The Brick Wall

Once more equities failed to overcome the now well established brick wall at ES 2100. I am using the continuous future’s contract as it shows resistance better than the actual S&P cash index. The first time we bumped into ES 2100 (adjusted) was in April of this year – eight months later we aren’t any closer to breaching through it. That chart is actually quite deceptive as our eyes are drawn to the big move down in August and the ensuing snap back. You may recall my recent post on recency bias when I suggested that the volatility profile was starting to resemble the type of sideways market conditions we had been dealing with for most of the year. The recent price action seems to confirm that notion and it also supports the general theme of a bull market approaching its final throes.

In my opinion this has probably been the toughest trading year since the financial crash of 2008. Judging by the comment section quite a lot of people have either washed out, blown up their account, or simply walked away in disgust despite my best efforts to steer everyone through various mind numbing gyrations. If that is you then you are in good company as a good number of professional traders and fund managers have had their butts handed to them over the past twelve months.

However that said, I caution everyone against getting caught up in negative emotions. The darkest hour is just before the dawn, as they say. Invariably the market has had to learn a tough lesson this year, which is that quantitative easing was a lot of fun while it lasted but will no longer be effective and perhaps even detrimental moving forward. Natural market forces will have to take over again, which means focusing on building real economies instead of propping up ailing ones via experimental monetary policies breeding complacency, redistribution of wealth, and moral hazard. What comes next is probably accompanied by a lot more volatility leading into several months of blood and tears. 2016 may start out just like this 2015 but I doubt very much that it will end the same way. The invariable correction that is looming at the horizon will however bring with it exciting trading opportunities and eventually return us to a market that does not solely function on the basis of monetary life support courtesy of central banks.

Moving forward I will begin to consider more long term trading opportunities in my work here as well, that means more daily and weekly charts. Clearly we have done a good job getting positioned on the way down and on the way up over the past few months. The track record here obviously speaks for itself. However increasingly volatility market conditions over the coming months and especially leading into mid 2016 will require a more long term approach, one that is less focused on catching each swing but on not getting caught up in violent snap backs. Fortunately I remember the lessons of 2007/2008 quite well and expect them to be put to good use 🙂