Easy Go Easy Come

The market is the final arbiter.  This is something ChessNwine reminds traders of weekly in his strategy session.  If you find yourself becoming frustrated, euphoric, or BABA forbid panicked, then you are likely attempting to impose your will upon the market.  You are entering trades knowing they HAVE to be right because you are so god damned bright.

This is a fool’s game.  Well not quite.  It is a game for the humble sportsman (or sportslady?) who is tickled by the extraordinary.  And there is one thing you must impress upon your method if your method follows the tenants of momentum—your allegiance is to be sworn to the heaviest puncher.

The price action we are currently experiencing in the marketplace is peak abnormal, which, oddly enough, normally happens once in a while.  It is a good thing, a notch in the belt of survivors.  But think quick because you have not survived yet.  This is an ongoing extravaganza.

Equity markets are rallying hard today.  The Nazzy wants a 100 print after pulling the inverse last week.  Remember what I said last week?  About big waves?  You settle your heart by taking slow consistent breaths and allow it to take you as it desires until it throws you loose.  Then you begin to swim.

I am still doing very little, however, given the magnitude of the harmonic down, one was fortunate enough to back off the idea of hedging until a proper revision occurred.  Now it has, we are over the mid, and I am wondering if the bears jumped the shark with this move.

I know, it sounds crazy, perhaps fiduciary  questionable, but sitting and taking that sell flow to the nuts for a few weeks might have been the best course of action for longer term positions.  Again, this is all still TBD.

The rub?  They timed the rout about perfectly to zero out your October leverage.  Mine too, those fucks.  But sharpen your axe, purchase common on discount, and hone your strategy for another gregarious thrust.

You thought I was done thrusting, didn’t you?  You must know, Raul possesses the energy of 10 adhd afflicted teens.

All this to say I made no alterations to my book today.  This melt up was a gift however to my long term positions which are making admirable recoveries.  I still might dial them back.  However, this must be done very slowly, not all at once.

Think fast, move slow.

Strong Premarket Buy Flow Calls Predominant Theory into Question

Four hours of continuous buy flow impulsively ripped through the globex marketplace this morning.  The move is being attributed to an ECB corporate bond buying plan according to a few media outlets.  The ‘why’ of a move is often the focus of media outlets, but we focus on the ‘how’.  We know for certain a dominant buyer overnight rejected us away from yesterday’s prices.  This puts the Nasdaq out of balance as we approach cash open.  Our next job is to assess how RTH participants react to this new development.

There is a general consensus of skepticism surrounding the market bounce currently taking place.  The dip lower that precluded our current market bounce was fast and spanned a wide price range.  This leads many to suspect any bounce will eventually roll over, likely before attaining new highs.

That theory becomes a bit thorny as we enter today’s session.  We are now pushing into a zone where the market is likely to find sellers, however if they instead back off the tape we have a high velocity move underway which could carry us to new highs.

Buyers were impressive yesterday.  The session started with a strong push higher, lingered for the rest of the day, and finally made another thrust up into the bell.  Looking at the daily chart below, we can see prices probing a prior area of support which also features a high volume node.  It appears we will ‘test through’ this zone to the LVN on the other side before determining if this zone will be converted into resistance.  On the whole, this is the first real pullback since this move started.  I have noted the motivated move lower, its midpoint, and a few other observations below:

10212014_daily_NQ

We always observe the midpoint of a major move in the marketplace.  Major is relative as the markets produce similar patterns on multiple scales and timeframes.  This is why you hear the word fractal thrown around in these parts.  Put simply, the mid is a simple number to calculate and observe which makes it easy to run statistical analysis on, build trade ideas on, and build executing algorithms upon.

On the shorter 15-minute timeframe we can see the market is returning to its normal function of balance-discovery in a quest to determine value.  The recent low printed a clean balance volume profile before we began exploring upward.  Now price is probing into the volume profile printed just after we left a 7-day balance and only moments before we printed the fastest leg of the downward move.  This is our template day of volume-at-price to observe for today’s trade.  I have highlighted the key price levels I will be observing on the following chart:

10212014_intterm_NQ

Pause and Assess

The market pace came grinding to a halt this morning after a strong push higher.  We are still operating in an environment which produces larger-than-normal ranges and slightly elevated volume.  However the bulk of today’s move occurred during the initial balance aka the first hour of trade.

