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Raul3

I turn dials and fiddle with knobs to hone in on harmonic rotations

IndexModel signals bullish into OPEX but expect some chop

Once a year about 100 people from Detroit ascend up into a small town in northern Michigan and essentially take over—infiltrating the weekend market with urban brands and overrunning the hospitality staff at all motels, hotels, and restaurants.  Some locals tend not to fare well, especially if they take to the drink along with the seasoned degenerates of Motown.   I joined the large pack of marauders for a few days, and now I am in the woods where I have taken up living in my van which has been parked near a river.

But before I commence several days living in the woods, thinking, I connected to Mothership and updated IndexModel.  It flagged bullish but is not calling for a strong rally. Nope.  Just a drift sideways perhaps with a slight upside bias.

There are four weeks a year that I do not trade and the upcoming week is one of them.  Several of the algorithms I’ve build to augment my discretionary trading of NASDAQ 100 futures are volume dependent.  The issue is, despite most active traders moving ahead to the December contract last Thursday, there is still a significant amount of volume taking place on the September contract.  Also, lots of the activity taking place in this upcoming week involves ‘rolling forward’ large institutional positions that must be migrated from September to December.  It all sums up to a great bit of fuckery if you ask me.  The algorithims tend to fire off bad signals which forces me to cross-check their behavior.  This introduces a bit more on the fly judgement calls than I am comfortable with, especially as I become older.  Some of the worst scars on my trading career came from on the fly trades during OPEX.

So while I am bullish, I have taken to the woods to avoid my brain’s desire to make sense of institutional shenanigans, and my ego’s tendency to want to ‘beat’ these institutions.  In the book Zero to One, Peter Thiel writes, “All failed companies are the same; they failed to escape competition.”  On the surface that is annoying to me—because my business is trading futures and I will always have competition.  If there were no competition that would mean I had nobody to trade with.

But looking at it again, and thinking about it, it can be reframed.  The simplest way to ‘escape competition’ is to not trade at all.  If I know there is a high likelihood of me competing with participants that seriously outgun me or simply have different goals in their activity on the exchange, then I can succeed by waiting for them to do what they need to, then stepping back in when I have my proven edge.

And that is what I intend to do this week—photograph birds instead of forcing myself to behave inside Mothership where there is an almost ritualistic tendency to trade the opening bell.

To those of you trading this week, I share my robotic bias, it is bullish.  The model does not expect rambunctious upward movement.  Just a drift.  Given the OPEX context, I’d expect this ‘drift’ to be choppy and violent.  These could be good conditions of trading individual stocks but that is never my game.  Mostly next week is about sucking the theta out of trades taken with an overly ambitious expectancy of time being on your side.

Time flies when you options are 5% out of the money.

So stay alert out there.  If you need me send a smoke signal on Twitter.

mahalo

Exodus members, the 200th edition of Strategy Session is live, check out that semiconductor chart!

 

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NASDAQ gap up into rollforward, here is the Friday morning trading plan

*Most active traders have moved on to trading the December /NQ_F futures contract, however the price levels in this report are for the September contract.  I will trade the September contract into end-of-week.

NASDAQ futures are coming into the second Friday in September gap up after an overnight session featuring normal range on elevated volume.  Price worked higher, probing beyond the Thursday high for several hours.  As we approach cash open price is hovering along the Thursday high.  At 8:30am advance retail sales data came out below expectations.

Also on the economic docket today we have industrial production at 9:15am then both business inventories and the primary reading of sentiment from the University of Michigan at 10am.

Yesterday we printed a normal variation up.  The day began with a gap up and drive higher.  Price peaked out by late morning and came into balance for a bit before pushing to a new daily high around lunchtime.  We then spent the rest of the session chopping along the daily midpoint.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 7567.50.  From here we continue lower, down through overnight low 7559.50.  Look for buyers down at 7556.50 and two way trade to ensue.

Hypo 2 buyers gap-and-go higher, up through overnight high 7598.75 setting up a move to target 7637 before two way trade ensues.

Hypo 3 stronger sellers trade down to 7623.25 before two way trade ensues.

