy protecting us.

    Free money to institutions and subsequent abnormal low interest rates have contributed to the escalation of house prices just as much if not more than anything else.

  • Yoda

    that’s what she said 😉

  • Yoda

    working fine here

  • Darkthirty

    You caught the 60 I missed?

  • HD

    Could be. I prefer abc’s down. Yesterday’s HH made 5 off the low so some wave terminated 2535. 2600 is a big level.

  • https://evilspeculator.com Sir Mole III

    I wouldn’t want to hold long futures contracts as I don’t want to wake up and see them 200 handles lower. You surely understand the implications.

    With options I’m suffering a bit from theta burn but I sleep much better. Hope that makes sense.

  • Julie

    Hi Guys SPX The Ichi Cloud lower boundary is tough. A close today below the daily 5 ema is bearish. Gonna wait for the close GDX has strong support at 21.41 https://uploads.disquscdn.com/images/0b9759450f37b4adaf4b48ca4179c78c000fcb02e71ee6552a828b324e3ab079.png JULIE

  • https://evilspeculator.com Sir Mole III

    You guys got to pick up the slack 😉

  • Darkthirty

    2635 appears to be the line in the sand

  • HD

    Thanks. So when you enter an ES you automatically assume overnight hold for a few days? Or have a price target? Agree, Stops can be tricky in globex.

  • HD

    $SPX is -5 and $VIX >26. They are setting up for a doozy of whipsaw Wednesday. Jmho. Lots of levels to play against both directions. Look left.

  • https://evilspeculator.com Sir Mole III

    He’s doing God’s work!

  • Julie

    Hi HD SPX intraday charts SPX yesterday was wedging looking for a pullback retracement then another leg higher The bounce from 2532 looks impulsive. Perhaps down to approx. 2600 then the final leg higher. Then another dump.
    JULIE

  • HD

    I like the way you’re thinking Julie! I have itchy trigger finger for that exact idea. Seems too likely? It might be over in 15 minutes so all eyes /ES.

  • Julie

    Sorry 2532 not 2352
    JULIE

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

    BAC,
    big zero. didn’t do either option. and that’s okay.

    http://stockcharts.com/h-sc/ui?s=BAC&p=D&yr=0&mn=6&dy=0&id=p81941641628

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

    ..and cough?
    😉

  • Julie

    HI GG BAC on Friday bounced off the lower Keltner channel and support. Today’s high so far approx. matching yesterday’s high A bearish candle closing below 30.90 and will re short 30,90 is the conversion line (8) and baseline (21) and below the daily 5 ema BAC has retraced approx. 61.8% https://uploads.disquscdn.com/images/1018e4b4f893d6d44a100a8e85645700af70cdf98882760259258cbb079988e2.png JULIE

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

    maybe the MACD will crossover tomorrow, and this resultant histogram will go positive. always a dangerous time, both ways IMHO.

  • https://evilspeculator.com Sir Mole III

    Oh yes – I always assume overnight hold and recall that I’m in Spain thus my hours are shifted (I may sleep when things start moving after market).

    Most of my campaigns range between a day and a week. There are some outliers that last two weeks or so but it’s perhaps one or two campaigns per year.

    Look, I got burned a few times in the past and since then I’ve gone full scale Andy Grove: Only the paranoid survive 😉

  • BobbyLow

    I have to leave in a couple of minutes for a dental appointment (cleaning) and OIH is flirting with me to go long but it’s just not quite ready yet especially with crude being not ready yet either. I hate to use buy stops that might get hit before a candle completion. So rather than gamble, I’ll wait until I get back.

    I be baak. . .:)

  • Tomcat

    Mole, I remember one your campaigns lasting several weeks if I am remembering correctly. I remember you banking MANY MANY points on ES.

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

    yeah, better a pain in the mouth, than a pain in the ass.
    😉

  • Tomcat

    Julie, not sure if you were positioning long in GDX or not, but in my view GDX looks good from a long side (with a PT >26) especially since it seems be within the range of last year’s trading with a stop below $21 (give or take a quarter). Even though I am bearish Gold, GDX appears to have decoupled.

  • Julie

    Hi TC I took a long position GDX yesterday Strong support 21.41
    JULIE

  • HD

    Cheap short

  • Tomcat

    BL, reclaimed the .7R I lost yesterday in $RB today. With the release of energy numbers today and tomorrow, not willing to keep anything but a small position.

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

    😀

  • HD

    The paranoid scalp and go home flat everyday! 🙂

  • HD

    +5 half off, b/e stop

  • Tomcat
  • ridingwaves

    spy hourly at 8 weeks looks like inverse H&S with 280 target but targets have a lot of bullet holes….
    https://uploads.disquscdn.com/images/a9e47e7abdda33d8d834f469a2b9a00201ad6a4f9d930458e25fd57a3a88247c.png

  • ridingwaves

    the power surge into PIRS is sweet…onward and upward….

  • evilasevildoes

    mon m tues bullish weds bearish thursday bullish and friday bearish…..astrocast

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

    Good goin and a nice catch TC.

    I’m glad I didn’t take a position in OIH before I left. It appears to be struggling to gain upside momentum and unless we get some movement over the next 18 minutes, I’ll sit on my hands. Price action since the Friday close hasn’t been weak enough to short it either. Crude looks more weak than strong by my lens but not enough for me to pull the trigger either way. We’ll see what tomorrow brings on the energy front. . .

  • Darkthirty

    Another attempt of the selloff that was staved at the open?

  • Edgy

    “…the market will now have to prove to us that it’s ready to shake out more of the accumulated excess of the past decade.”
    So where does that put long-term investments like retirement accounts?

  • Dyellowflash

    Shorted Futures to balance my long options from last session. Net neutral.

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

    GE Death watch,
    for you buzzards.

    I thought it was a bright idea.
    😉

    https://uploads.disquscdn.com/images/f20e042948f0966af335bec7fe5efe8f60fd2ec82369baefbfe28a8ccd1dec13.png

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

    a volume jump to 1Billion would be a good sign. as in 2009.

    http://stockcharts.com/h-sc/ui?s=GE&p=D&st=2008-07-04&en=2009-10-01&id=p70532021062

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

    did crypto recently become ‘just another asset’ to be linked with the entire Market?

    http://stockcharts.com/h-sc/ui?s=%24SPXEW&p=D&yr=1&mn=0&dy=0&id=p76825974192