SLOPES MATTER

“Yes it is … and the STEEPER the better!”

Nothing like steep slopes to keep things interesting … and I don’t mean skiing either. Yesterday I released “The Tunnel Method”, and if there’s one thing we want to see, each and every day, it’s a set of steep slopes on our 2 key indicators that signify trend. What I don’t want to see are “flat” or zero slope indicators, cuz that simply means “chop” and the market ain’t goin’ nowhere.

That doesn’t mean it can’t break out at any moment, but again it isn’t a question of “will it?”, it’s a question of how many losing chop trades do I have to eat before that … and that nobody can answer. Cuz it doesn’t do us much good to lose 5 in a row of 4 PIPS each and then make 20 PIPS on a breakout trade … all we’ve done is break even before RT commissions, and I’m already doing that by sitting out!

To avoid “chop” you must keep a close eye on the 2 slopes of the EMA’S, cuz a telltale signature of chop is for the EMA’s to go flat, anywhere from 5 to 10 minutes before the market moves into and/or out of the “tunnel” … and if you trade off of that signal, just be aware you’re looking at a 50/50 coin flip for profit/loss. The dirty little secret is simple: the flatter the slopes, the less probability of success in the trade. What’s really happening when the 2 EMA’S 1) stay very, very close to each other, and 2) “flip flop” back and forth over and under each other, is a stalemate on the HR1 & HR4, where some very large forces [read money] are drawing “lines in the sand” for direction in the market going forward. When one of the sides clearly thinks they were wrong, they’ll panic and the winning side will help them … that’s what’s really happening.

Turning to today’s markets … 4^th day in a row USDJPY lower, and since we are all SP500 traders, no matter what we trade, can traders get the SP500 under 2420 today is the $64,000 question … cuz if they can, USDJPY could fall out of bed … if not, who knows, but at some point I would expect a vicious short covering rally to unfold, maybe either mid-afternoon or into Asia tonight.

Well that escalated quickly in stocks didn’t it? … and no, they tried multiple times to do it, and while it looks like the “Plunge Protection Team” [PPT] showed up just in time [SP500 low of 2420.7] to “jack it up”, the question now becomes, what of USDJPY? The “Tunnel Method” algorithm had some very close sell signals this morning; first one the 121 White Line EMA was flat, the second one simply just missed the “tunnel” by a hair, the third one was flat, and while the fourth one was a legit short signal, I didn’t take it for a couple of reasons.

First reason is, I don’t think with the SP500 8 full index points off its low, the market has much room on the downside, if any, to see additional sell pressure … USDJPY tried 5 times to break 108.60 and couldn’t do it with a cavalcade of lower lows in the SP500 … now a full 8 index points higher on a screaming rally, where’s the sell pressure in USDJPY going to come from when the entire trade has been short all morning? Simply put, I don’t think it can.

The second reason is non-algorithmic but USDJPY related from a logistical angle; USDJPY is NOT a pair that simply lets people follow the trend with no worries. A look at the daily candlestick should convince you, this pair is a new bull/bear market terror every damn day; there simply is no safe trade in this puppy. Having said that, we really haven’t broken down from Friday very much, and it’s the 4^th day in a row of lower price; is the trade long or short, and where are the surprise spikes going to come from and go to? … well, I’d have to say the long side, catching the trade yet again too short for their own good. I’ve seen this TV show before … get everybody short, then blitz the hell out of it some 20-30+ PIPS on some mystery spike up [rumor related or not], set off buy stops, and basically rape the trade just like the PPT does in the SP500 & Dow30 … thanks, I don’t want in this.

So, the question isn’t one of “it’s not a good signal”, cuz it was entirely legit; the question is, where’s it gonna go? Cuz, all I see is attempts to go lower that can’t, and it does me no good to be up 4 PIPS, for example, and then have the trade blow up with a 20 PIP up spike cuz somebody got their big girl panties wadded up in a knot, and went berserk covering shorts.

And guess what, I was right, although, there were a few PIPS to be had [not much] if I had taken the trade. One other thing: when a market is trending, and then comes back to the “tunnel”, you only got so many “knocks on the door” before the last one turns and slams the door in your face. Meaning, the first through maybe third times are usually good, but you get to 4 or 5, they usually will stall. The trade I skipped was the 4^th attempt … as I said, where’s it gonna go if it can’t bust 108.60?

And now of course, about 12:30 in New York, [and by the way about 2 hours until the solar eclipse passes through here in the Caribbean … from where I’m at, about 85%-90% of the sun will get blocked out for about an hour … this should be fun!] and USDJPY sneaking up to the 109.000 area … is another reversal day in store? How about the “Flying Wedge of Death” [FWD] for the umpteenth time these last weeks? Is it even possible anymore to get any market to 1) open, 2) go in a trend somewhere, 3) correct some, and then 4) continue the trend into the end of the day without all the bullshit of the FWD, major reversals, or even double reversals? I’m beginning to wonder.

Here in mid-afternoon [T-30 minutes to the eclipse! … I’ve never seen one, so I’m hyped!], the trend on the 183 & 123 EMA’S have changed for the 4^th time since I opened my screen just after the European open on the M1, and we get another sell signal around the 108.840 area; again, where does it go lower if the SP500 isn’t moving down?  Well, we got the answer … about 7 PIPS before stalling and now ripping higher into the 90’s. A good signal, but late in the day not one I want to take.

Ok, solar eclipse time! With any luck, I’ll get a decent pic from my phone … be back shortly! Well, that’s something I don’t think I’ll ever forget … truly awesome. Phone pics are iffy from what I can see, but I’ll know more when I get back home and put them on the computer.

As I figured, the last signal went nowhere as well … market is simply chopping around; however, this market is due for a rally … maybe it comes off President Trump’s Afghanistan speech tonight to the nation during the Asian session … I’ll be watching, cuz any blimp up that sets stocks going higher and USDJPY will follow. We’ll see.

This was a rotten trading day from the Europe open to the New York close; tight range, a semi FWD, and of course the obligatory spikes. Two algorithm signals that I passed on cuz I didn’t like the setup; in any event, not much on the profit side even if I caught them, although something is better than nothing. Still, I’m not at all thrilled with selling a market that is in its 4^th day down, especially one as erratic as USDJPY. So, hopefully tomorrow [or tonight which is tomorrow for USDJPY] the market moves better and we capture an algo signal and move in the market. Onward & Upward!

PAMM spreadsheet directly below.

Dog is with the babysitter [yea, I know, don’t go there … the wife insists] … time to get home and relax … until tomorrow mi amigos!

Have a great day everybody!

-vegas

UPDATE:  The solar eclipse from the Caribbean; we had about 85% of the sun covered. From the pic you can see the solar flares off the sun, and in the middle of the sun, the light shaded circle is the moon. It was awesome to behold!

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