Levels:

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Big gap up into Thursday, here is the morning NASDAQ trading plan

NASDAQ futures are coming into Thursday gap up after an overnight session featuring extreme range and volume.  Price worked higher overnight after spending a good portion of the evening globex session in balance.  As we approach cash open price is hovering above the Wednesday high and just below the weekly high.  At 8:30am consumer price index data came out worse than expected and initial/continuing jobless claims data came out better than expected.

Also on the economic agenda today we have a 30-year bond auction at 1pm and a monthly budget statement at 2pm.

Yesterday we printed a normal variation down.  The day began with a gap down and drive lower.  Sellers were unable to drive beyond the Tuesday low, instead encountering a strong responsive bid and printing a sharp bounce.  We then rotated to the 61.8% retracement of the bounce before a secondary buy ramp carried us into the close.

Heading into today my primary expectation is for buyers to gap-and-go higher, sustaining trade above 7550 setting up a move to target 7600 before two way trade ensues.

Hypo 2 sellers work into the overnight inventory and close the gap down to 7485.75 we then continue lower, down through overnight low 7470 before two way trade ensues.

Hypo 3 buyers trade up beyond the weekly high 7541 but cannot trade up beyond 7550 and two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

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NASDAQ makes new weekly high overnight, here is the Wednesday morning trading plan

NASDAQ futures are coming into Wednesday gap down after an overnight session featuring extreme volume on elevated range.  Price worked up beyond the Tuesday high overnight before falling back into the daily range around 7:30am New York.  As we approach cash open price is hovering in the upper quadrant of Tuesday range.

On the economic calendar today we have crude oil inventories at 10:30am, a 10-year note auction at 1pm, and the Fed’s beige book at 2pm.

Yesterday we printed a double distribution trend up.  The day began gap down and sellers probing lower but failing to take out last Friday’s low.  This set up the gap fill upward then a continued drive higher from the bulls up to the weekly ATR band and just beyond it before discovering responsive sellers.  Said sellers made a small rotation lower which stalled right along last Friday’s high setting up an afternoon ramp back up near the highs before two way trade ensued.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 7511.75.  Buyers continue higher, up through Tuesday high 7524.75 but stall ahead of the overnight high 7541 before two way trade ensues.

Hypo 2 sellers gap-and-go lower, trade down to 7469.25 before two way trade ensues.

Hypo 3 stronger buyers trade up through overnight high 7541 setting up a move to target 7544.75 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

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NASDAQ gap down into Tuesday, here is the morning trading plan

NASDAQ futures are coming into Tuesday gap down after an overnight session featuring extreme range and volume.  Price worked higher overnight, briefly exceeding the Monday high before sharply reversing lower.  As we approach cash open price is hovering inside the lower quadrant on Monday’s range.

On the economic calendar today we have a 4- and 52-week T-bill auction at 11:30am followed by a 3-year note auction at 1pm.

Yesterday we printed a normal day, which is anything but normal.  They only occur about 5% of the time.  The day began with nearly a 40 point gap up which sellers quickly erased.  The selling during the first hour of trade was dynamic and created a wide range that we never exceeded for the rest of the session.  Instead we slowly worked back higher, eventually ramping up a bit off the daily midpoint near the end of the session.  It was also an inside day, with the entire daily range being contained inside of last Friday’s range.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 7460.75.  From here we continue higher, up through overnight high 7486.75.  Look for sellers up at 7500 and two way trade to ensue.

Hypo 2 sellers gap-and-go lower, down through overnight low 7421.75 setting up a move to target 7400.  Look for buyers down at 7379.75 and two way trade to ensue.

Hypo 3 stronger sellers sustain trade below 7379.75 setting up a move to target 7364.

Levels:

Volume profiles, gaps, and measured moves:

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NASDAQ up a quick +30 to start the week, here is the Monday morning trading plan

NASDAQ futures are coming into Monday gap up after an overnight session featuring elevated range and volume.  Price worked higher overnight, slowly working up near last Friday’s high before coming into balance.  As we approach cash open price continues to hover up near Monday’s high.

On the economic calendar today we have a 3- and 6-month T-bill auction at 11:30am followed by consumer credit at 3pm.

