A tale of two setups

Rather than talk about the recent market shenanigans, the chart of the Dow covering the last few months offer us a good chance to compare a low volatility setup against a higher volatility setup.

A couple of messy charts

If you are inclined to trade the indices, you may be familiar with the charts of the UK FTSE and the Australian ASX, which show a distinct lack of direction in recent months:

Some random charts

It's been a while since I have posted some random charts, but here goes:

It is interesting to note the pattern currently developing in the German DAX. You can clearly see the 'staircase' of higher and higher lows in place from early December last year before price stopped moving up in June.

A frustrating week - and a look at stops

Last week was a frustrating week. At one point I had three positions open but by the end of the week I was back to being 100% in cash. Lets look at what happened:

Price and volatility contraction - the coiling of a spring

According to an article on CNBC this week, the Dow is on course to form its tightest price range (in percentage terms) in the first half of any year since its inception back in 1896.

Price has currently remained within a range of just over 6% so far within 2015. Sure, there have been some sharp moves on a intra-day basis, or over the course of a day or two, but these have all been contained within those basic price boundaries.

A muddled picture

As the various charts shown below highlight, there has been a complete reversal in direction in many of the major instruments that I follow. The major indices, commodities, and forex pairs I keep track of (but do not trade) as they determine in which direction the bias for my individual stock positions should be.

FTSE and DAX trying to follow the US

These charts again show why I do not trade indices (due to their inherent volatility), but simply use them to determine my directional bias when selecting individual stocks to trade. Both FTSE and the German DAX have moved from near new-highs down towards new lows in a matter of a few days. As previously mentioned, the US indices, gold and silver, oil and EUR/USD are already on a short signal - these two indices have stayed stronger for longer but are now falling into line.

Interesting times

Despite the markets' best efforts, the downtrend in the US indices appears intact. Over the last few days EUR/USD (chart below) has also joined the party and given a short signal. The key drivers or catalyst as to the price direction in an index, currency or a stock are an irrelevance to a true trend trader. Price is all that matters.