There is a popular game played at carnivals, the object of which is to hit the head of a joker as it pops out of one of multiple holes. Most people will "loose" this game by continuing to watch where the joker once was. When I watch many market players reacting to the markets natural coiling and uncoiling tendency, I am comically reminded of this game. After an explosive move to the upside (Think last Tuesday) everyone is all hyped up and ready to go. Unfortunately for them it is normally at this point that the market volatility cycle begins to coil, and in the process separates most traders from their money. After several days of chasing the joker (momentum), traders become disgusted with themselves and the market. They decide now is the time to play it safe, or stand on the sidelines. Its at this time that our joker will jump out of his box and make a surprise return.
A heads up, the joker is still in the box and if you listen very carefully you can hear his giggle as he is preparing for his brief return. The market is currently coiling tighter than a mad Arizona Rattlesnake ready to strike. Fridays 7 point range in the SP500 gave us an NR7 (narrowest range of the last 7) trading day, which as displayed by Toby Crabels research in his book "Daytrading with Short Term Price Patterns and Opening Range Breakouts" commonly occurs before a strongly trending day. Additionally, the ADX on the 120 minute chart is at lows not seen since 4/02, and the hourly SP500 chart is lower than at any time since 4/09. This shows us a high degree of trendlessness in the market. Often, this precedes a period of explosive trendyness. What does this tell us? It simply tells us not to be watching where the joker just was, because he is going to return right over there! Our little Joker (Mojo) is about to return. His presence will be fleeting, but for those who are ready and nail him on the head the carnival barker has a nice prize.
Brandon |