Last week began with a gap down Tuesday after US markets were closed Monday in observation of Labor Day.  A drive lower Tuesday morning discovered a responsive bid and the rest of the day was balanced.  Then Wednesday featured another gap down and drive lower, this time with more downside.  While the NASDAQ continued lower for the rest of the week the Dow Jones Industrial Average demonstrated relative strength.  The last week performance of all major indices is shown below:

On Friday the NASDAQ printed a normal variation up.  The day began with a gap down below the Thursday low.  Responsive buyers quickly worked the gap closed and continued a bit higher before finding a responsive seller.  We then spent the rest of the day in balance, slowly working lower.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 7439.75.  From here we continue lower, down to 7400 before two way trade ensues.

Hypo 2 buyers gap-and-go higher, take out overnight high 7483.50 ad sustain trade above it setting up a move to target 7500 before two way trade ensues.

Hypo 3 stronger buyers trade up to 7515.50 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

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These are two of my favorite trades

Last week the model flagged bullish and that resulted in me taking my knocks all week long.  Fortunately it was a holiday shortened week.  Also one of my favorite trade setups materialized Thursday morning which allowed me to recapture some losses.  I am going to explain that trade in a very simply way since I had a few people ask about it.

But first a quick note regarding this Sunday’s Exodus strategy session.  The model flagged neutral after a four week long streak of flagging directional bias.  It went bearish four weeks ago then bullish for the last three.  It is back to neutral.  There are no major economic releases scheduled next week, so I will only be trading my bread-and-butter top trade setup, scalping the price levels highlighted in my morning reports, and taking the ‘day after trend day’ setup up if it again materializes.  I will otherwise be sidelined.  This is how I trade when the IndexModel goes neutral.

Alright let’s go.

Last Wednesday the NASDAQ 100, which I track and trade via the E-MINI NASDAQ 100, a futures contract which trades on the CME, printed what I can best describe as a ‘double distribution trend down’.  It was not a full trend day.  A full trend day [down] prints a lower high and lower low during every 30-minute time period, all the way into the close and closes at-or-near session low.  Wednesday the market caught a bounce late in the morning, right up to the daily midpoint, but then it methodically worked lower the rest of the day.  The session did not form two distributions but it’s the closest name for what actually happened.  In short—it was a trend day but not a full blown trend day.

The trade then has to setup overnight.  After the market closed Wednesday it went into a drift but never took out that Wednesday low.  Here’s an expert from the Thursday morning trading plan:

NASDAQ futures are coming into Thursday flat after an overnight session featuring extreme range on normal volume.  Price was balanced overnight, hovering along the bottom quadrant of Wednesday’s range.  As we approach cash open price has yet to take out Wednesday’s low.

The setup was in place.  My first trade was to sell short the NASDAQ 100, via the front month futures contract (September 2018, or @NQU18) and target the Wednesday low.  Hence the primary expectation of the Thursday trading plan:

Heading into today my primary expectation is for sellers to work down through overnight low 7509.75.  Look for buyers down at 7495.75 (08/24 gap) and two way trade to ensue.

The trade netted nearly 40 points. This is a simple trade that my statistics show has a high win rate.

But my bread-and-butter trade is the overnight gap in-range.  This setup occurs when we are trading inside the prior day’s range but price has moved away from where we closed the day before.  My first trade of most days is to close this gap.  My trading career is built on closing overnight gaps.

And that’s the thing about trading.  You actually don’t need a bunch of sophisticated trades—just a few setups that you can execute well over-and-over, building size into them as you become more competent.  Bruce Lee famously says that he doesn’t fear the man who has practiced 10,000 kicks once but the one who practiced one kick 10,000 times.

Those are my two favorite trades.  They setup often, they setup when my ability to trade is its sharpest, and they are simple.  At the end of every Exodus Strategy session it says trade simple.  Simplicity is the one thing I feel most people misunderstand about trading.  Hopefully this quick blog entry has some light bulbs flickering on in your minds.

Let’s have a strong beard first full week of September.

Exodus members, the 199th edition of Strategy Session is live, check out Section IV and where we may see the market tip us off to its next directional move.

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Discipline for the win

Full disclosure:

I bought TQQQ Tuesday morning and still hold the position.  I will sell the position by end-of-business Friday, September 7th.  It will likely be a losing trade. Sad trombone.

