Zen and the Art of Head Fakes

Trading has been rewarding but challenging over the past few months.  Take yesterday, for example.  SPX tagged our targets pretty much as laid out in the morning:

Look for SPX to backtest at least the SMA10 at 1899.34.  If that breaks, then the red channel midline at 1896 and the red neckline at 1880 are the next major levels of support.

SPX fell through 1899 pretty quickly after the open, then dipped to 1895 for the midline tag.  So far, so good.  A small rebound to flesh out the falling purple channel, and it would have nailed our 1880 target around 2pm.  2016-01-26 SPX 5 0600The only hitch — need I even say it? — CL and USDJPY decided to break out above established channel lines at about 12:30.   SPX bounced 14 points, trashing the nice little falling purple channel.2016-01-26 CL 5 0600 2016-01-26 USDJPY 5 0600It worked out fine for us.  We got to participate in the bounce, and made more on our final short as it began at a higher price and dropped further.  Instead of making 20 points on the drop from 1900 to 1880, we were able to rack up 44 points (+2.3% vs SPX -1.52%.)

But, there were several head fakes along the way as multiple intraday declines suddenly reversed for no obvious reason other than a sudden spurt higher by USDJPY or CL.

I liken trading in this environment to driving an automobile by staring solely at the dashboard.  Stoplight up ahead?  Hairpin turn?  Remain focused on the speedometer, the tachometer and the temperature gauge.

The tools that were once interesting indicators of how the market was doing and where it might go are now being utilized to determine its trajectory.  It worked beautifully for the bulls while CL and USDJPY were on the rise.  Lately, not so much.

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