It almost seems foreign, the benign intraday action, after enjoying 10-12 sessions of white knuckle racing across the price complex.  There are several charts setting up nicely intraday for longs, however each time I zoom out to an hourly chart or even a 15 minute chart I see slop.  This is what has prompted me to shorten my target distance and trade duration.  Little bounces up into resistance are the singles that I can currently manufacture to bring home some wins.

Into the weekend I gave serious thought to liquidating some of my longer term holdings including TSLA and TWTR.  Before taking any action and remembering how long I have been with said names, I took my person far north, deep into the Michigan bush where internet cannot be obtained.  From my perch atop the autumn trees the thought of giving ‘them’ my shares seemed a bit callous, like manually killing your prey when you can buy it from a farmer.

Now that call premiums have been cleared off the table slow game is back on the forefront.  Value is drifting higher as the market strings together three up days.  Stay nimble as we head into resistance.

Clear Guideposts Emerge

Nasdaq futures have seen a slow in pace as we enter the new week.  Last week (OPEX) featured the highest volumes both in regular session and globex that we have seen in several years.  As  we embark on a new month of risk, activity has slowed.  Since opening for trade Sunday afternoon the price of the Nasdaq front month (December) futures contract has traded inside of Friday’s range suggesting overnight/weekend participants accept Friday’s range as balance.  The session kicked off with a low volume rally which slowly evaporated through the duration of the evening.  The economic calendar was quiet overnight.  We have China GDP numbers out this evening and USA CPI on the docket for Wednesday premarket.  Earnings season is ramping up throughout the week as well.

The market became a bit illiquid last week as participants aggressively sold equities.  Price action ‘broke loose’ which is a phrase we often use to describe the price action following a break from compression.  In these conditions, the quest for value and balance go out of whack and we are offered a rare opportunity to see real human emotion play out in the tape, often fear.  The event leaves a ripple in our environment and is likely to continue affecting the behavior of prices going forward.  Remember, price has memory.  Fortunately, the action managed to form brackets last week—guideposts we can use to assess price and volume going forward to determine if either the buyer or seller is gaining control.  I have noted these brackets on the following daily chart.  Note how prior zones of support and resistance are transformed into their counterparts:

10202014_daily_NQ

Given the progress of sellers over the last 1-2 weeks, the micro composite from Wednesday/Thursday, and especially given the amount of volume which came in on the downward action, my short term bias is medium bearish.  You can see three volume profile print-types: the large composite on the right (months of volume-at-price), the red and green ‘micro composite’ facing the opposite way of all the others, and the daily volume profiles.  Each tells me a different story.  I have noted the price levels I will be observing as opportunities on the following 15-minute volume profile chart.

10202014_intterm_NQ

Thou Shalt Not Love Thy Positions

I am looking to work out of some of my longer term holdings here, and not buying into this move.  There are strong bounces, there may be more strong bounces, but I am shifting slowly to the tall grass.  Don’t love them, not even sweet baby Elon.

The Check Back

Markets operate on fractals which occur on all timeframes and they look the same only the scales can be much larger.  One of the predominant characteristics of the market is to ‘check back’ or revisit a zone where a significant event occurred.  Once the Nasdaq broke loose to the downside its first stop was the major resistance zone we printed back in March 2014.  As we approach US cash trade, we are seeing some follow through from buyers who showed up at this level.  Volumes are still running on the high end in the globex session, but, as you might imagine, they are lower as we head higher.

Giving boost to index prices is speculation of additional stimulus according to many of the media outlets.  However it makes more sense to attribute this move to the oversold conditions which have persisted in the market since last week.  The issue we have is how long the market stayed oversold.  This type of long duration oversold event often precludes a shift in sentiment overall.

