Bull Quiet market regime is back but for how long?

bull markets market regime strategy Feb 15, 2021

In last weeks email I talked about the confusion on the $NQ after that 13% selloff that we were already well prepared for coming in to September. 

The confusion we saw is characteristic if a market battling it out and finding resolution to who is back in control of the price action. In the Trading Lab, we got long NQ on Sept 21st with a first initial trade. In last weeks email we talked about what I expected to see if the bulls were back in control.

We got what we were looking for this week, and we have added 2x to our long position this week.

Our first entry last week was off that big spike low with a buy stop above it on the 21st. Our second entry was Mondays move above last weeks high, pulling us in a second time and finally on Wednesday we added to the long position. 

The thing about equity indexes, especially that are so overweight market leaders, is that they have high incentives built within their structure. Or said another way, they are structurally built to go higher over time. 

And in my note a few weeks ago I talked about how poor of an investment saving cash is. This means investors are incentivized to take risk and punished for saving. Even the most conservative cohort of investors, retiree's and those on the brink of retiring are at high risk especially given that they started retirement planning with how long they'd live off of their retirement and other social savings to around 75-80 years old...that seemed long to them. Now people are regularly living into the 90's.

This incentive to go higher is working against traders who are caught up on headlines and overwhelmed by their perception of the worlds chaos. 

With the theme of "world chaos" in mind, I want to take a look at the Monthly Crude Oil chart. To be clear, I don't trade crude, (I can quantitatively prove why it is a poor asset, vs all other tradable assets to trade, but that's for another note), but this chart represents when the world is in peace, in this case for the past 40 years or so in the Middle East, and when the world is not at peace. 

I won't go very deep into the history of things here as that's not the point of this, but when things are not as kinetically chaotic (tanks, gunships, brigades of foreign soldiers, insurgencies and all the chaos of a real war) as they have been since the ramp up of March of 2004, the price of crude has stayed below the mid 30's level. 

Despite Fracking and everything else that contributes to it, nothing causes such chaos as war in a major oil producing region. 

If we can use the price of oil as an indicator of war vs not war, globally things are a bit more peaceful than the headlines would make them seem. 

The reason I point this out is it is a similar tool to the SQN or an ATR at organizing the Market Regimes. If headlines are on fire, but there's a lot more peace (globally) than during major military operations in the Middle East, headlines are all sizzle and no meat. 

Getting caught up in headlines to make investment/trading decisions might be useful, of only you understand that in these market regimes, bad news gets bought as does good news.

Which brings us back to our good old friend, the Bull Quiet Market Regime. In this chart you see the SQN indicator is firmly back in Bull Quiet territory, and price action this past week has confirmed it. 

In this regime, we look for any excuse to be long, long and lazy is the method. 

I don't know how long this might last, we might not even make it to new all time highs while in this regime, but being long is the only good trade to make here. 

Look for the best sell setups to fail, as they have in the past week, this will keep your head in the game. 

On a day like today where the headlines of "Trump Catches CoVid" or whatever everyone is worried about, watch the dip being bought and closing the week bullish. If we get a selloff, then that's a beautiful sell setup forming for next week, and again, watch to see that the sell setups fail and we resolve higher. 

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We had a good week trading the FVBO in Gold, USDCAD, AUDUSD and buying $NQ all week long. 

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