The teens are over and done with and we’re now heading straight into the roaring twenties. I know it’s supposed to be hip to be all cynical and black pilled these days; but let me be among the first to buck this nauseating trend and predict that it’s going to be an awesome decade for anyone serious about being successful – and most importantly the very few willing to put in the work.

Let’s not forget that RPQ was founded on the very premise of supporting people just like you – individuals of all stripes all over the world who are unwilling to accept the status quo of a 9-5 worker bee and the prospect of condemning themselves to living ‘from pay check to pay check’.

Being a recovering workaholic myself the biggest lesson I had to learn was that it’s not about how much or how hard you work. It’s about how smart and disciplined you are when it comes to picking the low hanging fruit the market dangles over us on a daily basis.

Being successful as a trader on a long term basis is not an easy feat, I’ve made this clear on numerous occasions over the past decade. And if nothing else the number of faces that have come and gone over the years serve as a testament of that fact.

And neither should we assume that the price action throughout the 2020’s will be less turbulent or less manipulated than the past decade. But given the proper tools combined with deep market insight we here at RPQ will do what we have always done since the inception of this site:

Trade long and prosper.

And when I say trade long what I mean is that successful trading is an exercise in persistence, steadfastness, and ability to weather out the storms. You’ll always experience shitty and boring days along with the good ones. In fact the boring days outweigh all the others by a good margin and are usually the ones that lure you into making mistakes or acting emotionally.

Success as a trader is not about that one 10-fer that adds 20%+ to your account. It’s about all the little victories that compound over time plus the opportunities of overcoming your personal demons that all those annoying losers have given you.

Trading as a living is not for everyone – as a matter of fact it’s one of the most challenging endeavors people choose to take on. But if you can pull it off it’s one of the most rewarding and liberating experiences one can imagine.

With that said, let’s get to work:

As it’s the start of a new year – even a new decade – I thought it best to post a market momentum (MAMO) update. The inverted implied volatility term structure (IVTS) has been pretty spot on over a long term basis but it’s left us in limbo for the past half year or so, especially since the SPX started tramp higher off of 2900.

Here’s a different version of the same theme – this time a bit more sensitive and not inverted so think upside down when looking at the top panel. One of the rules stipulates that a buy opportunity needs the signal to be > 0.9. Which is not in place so I will dismiss the current one.

What is interesting however is that the IVTS jumped to 0.89 after such a small correction. For now I’ll just strike this up to holiday tape but rest assured that I’ll keep my eyes on this.

It’s probably the VIX that caused this while the VXV (now VIX3M) probably lagged behind. Then again – if you remember my pertinent December post – the Feb VX futures were trading near 16.4 while the VIX was near 12.5. That does spell possible trouble ahead on a medium term basis.

For a deeper perspective let’s take a look at some of my more exotic VIX ratio charts:

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Over the past few years the TED:VIX ratio has been pretty good about calling being opportunities and has been hit or miss on the sell side. When I do get the latter I usually correlate it with other signals before I even waste time thinking about it.

NYMO:VIX is one of them and it’s actually been pretty good when it comes to timing short positions. Although the slightly smoothed signal is still falling it has yet to breach the 1.0 threshold which triggers a possible medium term correction.

LIBOR:VIX is stuck somewhere in the middle of limbo land. So no corroborating evidence here.

Somewhat related to IV – the inverted CPCE put/call ratio index. Here we’ve actually triggered a slew of short signals over the past three months – all of which have been ignored.

Which is somewhat reminiscent of what we saw in late 2018 going into early 2019 and I wonder if we may be looking a possible repeat performance here.

Same chart but less smoothed and not inverted (so once again – think upside down). Those long signals are simply manna from heaven but we haven’t gotten any since last summer.

Reason why I’m showing this is that wee are in bearish territory but we are actually further away from the lower BB threshold than we were in late 2018 going into 2019.

Here’s the NYMO vs. the SPX and although the ratio is approaching the short threshold its  LOOONG way from breaching above and then back below it.

And finally SPX market breadth. I am stunned by how expertly the ratio has managed to meander below the 1.0 threshold that in the past has triggered medium term corrections.

Bottom Line

If you’re a bear it’s probably best to keep your powder dry for the moment and wait for technical evidence that supports a take down. For now we the gamma squeeze that started several months ago shows no signs of weakness and may well extend into the late January before we see a serious correction take shape.

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