Investors are looking for this round of earnings to build confidence in the marketplace and thus far results have been mixed.  The earning season is only beginning however.  We have U of M Confidence numbers at 10am and an otherwise quiet economic calendar.  Also, although it might seem a bit trite, I continue to monitor the trade in NFLX after its jaw dropping 20% move to see how the market digests it.

I have noted the ‘check back’ on the following chart, and also where we are likely to run into some sellers.  These are very broad brush strokes which we can refine on a shorter timeframe, and then refine on a shorter timeframe, and then refine on a shorter timeframe to day trade.  However, stock traders and swing traders/investors should be keen on these zones:

10172014_daily_NQ

We are currently trading on the upper edge of yesterday’s range and it will be important to observe early on if buyers reject yesterday’s range.  If they do, we are likely to explore higher which puts prices into an air pocket which might lend to upside acceleration, especially if shorts begin to cover.  You will also notice the 2-day balance we formed on the lows featuring a clean taper bottom and a centralized VPOC—lovely symmetry.  I have also noted the price levels I will be observing:

10172014_intterm_NQ

Pace Change

Volume differentials are still running above average but there is a distinct change in the pace of market movement today.  It helps that the day is moving higher which tends to occur at a slower speed, however, on the net we are seeing smoother rotations in the index futures.

The opening was very important this morning, more than any other day because of the location.  When participants started trading this morning it was near the prior day lows.  I was keen to distill who was dominating the tape early because it had heavy ramifications for today’s trade.  Fortunately the buyers made their actions very clear, and continue to do so throughout the session. This can be seen as buyers ‘holding the mid’ and printing higher highs and lows.

The higher prices are motivating sell flow back into the tape after they sat back for most of the session.  I have shortened the duration of my stock trades significantly.  However I saw enough evidence today to increase long exposure a bit after sitting through the biggest wave of selling seen in years.

Oil appears to be the culprit, and also the opportunity zone.  The long trade in energy might only be for the bounce here, but even that little move higher has opportunity to manufacture some wins.

All together, I am sticking with the less-is-more policy, managing risk via scales, and looking for opportunities to raise cash, slowly.

Option expiration is upon us.  It has been a fast month, and soon these dead calls will vanish from my book.  Good riddance and RIP to – KORS, Z, VJET, AMZN …you have each taken a percent of my infinity pool fund.  Damn you all to the depths of an Opera guest chair.

The rub?  The market is too out of whack to take option trades now, so that risk cannot be recaptured for now.  Instead I am swinging slow, via the stocks, and that all depends on whether BABA stocks getting the whack-a-mole treatment. Each stock I currently trade requires my full love and affection, no side action, so I am keeping my position count limited.  After all, a trade is a trade and they are all sacred.  Don’t just toss you money into a flaming barrel of garbage for the thrill of seeing the flames rise. That is selfish to the laws of the universe.  Honor thy stock gods.

Huge Volume Persists

Nasdaq futures are hovering right around yesterday’s low as we head into Thursday’s trade.  Volume overnight is above yesterday’s and that is saying something.  We are running at extremely high volumes in the globex session (and RTH).  This market is doing a very good job of facilitating trade as it heads lower.

Tomorrow is option expiration day after what has been the fastest down week of the year.  As we wrap up the week there are a slew of economic releases including manufacturing numbers at 9:15 am, Philly Fed and Housing Market index at 10am, and Friday we have more housing stats premarket then U of M Confidence at 9:55am.  We also have the Ebola, taper, major earnings including Google, and a big down market.

Yesterday I put out a note about how this type of action is surly to attract the interest of a higher timeframe.  Depending on how we close, this news will reach many normal folks for the first time over the weekend.  It will then be their discretion to act.  We have no way of truly knowing how their perception will color the market, however we can continue to be vigilant as the increasingly risky hole shorts continue to win out in this marketplace.

