The Final Battle

The bulls have reached the final battle separating them from a year of bliss and spurting BTFD profits. What lies ahead is a deep volume chasm that formed when equities effectively slipped off the plate last October. I already mused yesterday that this would prove to be a difficult hurdle to overcome and the ensuing price action seems to have confirmed that notion.

Here it is in all its glory – 60 handles of uncertainty that proved to be impenetrable on three separate occasions.

There is really nothing wrong with this rally technically speaking as we’re seeing solid buying volume. But the UVOL panel suggests that buyers are running against a wall now and that is raising the odds of a medium term correction.

I am going to post a comprehensive market momentum (MAMO) update next week but wanted to share this chart in advance as it is time critical. The inverted IVTS shows has triggered a sell signal and more often than not that is met with a corrective phase.

For several years now we have benefitted by observing the gold/yen correlation but most recently it has been weakening up to the point where I no longer believe that it offers us an edge.

The Cheese Has Moved

This is an important point I would like to convey, especially to some of you younger or inexperienced participants: It’s very easy to get mentally attached to various measures, ideas, indicators, theories, systems, etc. as that is simply human nature. Once we find a comfortable ecological niche we enjoy exploiting it for all it’s worth.

Of course sooner or later conditions on the ground change and at some point the cheese has moved. Consider for a moment that you are the direct descendent of a long line of predecessors who had the foresight to recognize the need to pack up and find new hunting grounds. Everyone else simply perished.

Survivor bias is real and should serve as a daily incentive to always question everything you do, especially if it is out of sheer habit. Incidentally that spells especially true if one pursues systematic trading as market conditions are in constant flux, thereby affecting your ability to extract an edge with a particular set of trading activities (i.e. trading systems or discretionary trading habits).

Our USD/CAD campaign is starting to look positive.

Gold on the other hand is sort of just meandering around and the odds of a stop out are increasing.

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