Zero Divergence

Quite a fascinating sell off today – that bump against the daily NLBL was all the bulls were able to muster. Perhaps it would have been smarter to take profits there yesterday (on the NQ) but I personally prefer to ride the long cons – meaning I get in early if I can and ride those suckers out. Of course what happens quite often is that you give up previously coined paper profits. Part of the game really – I got out a bit above break/even so if nothing else it’s been educational 😉

Here’s the E-mini in all its ignominy – straight down near those hourly Net-Lines. The daily has us back at the 25-day SMA but don’t be so sure that a bounce is procedural now.

The Zero is rather fascinating which is why I didn’t want to miss this opportunity to post it. The hourly panel shows us a strong spike to the downside. That was quite a failure near the top and we have two possibilities now:

1. This is the mother of all bear traps and we’ll be seeing a counter move here post haste.
2. The jig is up for the bulls – we’re testing the 100-day SMA and most likely drop right through it.

See this is the problem with those sideways formations – you really never know when you are in a break out until you’re well in it (and it’s too late to get positioned). I think we can all agree that this is one ugly chart formation – whatever you want to call it. Fear ranks high right now and very few people are going to try to be long here.

Which brings me to the Zero Lite on the right. Pretty distinct divergence here, which not always means that we’ll see a bounce back. We may just have run out of selling pressure and if we drop through key support near the well tested 25-day SMA we may get more of the same. But yes, there is a small statistical chance that we reverse here which is why I just grabbed a few E-Mini contracts. Just a small position as I don’t see anything clearly bullish on this chart.

Let’s be clear about this. We are in the late stages of a LT bull market and market conditions have evolved significantly over the past year. What we are seeing are fast surges followed by drawn out sideways corrections. The bulls are living on borrowed time and I think sometime this year there will be a price to pay for six years of bullish exuberance.

So why am I long here? Because it’s a short term opportunity and I’m not in the business of predicting LT tops or bottoms. Not my game – at least not anymore – when I did I was actually doing quite well but it’s not something you can base a trading career on. And taking it one day at a time with eye on the ongoing trend has been the proper recipe over the past few years.

Some very juicy goodies below the fold for my intrepid subs – please step into my lair:

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Things are about to get a lot more exciting – let’s put on our game faces.

Cheers,