We have been zoomed out and looking at the daily chart of the Nasdaq futures since the span of price action has accelerated.  As you can see, yesterday occurred on the heaviest volume we have seen this year.  The low printed on the session was of decent quality, meaning, we saw a sharp response from buyers which left an excess low.  This type of buying action can motivate others to begin legging back in and using this larger buyer to lean on for support.  Therefore, if we do not see similar buyer strength near these lows today, it might result in another leg of selling as the fresh buy flow loses traction.  Nevertheless, we can look for signs of follow through today as an opportunity at a tradable trough.  Note how we are coming into an area that was vehemently defended by sellers earlier in the year, this is very likely to behave as support:

10162014_daily_NQ

A commenter once asked if I keep a running count of the naked VPOCs the market leaves behind during a swing.  I never have, but as we systematically ‘check back’ to these levels during this correction I could see the merit in such a counter.  Every day when I ‘look left’ and take the time to find the highest quality reference points I have another naked VPOC to note.  The market loves to retest these HVN price zones before continuing higher and our most recent leg up abandoned that idea and marched higher relentlessly.  Now that we are on the other side of the mountain these levels are being worked.  I have noted the next NVPOC at 3676 as well as a few other observations on the following intermediate term chart.  Do not let this chart confuse you, it is simply key price levels to observe in the seller controlled intermediate timeframe:

10162014_intterm_NQ

High Timeframe

One of the market characteristics we often discuss as part of auction theory is what ‘timeframe’ is interacting with the marketplace.  This can help guide us in our trading decisions, especially when deciding what price levels (market profile, volume profile, daily, weekly, etc.) to pay attention to.

You may have noticed I have been omitting a market profile chart from my recent analysis.  This is because we are operating with the high timeframe who are likely being forced into action this week.  Their effect when interacting with price throws the quest for value onto the back burner.  Instead what matters is price action on the higher timeframe.

They are not interested in intraday levels or discovering value as we typically observe it.  This action, especially in the Dow, is likely (if not already aware) to gain the attention of a very high timeframe.

In short, be aware that the likelihood of your price level being run over is elevated in this tape.  Let the price action (heavy reaction, rotation size, impulse, etc.) establish your bias.

On the day, in the /NQ_F, prices need to sustain above 3738 to consider the long side.

Gap Lower Out of Range

Nasdaq futures are down on heavy volume overnight.  As we approach US cash trade prices are trading below yesterday’s range.  Prices were soft overnight and accelerated at 8:30am when Advanced Retail Sales and Empire Manufacturing came in lower than expected.  We also have Business Inventories at 10am and Fed’s Beige Book at 2pm.

Whenever the market gaps outside of the prior day range we know with certainty we are out of balance on the short timeframe.   Overnight participants have rejected yesterday’s range and once the stocks which comprise the index begin trading the new development needs to be priced into the market.

The daily chart illustrates just how fast this market is travelling down and how little difficult it has been, this week especially, to find a motivated buyer.  Once Monday rejected the V-shaped bounces of last week it sent a strong indication that sellers were in control.  Until we see buyers able to take out a prior day’s high the momentum is lower.  What is lending to the velocity of the move is the toothy volume profile we built on the way up.  Each time we slide down through an high volume zone there is another volume pocket which provides little support. The question now is whether we will traverse the next region to return to the very thick profile developed the first two quarters of this year.  I have noted this and a few more observations on the following daily bar chart:

10152014_daily_NQ

One might make the argument that the daily chart is neutral or even bullish, however there is no confusion on the intermediate term timeframe which is trend down seller controlled.  Yesterday I suggested we needed to see something drastic to change that control.  To clarify, an event would need to be drastic to alter the intermediate term control in one day.  Something less drastic, perhaps lasting 5-6 trading days, could also serve to put this timeframe back into balance.  In the market profile webinar I discussed how high volume nodes don’t make good entries.  That is because often times we traverse the entire high volume region and test the other side of it before determining if it was an effective zone for turning price.  That is what we are looking for today, as we test the low volume nodes on the other side, if it is in fact support.  I have note the key price levels I will be observing on the seller controlled chart below:

10152014_intterm_NQ

 

Easy Go Easy Come

The market is the final arbiter.  This is something ChessNwine reminds traders of weekly in his strategy session.  If you find yourself becoming frustrated, euphoric, or BABA forbid panicked, then you are likely attempting to impose your will upon the market.  You are entering trades knowing they HAVE to be right because you are so god damned bright.

