Treat Carefully

We all have seen this song and dance before in the past few years. Technically we are looking at a veritable laundry list of reasons why the tape should make a turn. Except that it doesn’t. You try every conceivable angle to make sense out of the tape but it only leads to frustration and more likely a series of trading losses. My approach when heading into uncharted territory so to say: Scale it down – slow it down – let it go. Whatever is going on – it will only make sense in hindsight. So swallow your ego and instead relax, crack open a cold one and wait for a better time to strike.

One possible explanation supporting my general reluctance to touch equities with a ten foot pole right now is the VIX. If you compare the February to April period to July to now then it’s rather easy to draw parallels. Although a reversal is what ‘should have happened’ (how pretentious was that assumption in the first place) the shorts got squeezed to pieces for a few more weeks. I am pretty sure there weren’t many bears left on that bus when it finally departed in late April.

In case you think that the Mole is full of it and that there’s very little risk to the upside then here’s some more food for thought. Recall how we have been slowly gyrating higher in the past ten days all through OPEX week? Now look at the volume profiles that accompanied that little summer marathon. Anything salient standing out? Even the up days were dominated by DVOL and the strongest of them had UVOL and DVOL in a clean tie. But if you want to make big bets to the upside here then be my guest.

Well, just because equities are screwed right now doesn’t mean we steel rats can’t keep ourselves busy. I actually was able to dig up quite a nice collection of setups. You leeches get one freebie – the rest is for my subs:

Thank you sir, may I have another? Are you ready to give gold one more try? I am looking at a possible second sideways triangle formation and although I don’t know when it’ll make a run for it there’s two way’s to approach it. Play the inside swings or get positioned on a breach of either line. Recall that you often will see a false breach before it runs off in the opposite direction, so don’t get married to one direction.

A lot more where that came from – please step into my lair:
[amprotect=nonmember] More charts and non-biased commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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ZB (30-year treasury futures) is swinging back up and it’s quite possible that we’ll get a ‘last kiss goodbye’. If you are short right now be prepared for that and don’t get faked out. If you are waiting for an entry then wait for a touch of the 100-day SMA.

Silver is kissing its Maginot line and I expect resistance. Great spot to be short unless we breach. FWIW – silver has been as weak as diet beer all summer, thus slightly increasing our odds of a reversal. Of course never make assumptions that will keep you from turning to the other side if necessary – price trumps analysis every single time.

Boy – sugar must be tinted red at this point as it’s been one brutal slaughter. This has been one of the most systematic sell offs in recent history and I have been waiting for a chance to get long. Which means I and pretty anyone else trading this contract – which is why I’m betting at a NLBL failure right now. Again, a breach would be a huge change in the medium term trend and if it happens I’ll swallow my oversized ego and hop on the long bus.

But we’re only getting warmed up – great setup on USD/CHF. I have an inside day + NR4 combo, an expired NLSL (freeing up space to the downside) and if you call right now I’ll throw in a 25-day SMA looming right above (a breach of which would propel this one higher). Going to hold my nose and take whatever breach offers itself. Let’s not over think this. You want to be right or you want to bank coin? Your choice.

What a juicy setup on the NZD/USD – an inside day right at the 25-day SMA. There’s also a NLBL above which will act as resistance. Thus I would be mostly interested in taking a breach of the NLBL or the SMA tomorrow.

Cable – inside day + NR4 setup. We’ve been harvesting those all year – say no more.

EUR/USD – here’s another one! If you don’t know the rules then please check the cheat sheet.

EUR/CAD – looking like a possible floor here and we’re getting an ID + NR4 combo. How considerate and I intend to get a small helping of whatever is bering served tomorrow.

AUD/USD – yet another inside day setup. And it’s happening right on top of the 25-day SMA. How cool is that? If we get a breach in either direction we’ll have the SMA to provide additional support. Now, that’s the way we like it 🙂

Keep yourself busy but don’t get drawn into taking any big bets. This market is treacherous and will eat you alive if you have the slightest allusions of knowing where we’re heading right now. Let equities play out and instead focus on higher probability setups on the commodities and FX side. Whatever you do – keep it frosty – mentally and physically. It’s been one long and hot summer.

Cheers,