The Sunday Monday Setup
Today is Presidents Day in the United States, and a bank holiday the markets here will be closed. We pushed the weekly email out an extra day to be ready to go as markets were opening around the world.
- Indices: Sideways in a Bull Quiet regime, NQ broke out and started trending higher, expecting ES to do the same
- Metals: Gold in Bull Quiet, silver, copper and platinum in neutral – very volatile action last week.
- Energy: Neutral action.
- Currencies: Bear Quiet after Bear Volatile regimes signal potential reversals higher.
- Bonds: Bear Quiet turned to Bear Volatile regimes.
- Ags and Softs: Corn, wheat, and soybeans have been attempting to break out higher. Coffee up over 100% in a year. Cotton trending down on low volatility.
- Crypto: Long Bitcoin, flat on all altcoins.
One thing I always keep an eye on is liquidity from Governments coming into the market as it tells us what players are on the field…and what game we are playing (easing or tightening).
Why is this important?
If a big player like the US Government (or China) injects money into the markets, that’s going to mean that “generally,” there will be tailwinds to risk-assets like large-cap US Equities (MAG7) and Bitcoin, etc…).
We currently have a debt limit in the United States of $36 Trillion and the Federal Reserve is doing Quantitative Tightening by allowing the assets that they have on their balance sheet to mature and flow back into the markets.
Flooding the market with inventory doesn’t seem like it would be good for asset prices to rise.
And we might get some insights on the Fed’s part in that this week with the FOMC Minutes on Wednesday.
So no rally?
Not so fast, the Fed isn’t the only one player on the field. The US Treasury started using the TGA (Treasury General Account) on Wednesday which has over $800 billion, and is expected to inject $600 billion between now and April 15th, when taxes come due.
We have favorable conditions for a trend higher in US large cap equities, Bitcoin and if sustained, that will spill over into more speculative assets, small caps, and altcoins (for crypto).
Which seems like a good preface to looking at trends.
How I Identify Trends, Pick the Best Assets, and the Issues with Trend Following
Identifying the Trend
If you don’t know what game is being played, you’re already behind. The market moves through different regimes, and understanding where we are is step one. My approach to trend identification is rooted in categorizing markets into five regimes:
- Bull Volatile
- Bull Quiet
- Neutral
- Bear Quiet
- Bear Volatile
Each of these environments demands a different trading approach. Bull Quiet is where trends persist with minimal shakeouts, while Bull Volatile tends to be where the biggest tops happen. Bear Quiet can lull traders into a false sense of security before a major rug-pull, and Bear Volatile is where true panic sets in. Knowing which regime we’re in helps me determine if trend following is viable or if I should play another game.
NDX and SPX are in the Bull Quiet Regimes right now so we look there for a trend with minimal shakeouts.
Beyond regimes, I look at breadth indicators, moving averages (like the 10-week simple moving average on NYSE advancing issues), and rising/declining volatility. When these align, it tells me the market is primed to move.
SPX is currently right at all-time highs, and the 10-week average of NYSE advancing issues is as low as it was when the market bottomed in 2022.
Picking the Best Assets to Trade
Once I’ve established the trend, I apply Table Selection—a concept borrowed from poker. Just because the market is trending doesn’t mean every asset within it is a great trade. Some sectors will be leading; others lagging.
Here’s how I do it:
- Find what’s working. Scan for relative strength—which sectors, industries, or assets are outperforming in the current regime?
- Avoid the dead weight. If an asset isn’t moving with the trend or is in a counter-regime, I’m not interested. No reason to force trades.
- Use diversification wisely. Some markets trend more cleanly than others. Currencies don’t trend like equities do, and commodities can have explosive moves but often revert to mean over time.
The Problems with Trend Following
Trend following works—until it doesn’t.
- The Toughest Part is Timing
If a trend looks obvious, it’s often nearing its end. The reality is, most trends don’t work out. Many breakouts fail, some get stopped out early, and others just drift sideways. You need to take a lot of small losses to find the real moves. - Big Drawdowns Can Kill You
Staying in a trend long enough to capture the full move means enduring gut-wrenching pullbacks. A great example is Bitcoin’s historical breakouts—every time it has made a new all-time high, it has experienced a 30%+ pullback before continuing higher. If you don’t have a clear exit strategy, you’ll end up riding that trend all the way up—and all the way back down. - Chop is a Killer
If you try to trend-follow in the wrong regime, the market will bleed you dry. Trend following doesn’t work well in range-bound or mean-reverting markets. If you don’t recognize that shift in regimes, you’ll keep taking stop after stop after stop.
The solution?
Table Selection, Diversification, and Risk Management. Pick the right assets in the right market regime, spread risk across multiple trades, and size appropriately so you don’t get blown out before the trend pays off.
Want to know if we’re in a tradable trend right now? The answer isn’t in predicting—it’s in watching the structure, adapting to the environment, and playing the right game.
S&P is waiting for its long entry signal from our trend system here.
Nasdaq got long last week.
To answer the question that I get asked each time I write these pieces, what systems I use to trade trend setups.
I use the Swing Beast Momentum System or the Crypto Momentum System. Both work exceptionally well as long as the assets I’m trading are in the right regimes using everything I talked about above.
Trend trading isn’t about prediction—it’s about playing the right game at the right time. First, know the regime. Then, pick the strongest assets and avoid dead weight. But even the best trends come with whipsaws, fakeouts, and brutal drawdowns.
The key? Smart risk management—size right, diversify wisely, and cut losers fast. Trend following works, but only if you have the discipline to survive the grind and the patience to catch the real moves.
Regimes Dashboard
Positions
Long $ES – S&P500
Long $GC – Gold
Long $ZC – Corn
Long $6E – Euro
Long $GC – Feeder Cattle
Target Setups for Next Week
We are currently already long $ES futures, but if we get the Swing Beast buy signal next week I will be adding (again) to our long position.
Economic Calendar
Earnings Calendar
