Tuesday Post Mortem

The past week show various examples of how the Zero indicator continues to give us important clues as to what is ahead. Let’s review:

If you ever have traded the ES futures you know it’s a tough game. Weak hands are quickly sent to the dustbin of trading history. Well, we consider keeping traders from getting rolled over by the big boyz a public service (which doesn’t keep us from charging a subscription fee as we are evil by nature) – and this is how we do it:

Let me reiterate a few things for any noobs who may want to know about how this evil creation works. First up, the Zero is not new – it was created about 18 months ago by yours truly. Since then it has gone through a few revisions and improvements but the basic signal has remained the same. It’s not an indicator per se – it’s a market oscillator that shows us participation and momentum. When the lines swing heavily in one direction we know that a strong trend is building which may stick around for days or weeks – sometimes longer. The Primary Zero (PZI) is on the left and the Zero Lite is on the right. Although the PZI is great in evaluating the overall medium to long term trend, the Zero Lite is really where the action is. We are mostly looking for the level of participation and most importantly we are on the look out for divergences. I have highlighted out a few in the chart above.

What’s immediately apparent even to the untrained eye is the weakening signal on Friday and Monday. We dropped a bit more on Monday but prices were not confirmed by participation/momentum, which was looking less bearish by the hour. Something was up – and we weren’t disappointed as we got served another whipsaw yesterday afternoon and a gap this morning. Which however was not supported by momemtum, which is why I was hedging hopes that my line in the sand on my wave count may be observed. For the record – we do often see tape whip higher on very little momentum, so early this morning we did not know. But a give away was the sudden drop after the open, after which the signal started to increasingly go negative.

Finally, you see a developing bullish divergence late in the day, which was a signal to start taking profits. Yes, sometimes we do see the signal change and break through but in the majority of cases these divergences deliver.

BTW, in case you care: A good word to describe the action of the past two days is distribution. It seems the boyz whip the tape higher – get out and leave someone else to hold the bag. Not us that is – we are on them cats 😉

I hope that this little post mortem of today’s action helps the rest of you understand the value the Zero delivers to my subs on a daily basis. Price lies to us all the time – especially these days – but the Zero Lite is our resident lie detector. Often indicators or systems break after a few months – I was never worried about that happening with the Zero. Why? Because it shows us what the market is really doing, not what it is pretending to be doing.

If you are interested in subscribing to our Zero oscillator then don’t waste time and sign up here. More details and a brief tutorial (which is a bit behind – which is why I paint on the chart a lot during the session) can be found here.

Alright, time to roll with my biatches – who got the keys to my bimma? (crank up the bass)

8:00pm EDT: Something’s cooking – all the FX pairs I follow are down right now. I don’t recall ever seeing something like this. It’s is starting to look like real fear our there:

Don’t chase those currencies down – this can snap back wildly if the ECB (or the Feds) decide to intervene.

Cheers,

Mole