Very Strange Tape

And when I say strange tape I’m referring to participation patterns that I don’t recall having seen since the inception of the Zero indicator almost five years ago. I usually judge the momentum and character of the intra-day swings by interpreting the Zero Lite – it’s been proven to be an invaluable tool and quite frankly I wouldn’t want to trade the E-Mini without it on a discretionary basis.

If you’re unfamiliar with the signals then let me give you a quick run down. A reading of zero (near the blue line) for an extended amount of time means that participation is almost non-existent – be careful as the bots will have a field day and will probably attempt to bang the close. A mediocre reading is around 0.5 on the positive and -0.5 on the negative side. Anything about +/- 1.0 is considered a reasonable signal. +/- 2.0 is pretty significant and anything above +/- usually accompanies strong trending tape (either up or down). The signal may squiggle around a bit during a strong day but it usually remains on one side of the zero line (either above it or below). As you can imagine trending days almost always have a signal that sticks to one side of the zero mark.

And given those general guidelines may let you appreciate that what we’re seeing today is a bit strange. A signal of -3.0 usually accompanies heavy sell offs but as you can see we have been pushing sideways all session, at least thus far. Something very strange is going on here and in five years of interpreting the signal I have never seen anything like it. And that is not a situation I much enjoy. Possible explanations could be that we are seeing distribution – however given the current price pattern that would be a bit surprising. What I do know is that equities are heading into possible resistance:

We’ve been climbing the 25-hour just fine and today’s a bit of a sideways ‘day after’ session. The 25-day SMA is dropping from above and should meet up with price shortly. Then there’s that weekly NLSL near 1665.75 – as you recall that also terminates a volume hole:

A few more handles to go until we get there – that volume hole starts around 1662. But that surely wouldn’t explain the strange signal pattern we’re experiencing on the Zero today. Quite frankly it’s a bit of a head scratcher for me and I am not certain as to what advice. If you’re long I don’t see any reason (yet) to think about being short. No price pattern or resistance levels in front of our noses – we still have room to climb. For now I would simply recommend caution and to remain nimble. Until 1666 has been breached the bulls are not out of the woods just yet.

Update on our cocoa trade – nice inside day entry on Wednesday and we are already at target. You may hold a few lottery tickets into a possible touch of the upper 100-week BB  but I would take most of it off the table here.

Update also on the NZD/USD RTV-L entry yesterday. After a nice candle up we’re now painting an inside day and that usually advances our stop at the lower trigger. However we earned 1R and then pulled back – so given that we should have taken profits this morning. Yes, I forgot as well and the remaining option is to now hold this trade and use the inside day as our guide. A breach of today’s highs would be a continuation (and possibly pyramid) signal and a drop below would be a sign to get out (I would not want to be short there). Of course if you find a good exit if we rise toward the open then that’s permissible as well.

Two more charts for my intrepid subs – slim pickings today but what I dug up is worth your time:

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Cheers,