Clear Expectations for Today

The NASDAQ futures market showed a bit of follow through on the behalf of the sellers, where price took out our Monday morning low.  However, the probe lower, likely algorithmic in nature, was met with a reactive buy force and price swiftly auctioned back into yesterday’s value range.

Conversely, the SPX futures made no new low overnight, instead continuing to coil.  There has been a subtle bit of relative strength exhibited by the SPX verses the NASDAQ composite these last few days including yesterday where we printed a normal day.  In market profile theory, a normal day features a dynamic open, likely driven by a longer timeframe trader entering the marketplace.  The range of the first hour is not breached for the rest of the session.  These are very rare, occurring in the SPX only five times in the last six years.  Oddly enough, we printed a normal day in the SPX on Friday and Monday.

The action suggests coiling and this uncertainty is suitable for our current situation.  We are nearing the close of a very strong year in the markets.  Many are likely closing their books early to lock in the gains, yet we have strong pockets of momentum in select industries.  The Fed, our current market moving exceptional, is experiencing a changing of the guards from Bernanke to Yellen and we have taper talks given the recent progress in the labor markets.

The markets have two choices today.  Either continue to coil ahead of Wednesday’s Fed announcement or move away from here.  I have bracketed both the NASDAQ and the SPX today as guideposts as the day progresses.  Keep these brackets, or support/resistance clusters, in mind today as the day progresses to measure any progress made by the buyers and sellers.

I have also highlighted a few scenarios for the NASDAQ using the 24 hour market profile chart:

 

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The buyers rolled out the cavalry early on, buying up the indices, only to retreat after an hour of progress.  I heard (read) several seasoned traders speak of a subtle change in the character of the market these last few days.  I like to go heavy on context work because these subtle cues come from the footprints of the marketplace.

We need to understand what timeframe is in control on a given day.  By establishing what timeframe is in control, we can decide what reference points become important.  The drive higher early on looked like the long term timeframe taking control of the marketplace but we later learned that was not the case.  The rest of the day we faded the early strength, a slow move lower controlled by the day timeframe sellers.  Intermediate term we lack a clear victor and are instead experiencing balancing trade.

In summary: Long term – buyers firmly in place, intermediate term – balanced/two way action, daily control-buyers, and intraday control – sellers.  PPT nailed a swing low for now, which is always fun(d), now it is a matter of building upon it or sellers blasting through it with old school scud missiles.

When we land our hot air balloon in the thick forest and begin investigating individual trees, we can see risk still being engaged in the marketplace.  Alternative energy plays caught a bid.  Solar stocks started seeing some inflow after an orderly, mind you deep, pullback off the recent highs.  These issues will be interesting to track into year-end as to whether they can put in a higher/tradable low here.  I am long FSLR and YGE from higher prices, -9% and -15% respectively.

I thought I was getting cute last week, selling off my “bottom shares” in RVLT.  You know, the ones I bought at the beginning of September for two fifty.  Lo and behold, RVLT rips higher after signing a contract with the Navy for 17,000 LED tube lights.  This is one of those deals that seems big, but in the grand scheme is really small.  That type of installation however, could yield over 200k in profit margin given the company’s current revenue structure.  I think the market excitement comes from the hope that this is only a primer deal with more potential deals in the pipe.  Investors.com also published an LED pumper piece Friday evening which may or may not have contributed to the inflows in LEDs today (h/t @randadtrade).

However, you did not need to know about the pumper piece or the Navy deal to get long RVLT last week.  No friends, you just needed sentimental confidence as was on display by iBC comrade @Eliza_Mae_iBC who spoon fed the trade in what he called the “holy grail” chart setup.  He shared his thoughts after I sold my “bottom shares” like a jacked-ass.  Fortunately, I still was ¾ sized into today move.  Even Raul, faithful to the LED tech, became discouraged.   I bought more CREE this morning to repent for my loss of faith.  Side note-yes, Twitter is useless.  You should believe what these analysts tell you.  You would not want to encounter likeminded people who engage in real-time, money making conversations, I know.

I still like my OWW shares, as they do absolutely nothing but go sideways.

That’s all that was done.  I was up 1.75% today.  With a little bit of market cooperation, I just may hit my annual target.

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Note:  All price levels mentioned going forward will be in reference to the March contract. 

If you were just waking up to the market, you may be unaware of the wild ride index futures took overnight.  The S&P printed over a 20 point range in the overnight session after reversing early weakness.  The Nasdaq traded over 40 points in range.  In short, last night featured violent indecision of the overnight/low volume variety.

