Stumbling over "breadth"

There is a lot of chatter on the Twitters about the weak breadth, low volume markets these days. Smugly bearish doomsdayer's looking for any sign of bearishness to call, yet another market top. The latest tool that they are pointing to is the very low volume in the markets...in August.

I get emails, DM's and texts day after day complaining about the Federal Reserve, Jay Powell, the elections, CoVid19, and all these other narratives about how the world should've ended long ago, or will likely on any given tomorrow.

All of this is true, but the market keeps going higher. 

This is a clue, no, this is way more than a clue that the market isn't the headlines, the market isn't the economy, the market isn't the news. 

The market is the market.

Our job here at Pollinate is to trade the markets correctly, that entails being on the statistically advantageous side of the trade. There a number of fairly easy ways to do it, but they get overlooked with a shiny headline, or some eloquent sounding dude that calmly yet sternly talks about Tulips, Bretton Woods, Gold Standards, China and the Fed. 

If you find yourself nodding your head at these people on TV and Twitter, ask yourself if these people and their narrative would've helped get you long US Equities near the bottom of the CoVid19 selloff and then helped you STAY LONG for months after.

Or would these people be the ones who get you all excited to wake up Monday morning and buy puts on $SPY $AAPL $TSLA $QQQ week after week?

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Last week, I added to my long $NQ position when it was clear to me that we were back in a Bull Quiet regime. 

And this was a bit late to the party because last Monday's huge bull bar that put in new highs was the better trade, but since we were trading as if in a Bull Volatile regime I wanted to wait for more confirmation. You recall I hedged the long position with puts a few weeks ago. 

Price action was the main tell here, when the best sell setups in the world fail, that is signaling that we are in a Bull Quiet Regime. 

This is important to understand. We categorize markets so that we can identify the unique characteristics of each market regime. One way that we do that is using the SQN indicator to help us categorize, but this isn't the only way to do it, there are plenty of different magic squiggly lines (indicators) to help us categorize a regime. I've become quite partial to using the ATR again.

Ultimately price is the only real truth in markets, everything else (indicators) are a derivative of price. And this is why it's important to nail down the characteristics of each market regime that you classify. 

The most obvious characteristic of a Bull Quiet Regime is, like I mentioned above, the best sell setups fail. That's what happened on $NQ last week and is playing out this week as yet another screaming angry headline reader shorts the market, yet again!

Going forward as August comes to a close I'm not expecting prices to move too much higher for $NQ or equities generally. This 11,600 level +/- should be a pretty decent spot to bang around at into the end of the month. If we do keep pushing higher I would look to lighten my long positions or readjust my hedges. 

For the bull case, sideways to downward action is good. I'd be looking to add to my longs or do nothing more in that scenario. 

If we do pump higher here, like say 12k, I'd be looking for weakness following...perhaps a quick and dramatic price drop. 

Keep in mind seasonality and the characteristics of those seasons. While August is historically low volume and poor market breadth, September is historically the weakest performing month for equities, while Q4 is historically the strongest quarter of the year for equities.

Weakness in September gives us potential better opportunities to close out this epicly successful trading year! 

One final note, I've been getting NON STOP texts from a few acquaintances about the Dollar being removed as the worlds reserve currency, or Dollar crashing and the world ending! My friend Alex at @MacroOps on Twitter wrote a great piece about that today, give it a read here

If you aren't already a member of Pollinate Trading Lab, now is the time to join. We will be increasing the monthly membership at the end of the month. You can lock in your lifetime rate for the Lab by signing up before the end of the month. Get 1 month free for signing up for 6 months, or 2 months free if you sign up for a year