This is a fool’s game.  Well not quite.  It is a game for the humble sportsman (or sportslady?) who is tickled by the extraordinary.  And there is one thing you must impress upon your method if your method follows the tenants of momentum—your allegiance is to be sworn to the heaviest puncher.

The price action we are currently experiencing in the marketplace is peak abnormal, which, oddly enough, normally happens once in a while.  It is a good thing, a notch in the belt of survivors.  But think quick because you have not survived yet.  This is an ongoing extravaganza.

Equity markets are rallying hard today.  The Nazzy wants a 100 print after pulling the inverse last week.  Remember what I said last week?  About big waves?  You settle your heart by taking slow consistent breaths and allow it to take you as it desires until it throws you loose.  Then you begin to swim.

I am still doing very little, however, given the magnitude of the harmonic down, one was fortunate enough to back off the idea of hedging until a proper revision occurred.  Now it has, we are over the mid, and I am wondering if the bears jumped the shark with this move.

I know, it sounds crazy, perhaps fiduciary  questionable, but sitting and taking that sell flow to the nuts for a few weeks might have been the best course of action for longer term positions.  Again, this is all still TBD.

The rub?  They timed the rout about perfectly to zero out your October leverage.  Mine too, those fucks.  But sharpen your axe, purchase common on discount, and hone your strategy for another gregarious thrust.

You thought I was done thrusting, didn’t you?  You must know, Raul possesses the energy of 10 adhd afflicted teens.

All this to say I made no alterations to my book today.  This melt up was a gift however to my long term positions which are making admirable recoveries.  I still might dial them back.  However, this must be done very slowly, not all at once.

Think fast, move slow.

Strong Premarket Buy Flow Calls Predominant Theory into Question

Four hours of continuous buy flow impulsively ripped through the globex marketplace this morning.  The move is being attributed to an ECB corporate bond buying plan according to a few media outlets.  The ‘why’ of a move is often the focus of media outlets, but we focus on the ‘how’.  We know for certain a dominant buyer overnight rejected us away from yesterday’s prices.  This puts the Nasdaq out of balance as we approach cash open.  Our next job is to assess how RTH participants react to this new development.

There is a general consensus of skepticism surrounding the market bounce currently taking place.  The dip lower that precluded our current market bounce was fast and spanned a wide price range.  This leads many to suspect any bounce will eventually roll over, likely before attaining new highs.

That theory becomes a bit thorny as we enter today’s session.  We are now pushing into a zone where the market is likely to find sellers, however if they instead back off the tape we have a high velocity move underway which could carry us to new highs.

Buyers were impressive yesterday.  The session started with a strong push higher, lingered for the rest of the day, and finally made another thrust up into the bell.  Looking at the daily chart below, we can see prices probing a prior area of support which also features a high volume node.  It appears we will ‘test through’ this zone to the LVN on the other side before determining if this zone will be converted into resistance.  On the whole, this is the first real pullback since this move started.  I have noted the motivated move lower, its midpoint, and a few other observations below:

10212014_daily_NQ

We always observe the midpoint of a major move in the marketplace.  Major is relative as the markets produce similar patterns on multiple scales and timeframes.  This is why you hear the word fractal thrown around in these parts.  Put simply, the mid is a simple number to calculate and observe which makes it easy to run statistical analysis on, build trade ideas on, and build executing algorithms upon.

On the shorter 15-minute timeframe we can see the market is returning to its normal function of balance-discovery in a quest to determine value.  The recent low printed a clean balance volume profile before we began exploring upward.  Now price is probing into the volume profile printed just after we left a 7-day balance and only moments before we printed the fastest leg of the downward move.  This is our template day of volume-at-price to observe for today’s trade.  I have highlighted the key price levels I will be observing on the following chart:

10212014_intterm_NQ

Pause and Assess

The market pace came grinding to a halt this morning after a strong push higher.  We are still operating in an environment which produces larger-than-normal ranges and slightly elevated volume.  However the bulk of today’s move occurred during the initial balance aka the first hour of trade.