As of 8am, the S&P is set to open above Friday’s range which tells us we are in a high risk/reward environment.  The NASDAQ is not quite above Friday’s range, but is outside of Friday’s value which gives us a similar context to frame our day.

Early on it will be interesting to see if sellers can reject the overnight progress and press back into Friday’s value.  Turning our attention to the NASDAQ, we are opening in the slippery single prints from early Friday where sellers aggressively auctioned lower.  We may see a similar push from sellers early on and should monitor trade at 3461.50 which marks the value area high on Friday’s session.  Below there we have a VPOC at 3458 and a value area low at 3452.25.  Short sellers will be on the lookout for a rejection of this range as it may signal a bullish reversal is materializing.

I have noted these levels, as well as key resistance points and a few possible scenarios on the following market profile charts:

 

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The selling continues this afternoon, with sellers continuing their blitzkrieg campaign with a 2pm algorithmic shock wave.  A block trade like the one we just experienced at 2pm is a way of starting a siphon—the algo sucks on the tube with the intent of motivating atmospheric pressure to move liquid(ity).  Once it starts the flow, a force of equal or greater value must arrive to stop the force.

There’s nothing wrong with sell algos, they just receive more criticism then buy algos.  They are both attempting the same feat.

Keep the context of our market in mind.  It is mid-December, we have had a huge run, correlations are low, the long term trend is higher, risky assets continue seeing cash inflow, and sellers just controlled their first week since mid-summer.

With that in mind, and despite my extensive coverage of the indices, I think it is important to keep your focus on individual setups and how they are behaving.

My book is going out 95% long after purchasing OWW today at the top tick.  I have other names of interest, including LEDS basing just below one dollar.

My AMZN YOLO lottery ticket was a loser.  I risked the entire premium because it was a lottery ticket.  It had a moment of hope early on, but could not breach recent overhead supply.  The trade needed more time than one day.  I realized this soon after taking the trade, and was discussing how TSLA would have been a more prudent YOLO…if there is such a thing.

I never grabbed ENPH yesterday.  Instead I just watched it and commented on it.  Now I cannot buy it and it can likely go much higher.  I simply lack to conviction to assume nearly 20% more risk.

My book of stocks spun donuts in the mud this week even though I have winners among my ranks.  Here’s the book, largest-to-smallest:

BALT, OWW, FSLR, GRPN, TSLA, YELP, RVLT, YGE, Z, LO, WBMD, GOGO, CREE, F, and my bane MJNA.

Final word of on the market – this looks like discouragement phase, where the market makes an earnest attempt to steal away your favorite shares.  Review your risk plans, make adjustments where necessary, and stick to them.  Do not assume gains are guaranteed.

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We continued working through a correction yesterday in the NASDAQ where sellers continued to their control.  Their success in controlling yesterday’s auction can be seen in yesterday’s RTH market profile print.  Assessing their control boils down to the following points:

Range extension lower

Value overlap/lower

VPOC migration lower

Lower high and lower low

The positive news for longs is price has begun the pinball process of discouragement, where price is chopping around and taking no prisoners on either side.  If my read on sentiment is correct, I will be looking for a higher low to setup soon on the NASDAQ.  This may occur as soon as today.

The S&P has a very similar sentimental context.

Buyers came in overnight and bid the markets up a bit, but we are still trading inside of yesterday’s value, thus it has been accepted.  Early on, I will be looking for sellers to reemerge and press price lower.  I will be gauging their sentiment between 3465.50 – 3462.50.  Should their pressure abate in this range, I will be looking for long exposure.  Should their selling campaign continue, I will look for sellers to push into our 12/04 low at 3453.25.

On the upside, I will look for any signs of trade sustaining above 3476.50 our value area high from yesterday and also a low volume node left behind during Wednesday’s liquidation.

I have highlighted these levels on the following market profile chart:

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I hear a faint jingle and smell peppermint schnapps.  If I’m not mistaken, Uncle Santa the giver is near.  The markets are behaving Santaesque, if only intraday.  During the opening and closing bell the Coca Cola bears, juiced up on sugar and caffeine, take wide swipes at the market—pawing bits of flesh into their mouths as if it’s warm honey.

Much like the children, I have some Christmas wishes.  The first is blood.  I want more blood.  I sat on my hands diligently today, keeping my fingers off the buy buttons.  I put on an AMZN YOLO trade, buying tomorrow’s 390s.  That was it.

Under the surface, I was brooding like Ryan Gosling, circling my prey like a vulture while waiting for the highway traffic to clear.  I had an opportunity intraday, but I held off.  I am being very selective with my 10% working liquidity.

