The Root Cause

I just returned from receiving the 2nd round of my root canal procedure and the novocaine is still in the process of wearing off. Everything seems to be healing just nicely, which frankly is a huge relief. I am just now starting to bounce back from having to deal with a painful dental nerve infection that lasted almost two months and in the process severely taxed my immune system.

Nobody enjoys going to the dentist but I cannot help but be grateful for having had the foresight to be born into the late 20th century, well aware that I would most likely have been long dead just a century earlier.

Nevertheless I managed to scrape a few charts together for my crew, as to not leave you guys dangling dazed and confused near a crucial inflection point.

Like cockroaches fleeing from impending fumigation potential turning points always stir up the wildest speculations, which purported technical evidence to spare.

One of our intrepid readers posted this tranny correlation chart earlier this morning and I couldn’t help but point out that the original author had conveniently ignored the various times the signal had failed.

Which exactly is the problem with spurious correlations – people only ever look at the times when an assumed correlation resolves in their favor. And then go on firmly believing in this edge for the remainder of their trading career without ever bothering to run the stats.

Exacerbating the problem is that the ‘evidence’ presented many times is based on very low frequency data with at best 100 or so incidents over the past century or so. Noisy low frequency data can be interpreted six ways until Sunday and if one runs enough algos against it something usually seems to make ‘complete sense’.

I actually just filmed a pertinent video on false edges and made sure to highlight low frequency data as a common culprit. It’ll be part of my system development course that will be available on a new yet to be announced portal.

Okay before we get to the price action here’s a reminder that we are looking at several high volatility events on Thursday and Wednesday.

It’s tempting to assume that we won’t see much in terms of resolution ahead of time but I made that assumption a few weeks ago and was proven wrong. So as always let’s expect the unexpected, especially given that we are parked right against the edge of the big wall near 2814.

In case you wonder – I am not taking any action here as I am not (yet) tempted to short this tape, based mainly on the medium to long term perspective reported in my recent MAMO update.

Gold has taken a severe beating over the past few weeks and now finds itself back at the center of its current long term range. Suffice to say that entries here have very low odds and I suggest we keep an eye on the situation in anticipation of more movement.

Bond futures are back near the original break-out range around 144’20. Once again it’s tempting to become active here but truth be told bonds in general have been a very difficult trade one the past few months and I have grown a bit more cautious until a medium term trend finally reveals itself.

Playing the swings is of course an option but clearly this is not that type of setup – it’s a potential break out setup which we still can take a few handles higher once price evinces a bit more mojo.

My Dollar campaign has been faring pretty well and I’m now advancing my trail to the 1R mark after it scraped 2R MFE. The formation on the daily is looking increasingly positive but only a breach > 97.12 will give me more confidence that we are looking at a more extended leg higher and not just another gyration.

Well – for being on novocaine and drooling all over my keyboard that actually was a pretty respectable post. But I’m going to lay down now until it has completely worn off. See you guys in a few hours.