Tape Phase Transitions

No short term setup on the equities front but there’s plenty on our plate across the futures and of course the forex side, so it’s going to be a busy Monday. However the hourly E-Mini today is a great example of how the tape repeatedly transitions through different phases with dynamics (and thus odds) constantly shifting. This year’s first sell off started after a very tightly squeezed Bollinger (both the 25 and the 100 – I’m always using a 2.0 for std dev). It immediately trended down without a single close above the 25-hour SMA.

Thanks to the Zero we actually got in at 1990 but frankly speaking we were very lucky as technically there was very little to suggest a low was in place. However when looking at the situation it’s clear that a squeeze to the 100-hour SMA was almost guaranteed – the blue squares demonstrate how the corrective zone was growing constantly as price was falling away from the 100-hour (you could easily use a 50 or a 75 or a 150 – it’s just a personal lens I use).

The very first hurdle to was the 25-hour SMA and once it was overcome a run higher to the 100-hour had very good odds. That is the very reason why I often look for inflection points near the 25-hour (or again you could easily use a 21 or a 30 – whatever works for you). The area in between is rather easy pickings and once price touches the next major hurdle, the 100-hour SMA, you have the choice to either close out or convert it into a daily campaign by moving your stop near break/even in anticipation of continuation higher.

If the 100-hour is overcome the bulls usually have a pretty good chance to make it to the upper 100-hour BB, however that is most likely where we encounter new selling pressure, the strength of which will decide whether or not we just produce a little correction or we go back to retest the lows. And that is the situation we are in right now – we are in that no-man’s zone which delineates bullish territory from the big bad snarling bear. The 100-hour often makes for great retest dip-buys – there are never any guarantees and you should look for correlated measures (i.e. momentum, velocity, participation, volume, etc.) to pick an entry.

Of course it is exactly here where great entries can be found – to both the down and upside. I usually try to identify as much context as I can find (i.e. Net-Lines, moving averages, price patterns, support clusters, what have you…) and then decide where I want to be long and where I want to be short.

Now given my general approach it’s easy to see why I want to be long cable right now – it’s got very low odds to succeed down here BUT we are enjoying a very tightly squeezed BB pair plus the SMAs are starting to inverse; there’s a NLSL right below and that’s where I’ll place my stop.

Natgas is a bit of a lottery ticket – I always call it the widow-maker for a reason. We may see another bounce higher here and I’m currently long near those lows with a stop below 2.8.

Quite a bit more below the fold – please meet me in the lair:

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You have been briefed – now have fun but keep it frosty. See you guys later this afternoon.

Cheers,