Should I see one more day of selling, if only for the morning, I will be drawing my battle lines and buying FCEL, ZNGA, more GOGO, more RVLT, or any other ticker that tickles my risk appetite.

One more day

All I want for Christmas is one more day of selling, Friday the 13^th.

I may have to pay up, because today offers the discounted prices of uncertainty.  More information costs more money.  You’ll learn this as you trade more.  It’s fun.

One more day

Good night,

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If you have been sidelined in cash with risk capital you otherwise desire to be committing to equities, you may be coming into today with a shopping list of stocks.

Perhaps however, you should not simply buy at the open.  If instead you have the option to watch the day develop, I have two downside targets in mind for adding exposure.  The following prices are in reference to the

The first is 3460 and the second is 3453.50. These price levels represent targets algorithms will have in mind when they attempt to liquidate any holdouts to the long side.  The market went up for quite some time, lacked follow-through conviction, and is now testing lower to gauge buyers’ appetite.  A step taken by the market place to do this is pressing into existing longs to see if they liquidate.

The overnight market was on the move and slightly lower.  The short term momentum favors seller control.  Therefore we can measure their conviction verse the above to support levels.  Should sellers abate early on, they may be waiting to see the auction first.  In this event, look for their presence at 3476.25, the low volume node just above our overnight high, then 3483 which is yesterday’s VPOC.

Should strength rip through the market, my upside target is 3490.

I have highlighted these prices on the following Market profile chart:

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I love how the temperature of the internet changes during our 1-2 days of sheer terror.  It is like the days of terror are new!  Friends, tell me, have we completely forgotten how to take heat?

Typically it gets worse before it gets better, like influenza.

I have some names deep in the red on my books—FSLR and YGE.  I have some WBMD too, my family doctor of choice, off nearly 8 percent since my purchase.

These trades may be wrong and I may be crazy, but it just may take a lunatic to manage a book of high velocity momentum stocks.

We went risk off today.  There were warnings if you put your ear to the rails.  The only problem is the weather is cold, and if you aren’t careful your ear will freeze to the tracks and then you are toasted because train.

I lost 1.24% today but could have lost very much more.  Social media stocks proved a store of value in these rough waters.  The only weak spots were Z and YELP.  I was fortunate to scale a piece of YELP yesterday if only for my psychological wellbeing.  The problem is it goes much higher, eventually, so I am now tasked with getting my size back on.

I sold all of my ONVO yesterday which brought a warm feeling to my emotional capital.  The action you are seeing in this stock is caused by a weak investor base, lacking the necessary discipline of institutional money.  You will continue to see erratic behavior from this name.  Let it get bloodied and beaten, like ENPH, and then we shall reconvene to purchase zeroed out Zecco accounts.

I tried a long in the NASDAQ futures today, just before noon.  It was a low risk trade with decent probabilities.  It took me out for a small loss, but had I remained stubborn it would have destroyed me.  These are the victories of discipline and they do wonders for your confidence.

I scaled off some CREE shares I knife caught in November.  It pays to work your cost basis down when you are working on the wrong side of the chart in a momentum name.

I had some pretty extreme order flow readings into the bell, panic liquidation if you will.  My hope is that it continues overnight and into early trade tomorrow.  It is then that I will be stalking my prey:

ZNGA the dog

FCEL the future

TSLA the inventor

Finally, it is with great pleasure I ride in The Fly’s BALT boat.  I have seen too many Fly trades in my internet years to muff this one.  I started buying on October 31^st like a sage of sorts.  I have been a buyer since, several times, riding the diligent work of my elders who are much wiser.  There is no need to reinvent the wheel out here.  It is all about building upon the previous generation.  That’s the American dream.

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Now the $AMZN drones just seem childish:

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My book is down a touch over 1.5 percent as I write, as risk gets sold across the board.  Today looks like a trend day down.  We saw cracks developing yesterday which is why I raised some cash but coming into the session this morning I was bullish when buyers showed reactive strength overnight.

We opening inside of yesterday’ value on the NASDAQ which typically suggests we are in a low risk environment.  The opening swing was mixed but soon a strong drive ensued with sellers behind the wheel.  This driving action by the sellers deserves additional merit for originating within yesterday’s value.  It shows strong conviction on the part of sellers.

I tried taking a long just before noon and I was looking for a quick reaction from the buyers.  It never happened and what initially looked like a normal variation type day now appears to be of the trend variety.

I am battening down the hatches for now.  I have 10% cash which I am now very grateful for as I manage my way through some sell flow.  My next move will develop slowly.

Tickers of no immediate interest, but interesting nonetheless include TWTR, FSLR, ZNGA, SINA, and RVLT.

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