It almost seems foreign, the benign intraday action, after enjoying 10-12 sessions of white knuckle racing across the price complex.  There are several charts setting up nicely intraday for longs, however each time I zoom out to an hourly chart or even a 15 minute chart I see slop.  This is what has prompted me to shorten my target distance and trade duration.  Little bounces up into resistance are the singles that I can currently manufacture to bring home some wins.

Into the weekend I gave serious thought to liquidating some of my longer term holdings including TSLA and TWTR.  Before taking any action and remembering how long I have been with said names, I took my person far north, deep into the Michigan bush where internet cannot be obtained.  From my perch atop the autumn trees the thought of giving ‘them’ my shares seemed a bit callous, like manually killing your prey when you can buy it from a farmer.

Now that call premiums have been cleared off the table slow game is back on the forefront.  Value is drifting higher as the market strings together three up days.  Stay nimble as we head into resistance.

Clear Guideposts Emerge

Nasdaq futures have seen a slow in pace as we enter the new week.  Last week (OPEX) featured the highest volumes both in regular session and globex that we have seen in several years.  As  we embark on a new month of risk, activity has slowed.  Since opening for trade Sunday afternoon the price of the Nasdaq front month (December) futures contract has traded inside of Friday’s range suggesting overnight/weekend participants accept Friday’s range as balance.  The session kicked off with a low volume rally which slowly evaporated through the duration of the evening.  The economic calendar was quiet overnight.  We have China GDP numbers out this evening and USA CPI on the docket for Wednesday premarket.  Earnings season is ramping up throughout the week as well.

The market became a bit illiquid last week as participants aggressively sold equities.  Price action ‘broke loose’ which is a phrase we often use to describe the price action following a break from compression.  In these conditions, the quest for value and balance go out of whack and we are offered a rare opportunity to see real human emotion play out in the tape, often fear.  The event leaves a ripple in our environment and is likely to continue affecting the behavior of prices going forward.  Remember, price has memory.  Fortunately, the action managed to form brackets last week—guideposts we can use to assess price and volume going forward to determine if either the buyer or seller is gaining control.  I have noted these brackets on the following daily chart.  Note how prior zones of support and resistance are transformed into their counterparts:

10202014_daily_NQ

Given the progress of sellers over the last 1-2 weeks, the micro composite from Wednesday/Thursday, and especially given the amount of volume which came in on the downward action, my short term bias is medium bearish.  You can see three volume profile print-types: the large composite on the right (months of volume-at-price), the red and green ‘micro composite’ facing the opposite way of all the others, and the daily volume profiles.  Each tells me a different story.  I have noted the price levels I will be observing as opportunities on the following 15-minute volume profile chart.

10202014_intterm_NQ

Thou Shalt Not Love Thy Positions

I am looking to work out of some of my longer term holdings here, and not buying into this move.  There are strong bounces, there may be more strong bounces, but I am shifting slowly to the tall grass.  Don’t love them, not even sweet baby Elon.

The Check Back

Markets operate on fractals which occur on all timeframes and they look the same only the scales can be much larger.  One of the predominant characteristics of the market is to ‘check back’ or revisit a zone where a significant event occurred.  Once the Nasdaq broke loose to the downside its first stop was the major resistance zone we printed back in March 2014.  As we approach US cash trade, we are seeing some follow through from buyers who showed up at this level.  Volumes are still running on the high end in the globex session, but, as you might imagine, they are lower as we head higher.

Giving boost to index prices is speculation of additional stimulus according to many of the media outlets.  However it makes more sense to attribute this move to the oversold conditions which have persisted in the market since last week.  The issue we have is how long the market stayed oversold.  This type of long duration oversold event often precludes a shift in sentiment overall.

