Strong jobs data doesn’t support rate cuts, NASDAQ extends Wednesday gains, here’s the Thursday trading plan

NASDAQ futures are coming into Thursday gap up after an overnight session featuring extreme range and volume.  Price progressed higher overnight, working up through Wednesday’s high and sustaining trade above it for much of the Globex session.  At 8:30am initial/continuing jobless claims data came out better-than-expected.  As we approach cash open, price is hovering in the air gap left behind during Monday’s gap down.

Also on the economic calendar today we have 4- and 8-week T-bill auctions at 11:30am and a 30-year bond auction at 1pm.

Yesterday we printed a normal variation up.  The day began with a gap down near Tuesday’s low.  The opening two-way auction broke lower but before sellers could close the Monday/Tuesday gap responsive buyers stepped in and a sharp excess low formed.  Said buyers worked higher to fill the overnight gap before we retraced back to the daily midpoint.  Buyers were initiative here (initiative relative to Wednesday open, responsive relative to Tuesday close) and defended the mid before rallying price up to a new weekly high.  We ended the session near high-of-day.

Heading into today my primary expectation is for buyers to gap-and-go higher, trading up to 7667 before finding sellers who defend last Friday’s low and two way trade ensues.

Hypo 2 sellers press into the overnight inventory and close the gap down to 7550.75.  Look for buyers just below at 7544 and two way trade to ensue.

Hypo 3 stronger sellers press down through overnight low 7526 setting up a move to tag the 7500 century mark before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

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NASDAQ futures are coming into Wednesday gap down after an overnight session featuring extreme range and volume.  Price was balanced for most of the overnight session chopping along the Tuesday midpoint before rate cuts from other country’s central banks briefly spiked price higher–poking above the Tuesday high.  The buy spike was erased through much of the early AM hours here in America before the selling accelerated around the time President Donald Trump sent out a series of tweet criticizing Federal Reserve policy:

“Three more Central Banks cut rates.” Our problem is not China – We are stronger than ever, money is pouring into the U.S. while China is losing companies by the thousands to other countries, and their currency is under siege – Our problem is a Federal Reserve that is too…..

— Donald J. Trump (@realDonaldTrump) August 7, 2019

As we approach cash open, price is hovering just below Wednesday’s low.

On the economic calendar today we have crude oil inventories at 10:30am, a 10-year note auction at 1pm and consumer credit at 3pm.

Yesterday we printed a neutral day.  The day began with a gap up into the upper quadrant of Monday range.  Buyers made a drive higher off the open but were unable to take out the Monday high before sellers stepped in and worked us into a range extension down.  Said selling formed an excess low just before New York lunch and up above Monday’s lower quadrant.  This led to a rally back up through the daily high and briefly above Monday’s high before we closed the session back near the low end of the upper quad.

Neutral.

Heading into today my primary expectation is for sellers to press down to the 7400 century mark before discovering responsive buyers.  Said buyers work price back up to 7450 before two way trade ensues.

Hypo 2 buyers work into the overnight inventory and close the gap up to 7514.50 setting up a move to take out overnight high 7569.  Look for sellers up at 7588.75 and two way trade to ensue.

Hypo 3 strong sellers press down to 7350 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

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NASDAQ futures are coming into Tuesday gap up after an overnight session featuring extreme range and volume.  Price worked higher overnight after plunging lower after closing bell Monday evening.  Volatility is high, that is for sure.  The selling late Monday took price to levels untouched since June 6th.  As we approach cash open, price is hovering above Monday’s midpoint.

On the economic calendar today we have a 3-year note auction at 1pm.

Yesterday we printed a double distribution trend down.  The day began with a pro gap down and after a brief two-way auction at the open, price began a steady campaign lower.  The sell-off found buyers late in the session around 7400 but they were overrun as the session completed.  We formed balance distributions along the way which is why yesterday’s action does not classify as a pure trend day.

Heading into today my primary expectation is for sellers to press into the overnight inventory and close the gap down to 7380.75.  Look for buyers to defend Monday’s low 7360.75 and two way trade to ensue.

Hypo 2 stronger sellers close overnight gap 7380.75 then continue driving lower, taking out overnight low 7224.50 before two way trade ensues.

Hypo 3 buyers gap-and-go higher, up through overnight high 7493.75 and sustain trade above 7513.75 which sets up a move to tag 7555.

Levels:

Volume profiles, gaps, and measured moves:

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NASDAQ futures are coming into Monday pro gap down after an overnight session featuring extreme range and volume.  Price drove lower overnight, trading down into levels unseen since mid-June.  The move is being attributed to the Chinese Yuan weakening, which many are calling a manipulation on China’s behalf and a potential sign that trade negotiations between USA and China are worsening.  As we approach cash open, price is hovering inside the 06/17 range, well below last week’s levels.

Pro gap down.

On the economic calendar today we have ISM non-manufacturing at 10am followed by 3- and 6-month T-bill auctions at 11:30am.

