The Hedgehog And The Fox

First up, my apologies in advance for not being more present over the past two days, which will most likely extend into Thursday evening. Unfortunately I have no choice in the matter as I promised Scott to do a webinar for his crew and I’m scrambling like crazy to put all the necessary material in place beforehand. But don’t fret – the Mole’s got you covered and although it’s not going to be easy I think we are in a good place for banking coin here.

So I know what you’re thinking looking at that daily panel on the E-Mini or the SPX. Short or long? Has this market correction played out or are we falling into the abyss from here? Trust me, every single person trading equities is racking his or her brain about this very same question right now, and in the end will arrive at the very same conclusion: the hell I know!

What I DO know however is how to grab my mental machete and then systematically swing it in order to clear away all that infoweed™ in front of me. It’s very the same method we apply on a daily basis here at Evil Speculator and we do it by …(drum rolls) …. simply following the price action.

My Cunning Plan

Now I don’t know what YOUR plan is but I’m going to explain you mine:

1. Right now I’m short with a stop > 2750 (S1). I don’t really know what the odds of short continuation are here but I’d guess they are around 25% plus minus. BTW, it’s a small position and if I earn 1R I will continue to add until yesterday’s spike low at 2692.25 (S3) is breached.
2. If stopped out I will flip for a long position after a retest and a spike low (I may miss that one of course). Stop in this campaign goes < 2692.25 (S3).
3. If price continues higher I will enter long on a breach of 2780 (E3) with a stop < 2720 (S3).

Yes I may get caught in the swings here but as you can see this method permits me to build my position size by following the price momentum. Clearly equities are a crucial inflection point here and a drop lower puts us in medium term bear market territory. Not a trading  opportunity any of us would want to miss out on. But neither do we want to be left behind if the bulls decide to dig deep and start bidding the tape higher.

Here’s the inverted Implied Volatility Term Structure which in part also drives VIXEN by the way. Now my system has been extremely quiet over the past two weeks, which in fact is by design. Taking long entries (short IV in VIXEN of course) is not a high probability endeavor and the odds of success are low.

I want you to take this to heart before you decide to do anything drastic involving a large percentage of your trading account. Make no mistake, this is the type of tape that separates the boys from the men (yes, the Mole cares little about political correctness, so go cry your pillow snowflake), and don’t think you’ll be able to intellectually solve this puzzle.

Evil Speculator Rule #487: When things get messy you are much better off being a hedgehog than a fox.