Investors are looking for this round of earnings to build confidence in the marketplace and thus far results have been mixed.  The earning season is only beginning however.  We have U of M Confidence numbers at 10am and an otherwise quiet economic calendar.  Also, although it might seem a bit trite, I continue to monitor the trade in NFLX after its jaw dropping 20% move to see how the market digests it.

I have noted the ‘check back’ on the following chart, and also where we are likely to run into some sellers.  These are very broad brush strokes which we can refine on a shorter timeframe, and then refine on a shorter timeframe, and then refine on a shorter timeframe to day trade.  However, stock traders and swing traders/investors should be keen on these zones:

10172014_daily_NQ

We are currently trading on the upper edge of yesterday’s range and it will be important to observe early on if buyers reject yesterday’s range.  If they do, we are likely to explore higher which puts prices into an air pocket which might lend to upside acceleration, especially if shorts begin to cover.  You will also notice the 2-day balance we formed on the lows featuring a clean taper bottom and a centralized VPOC—lovely symmetry.  I have also noted the price levels I will be observing:

10172014_intterm_NQ

Pace Change

Volume differentials are still running above average but there is a distinct change in the pace of market movement today.  It helps that the day is moving higher which tends to occur at a slower speed, however, on the net we are seeing smoother rotations in the index futures.

The opening was very important this morning, more than any other day because of the location.  When participants started trading this morning it was near the prior day lows.  I was keen to distill who was dominating the tape early because it had heavy ramifications for today’s trade.  Fortunately the buyers made their actions very clear, and continue to do so throughout the session. This can be seen as buyers ‘holding the mid’ and printing higher highs and lows.

The higher prices are motivating sell flow back into the tape after they sat back for most of the session.  I have shortened the duration of my stock trades significantly.  However I saw enough evidence today to increase long exposure a bit after sitting through the biggest wave of selling seen in years.

Oil appears to be the culprit, and also the opportunity zone.  The long trade in energy might only be for the bounce here, but even that little move higher has opportunity to manufacture some wins.

All together, I am sticking with the less-is-more policy, managing risk via scales, and looking for opportunities to raise cash, slowly.

Option expiration is upon us.  It has been a fast month, and soon these dead calls will vanish from my book.  Good riddance and RIP to – KORS, Z, VJET, AMZN …you have each taken a percent of my infinity pool fund.  Damn you all to the depths of an Opera guest chair.

The rub?  The market is too out of whack to take option trades now, so that risk cannot be recaptured for now.  Instead I am swinging slow, via the stocks, and that all depends on whether BABA stocks getting the whack-a-mole treatment. Each stock I currently trade requires my full love and affection, no side action, so I am keeping my position count limited.  After all, a trade is a trade and they are all sacred.  Don’t just toss you money into a flaming barrel of garbage for the thrill of seeing the flames rise. That is selfish to the laws of the universe.  Honor thy stock gods.

Huge Volume Persists

Nasdaq futures are hovering right around yesterday’s low as we head into Thursday’s trade.  Volume overnight is above yesterday’s and that is saying something.  We are running at extremely high volumes in the globex session (and RTH).  This market is doing a very good job of facilitating trade as it heads lower.

Tomorrow is option expiration day after what has been the fastest down week of the year.  As we wrap up the week there are a slew of economic releases including manufacturing numbers at 9:15 am, Philly Fed and Housing Market index at 10am, and Friday we have more housing stats premarket then U of M Confidence at 9:55am.  We also have the Ebola, taper, major earnings including Google, and a big down market.

Yesterday I put out a note about how this type of action is surly to attract the interest of a higher timeframe.  Depending on how we close, this news will reach many normal folks for the first time over the weekend.  It will then be their discretion to act.  We have no way of truly knowing how their perception will color the market, however we can continue to be vigilant as the increasingly risky hole shorts continue to win out in this marketplace.

