Trippy Thursday Wrap Up

What a day! Overnight action suggested the longs were in for an ass raping and the NYSE session definitely delivered on that end. We closed the day below 1300 for the first time since 1/31, over a month ago.

The signal signature on the ZL today was squarely bearish right from the get-go. We launched the session with a -4.5 ZL signal which more or less sealed the fate of the longs. There was a little reversal and both Scott and I thought the longs were going to make a run for it. However, the zero mark was never breached and for the remainder of the session we kept zigzaging to the downside. Fairly clear day though and the implications for the longs is that they better make a stand here right now or say hello to 1270 in a short jiffy.

How Geronimo was able to squeeze two scalps out of this down day is beyond me. Way to go!!

Of course the implications here are potentially profound as well. Meaning, the boyz actually tried to push this turd higher but failed. Always remember that Geronimo is riding the coat tails of institutional traders banging the tape around. And this means that they had their shot and either failed or got out very quickly (just like us).

Okay, now considering the situation above Scott and I were musing about how to play a possible continuation or snap back. Problem is that whatever happens in equities usually starts over night (outside of the NYSE session) and thus we get those gaps to either the up or down side. So, what we are left with are either the index futures or FX trades, which IMNSHO have a lot more volume and are most likely the easier play. Digging around I found a few worthwhile victims:
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I really like this setup on the AUD/USD – we have the lower 25BB near the MA of my 100BB and an entry just a few ticks lower may we worthwhile. I’d use an 1N stop on that one – again, I usually use a ATR(10) or ATR(14) to calculate my stops.

NZD/USD – now this is a completely different trade and it’s useful to explain my thinking here because these types of setups are less obvious. Look, we are currently riding down that 25BB and if you only look at that you’ll have a hard time finding a long setup as this could keep slipping for a while.

But if you look carefully you’ll see that the lower 100BB line was breached by the lower 25BB line. It looked like a good long opportunity but based on the angle of attack here I think we may see lower prices before this one snaps back. For a good example what I’m talking about look at an inverse situation back in November 2010. The upper 25BB pushed outside and prices even reached outside it before the longs got squeezed back into submission.

That is the type of setup we are going for here. Either a violent head fake to the downside that pushes the NZD/USD outside its 25BB or a flattening for a few days permitting the lower 25BB line to entangle with the lower 100BB line. For the more violent option I would not go long until 0.725ish – give this thing plenty of space to work with – don’t try to be too eager here – let it come to you.

You know that is the type of psychology that has really worked well for me. Meaning, not being too over eager. Be like a gold digging valley skank at Loehmann’s – nothing is good enough for you. Only take the trades that make you say ‘how the hell did it get all the way to that level?’ – and ‘I got to grap that one!’. Also be cautious when you get filled too easily – that usually is a bad sign. I always insist on getting filled at the mark or worse – yes, worse – otherwise I know they are making it too easy for me.

Scott trades a bit differently of course but that’s his game – in the end do whatever works for you.

Last but not least here’s cable and from where I stand that is one of those trades you got to wait for. I want to see it at 1.5945ish before I dare to be long. I love how that 25BB is pushing higher and how the 100BB is swinging up at the same time – that should produce a nice floor where support has a chance to put on a little squeeze.

Scott proposes a more short term setup right here and now. We’ve got two adjacent dojis – one of which happens to be an inside candle, thus he proposes a long trade with a very tight stop. Volume seems to support that setup but if it happens I’d be out at 1.690.

Bottom Line:

And that’s all I have for today. As for the long term outlook – hasn’t really changed much folks. Yes we had a bearish day but it came out of nowhere and there’s evidence that suggests that the boys are playing the tape down. And although I may be talking out of my ass here turn-on-the-dime-tape like this leads me to believe that equities may not be done just yet. We may indeed push down to 1270 and when/if that happens I will watch the tape very carefully because that is where clear signs of a trend change may emerge. Tape like this is often engineered to make you run for the hills just before it snaps back. Would not be the first time.

Almost everyone is looking down right now – maybe I’m the only idiot in the room – very much possible. But I’m not convinced about all the doom & gloom just yet. I do allow for a push to 1270 but unless we see an expansion on the daily Zero, the hourly Zero, as well as other momentum indicators I monitor I maintain that this may just be a shake out. Having said that – I am keeping an open mind of course and as soon as I do see more of what we saw today I will be happy to sell the very next rip. But as usual – timing will be everything.

Cheers,

Mole