Last week kicked off with indices down slightly across the board then marking time as we awaited the Fed rate cut.  Third reaction after the cut was a sell which was followed by a strong liquidation lower.  Thursday, the first of August, saw buyers erased most of the Fed sell-off before a series of tweets from President Donald Trump regarding the trade negotiations sent prices back down to the Fed rate cut reaction lows.  Friday was a gap down and move lower across the board, with markets coming into a choppy balance ahead of the weekend.  The last week performance of each major index is shown below:

On Friday the NASDAQ printed a double distribution trend down.  The day began with a gap down and out of Thursday’s range.  Sellers rejected any notion of reclaiming the Thursday range, instead price worked lower, taking out July’s low before coming into balance inside the 06/28 range.

Heading into today my primary expectation is for buyers to work into the overnight inventory and trade up to 7600.  Sellers defend the century mark and we press down through overnight low 7529.25.  Look for buyers down at 7506.25 and two way trade to ensue.

Hypo 2 stronger buyers sustain trade above 7600 setting up a move to target 7667.50.  Sellers here attempt to defend the Friday low 7650.25 but are overrun as buyers continue working price up to a full gap fill at 7702 then up through overnight high 7709 before two way trade ensues.

Hypo 3 gap-and-go lower, sustain trade below 7500 setting up a liquidation down to 7437 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

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Models are updated and back to neutral after flipping bullish last Sunday.  Strong ‘Hybrid Chg %’ numbers drop off on Monday which gives bears an edge heading into the week.  Trade wars are running hot, and my opinion is that they are going great but what do I know about the macroeconomic picture? Nothing and neither does anyone else.  If anyone claims on the CNBC entertainment news channel to know how the global economies levers work, they are a liar.

The Federal Reserve doesn’t even know.  They’re losing their might, believe it or not.  The power of the hash has manifested.  The whole archaic notion of money backed by nation states has been called into question.  There is no backing to the money besides military might.  Which I suppose is nothing to sneeze at.  If the military wants to make you dead—they will.

But they cannot make to kill bitcoin.  Which is nice, because maybe bitcoin will make to kill them.

Moving on from fantasies of anarchy…

Lots of my favorite twitter trader accounts seemed on tilt last week.  There was a vibe of confusion—what with the rate cut introducing heavy selling, the new month flows erasing said selling, only to have a trade negotiation tweet from President Trump re-erase the erase-ment.  Admittedly, it was a lot to digest.  I was watching from afar, having committed to some side work instead of grinding out trades.  And maybe I am sitting on a cloud thinking I am a better investor and trader than most, I don’t know maybe I am or maybe I am just a jerk—but this is my advice to anyone who felt a little rattled by last week’s action:

There is always another bus

If you start to feel off, or like your actions are based on emotion and not focused execution of your plan, the first step is to STOP.

This is often done most easily by removing your body from your desk.  Outside work or home chores are helpful if you need a distraction.  If you feel an itch or urge to take action because you catch a chart or news bit on your phone or some screen in the corner of your eye, put a wider space between you and the markets.

If you have a plan in place and feel calm and clear about what needs to be done, then re-engage.  You likely need to reduce size given the increase in volatility.  Be sure to keep track of how you feel.

The stock market was here long before us and will continue to function long after we are gone.  Just like buses in the city, there is always another trade coming.  Make sure your account is still liquid so you are ready when that next opportunity comes.

Anyways, it is nearly 1pm New York on this lovely Sunday and I need to go wrestle some iron up and down a few 50-60 times because if not I will want to make to kill.  Why is my base instinct so violent?   We don’t know.  Raul says stay cool.

Raul Santos, August 4th, 2019

Exodus members, the 246th edition of Strategy Session is live, you need to see what is going on in the NASDAQ transportation index, check out Section IV!

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NASDAQ futures are coming into Friday down a quick -60 after an overnight session featuring extreme range and volume.  Price was balanced for most of the night, chopping along Thursday’s low before breaking lower at 8:30am after the Non-farm payroll data came out in-line with expectations (May/June jobs added revised lower by a combined 40k).  As we approach cash open, price is hovering below Thursday’s low.

Also on the economic calendar today we have factory orders and University of Michigan final July reading of sentiment at 10am.

Yesterday we printed a neutral extreme down.  The day began with a slight gap up and drive higher.  By late morning the entire post-FOMC rate decision sell-off had been erased.  We inched higher before noon, pressing range extension up and closing the gap left open between Monday and Tuesday. During New York lunch, President Donald Trump tweeted that trade talks had failed and this caused a major sell-off:

…during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%…

— Donald J. Trump (@realDonaldTrump) August 1, 2019

The news-driven move saw price take out the Thursday low before we came into a choppy balance.  We ended the day near session low.

Neutral extreme down with a news driven aspect.

Heading into today my primary expectation is for buyers to work into the overnight inventory and test Thursday low 7776.75.  Sellers reject a move back into Thursday’s range and we take out overnight low 7724.50.  Look for buyers down at 7706 and two way trade to ensue.

Hypo 2 stronger sellers drive lower off the open, sustain trade below 7700 setting up a move to target 7668.25 before two way trade ensues.

Hypo 3 buyers regain Thursday low 7776.75 and sustain trade above it setting up a full gap fill up to 7805.  Buyers continue higher, taking out overnight high 7826.75.  Look for sellers up at 7842.25 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

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