We have been zoomed out and looking at the daily chart of the Nasdaq futures since the span of price action has accelerated.  As you can see, yesterday occurred on the heaviest volume we have seen this year.  The low printed on the session was of decent quality, meaning, we saw a sharp response from buyers which left an excess low.  This type of buying action can motivate others to begin legging back in and using this larger buyer to lean on for support.  Therefore, if we do not see similar buyer strength near these lows today, it might result in another leg of selling as the fresh buy flow loses traction.  Nevertheless, we can look for signs of follow through today as an opportunity at a tradable trough.  Note how we are coming into an area that was vehemently defended by sellers earlier in the year, this is very likely to behave as support:

10162014_daily_NQ

A commenter once asked if I keep a running count of the naked VPOCs the market leaves behind during a swing.  I never have, but as we systematically ‘check back’ to these levels during this correction I could see the merit in such a counter.  Every day when I ‘look left’ and take the time to find the highest quality reference points I have another naked VPOC to note.  The market loves to retest these HVN price zones before continuing higher and our most recent leg up abandoned that idea and marched higher relentlessly.  Now that we are on the other side of the mountain these levels are being worked.  I have noted the next NVPOC at 3676 as well as a few other observations on the following intermediate term chart.  Do not let this chart confuse you, it is simply key price levels to observe in the seller controlled intermediate timeframe:

10162014_intterm_NQ

High Timeframe

One of the market characteristics we often discuss as part of auction theory is what ‘timeframe’ is interacting with the marketplace.  This can help guide us in our trading decisions, especially when deciding what price levels (market profile, volume profile, daily, weekly, etc.) to pay attention to.

You may have noticed I have been omitting a market profile chart from my recent analysis.  This is because we are operating with the high timeframe who are likely being forced into action this week.  Their effect when interacting with price throws the quest for value onto the back burner.  Instead what matters is price action on the higher timeframe.

They are not interested in intraday levels or discovering value as we typically observe it.  This action, especially in the Dow, is likely (if not already aware) to gain the attention of a very high timeframe.

In short, be aware that the likelihood of your price level being run over is elevated in this tape.  Let the price action (heavy reaction, rotation size, impulse, etc.) establish your bias.

On the day, in the /NQ_F, prices need to sustain above 3738 to consider the long side.

Gap Lower Out of Range

Nasdaq futures are down on heavy volume overnight.  As we approach US cash trade prices are trading below yesterday’s range.  Prices were soft overnight and accelerated at 8:30am when Advanced Retail Sales and Empire Manufacturing came in lower than expected.  We also have Business Inventories at 10am and Fed’s Beige Book at 2pm.

Whenever the market gaps outside of the prior day range we know with certainty we are out of balance on the short timeframe.   Overnight participants have rejected yesterday’s range and once the stocks which comprise the index begin trading the new development needs to be priced into the market.

The daily chart illustrates just how fast this market is travelling down and how little difficult it has been, this week especially, to find a motivated buyer.  Once Monday rejected the V-shaped bounces of last week it sent a strong indication that sellers were in control.  Until we see buyers able to take out a prior day’s high the momentum is lower.  What is lending to the velocity of the move is the toothy volume profile we built on the way up.  Each time we slide down through an high volume zone there is another volume pocket which provides little support. The question now is whether we will traverse the next region to return to the very thick profile developed the first two quarters of this year.  I have noted this and a few more observations on the following daily bar chart:

10152014_daily_NQ

One might make the argument that the daily chart is neutral or even bullish, however there is no confusion on the intermediate term timeframe which is trend down seller controlled.  Yesterday I suggested we needed to see something drastic to change that control.  To clarify, an event would need to be drastic to alter the intermediate term control in one day.  Something less drastic, perhaps lasting 5-6 trading days, could also serve to put this timeframe back into balance.  In the market profile webinar I discussed how high volume nodes don’t make good entries.  That is because often times we traverse the entire high volume region and test the other side of it before determining if it was an effective zone for turning price.  That is what we are looking for today, as we test the low volume nodes on the other side, if it is in fact support.  I have note the key price levels I will be observing on the seller controlled chart below:

10152014_intterm_NQ

 

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