I only blog about Tesla and our fearless leader Elon (Praise to Him) when it matters.  Today (September 7th) matters.  Also TSLA is my largest position by a long stretch.  I accumulate more TSLA every quarter via the most reliable form of investing, dollar cost averaging.  And I will continue to do so until the ability to buy Tesla shares is taken from me or my death, whichever comes first.

——————————————————

Habitual pot smoking is a nasty habit unbefitting of a CEO.  Elon Musk (Glory to The Leader) did not inhale the pot smoke he sucked into his mouth from a half tobacco, half cannabis cigar (blunt) that he was handed during a Joe Rogan podcast.  There is a misinformation campaign led by troll accounts on Twitter that hopes to paint Mankind’s Last Hope as an erratic drug addict.  They are liars and should be reported to Jack Dorsey as often as possible.

If a CEO desires habitual stimulation of her serotonin receptors, a regular dose of psilocybin mushrooms would be a more appropriate intoxicant.  Is marijuana consumption a bad idea for everyone?  Not really.  But a CEO in America requires a sharpness and tenacity that is lost in the fog of THC.

Which brings me to CBD drinks.  CBD is one of the other phytonutrients found in marijuana and hemp. CBD drinks are not a good idea as a business.  First of all that plant compound is listed as a schedule one controlled substance in America. AMERICA.  The real one. Not Canada.  That means interstate trafficking of CBD in America is a federal crime similar to transporting heroin or cocaine.  Seems like lots of risk for a product that has profit margins similar to regular drinks that aren’t federally illegal.

Bear in mind Jeff Sessions, the US Attorney General, is a good ‘ole boy who fully subscribed to reefer madness and the Nancy Regan ‘just say no’ campaign.  You think he’s going to sit around all day by a swimming pool with his fellow statesmen while a company like NBEV publicly breaks federal law?  Meanwhile there are several first movers already in the CBD drink space.  A cursory internet scan turns up this company in San Fransisco, for example, that will ship you a CBD-spiked lemon drink.

Another problem with CBD drinks is they don’t make the consumer feel high.  So it is like trying to sell people on eating their vegetables more than selling a hit of a drug.  Coffee gets you high.  So does Pepsi.  So does THC.  How do you make people spend money on CBD drinks instead of soda pop or coffee or whisky?

Back to Tesla.  The chief accounting officer leaving is a red flag.  Even a diehard believer in the company cannot overlook accountants leaving.  It goes back to my years of being an accountant and knowing that accountants are logical people who do not run away from their post for no good reason.  The CFO needs to address this situation ASAP.

The HR director leaving, whatever.  As long as the company can continue to combat the destructive potential of their labor force organizing into a union they will be fine.  The last thing any company needs, ever, is contempt between the people doing the work and management.  The labor force must be made to feel included in the company’s growth and compensated in a satisfactory way while working in desirable conditions.  WITHOUT A UNION FATALLY CRIPPLING PROGRESS.

I have been on the wrong side of the tape all week with my TQQQ position and with my NQ_F futures trades.  It has been a losing week.  But discipline keeps it from being a devastating week.  I’m taking my knocks, but little rules like ‘day after trend day’ have kept me from experiencing huge losses that I was fortunate to experience many years ago during development.  I am trading well even through IndexModel had me on the wrong side of the tape this week.

You have no idea how grateful that makes me.

Because this blog post went all over the place let me sum it up—Elon is the world’s best CEO and did not inhale pot, therefore he was not made to be stoned nor is he a habitual marijuana smoker.  Pot stocks are trash unless they are Canadian, and even then I have zero interest in owning pot stocks.  The accountant leaving Tesla troubles me.  And I am infinity grateful for my learned ability to stick to my trading plan even when that means losing money.

Discipline for the win.  Good luck out there.

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Week-long rout continues after Payroll data, here is the Friday morning NASDAQ trading plan

NASDAQ futures are coming into Friday gap down after an overnight session featuring extreme range and volume.  Price was balanced overnight, holding inside the lower quadrant of Thursday’s range until non-farm payroll data came out.  This economic data drove price down below the Thursday range and as we approach cash open prices are hovering below Thursday’s low.

There are no other major economic events today.

Yesterday we printed a double distribution trend down.  The day began with a slight gap down, basically flat, and with a wide open auction.  Then initiative sellers stepped in and continued to drive price lower trading down to the 08/23 open gap before two way trade ensued.  Near the end of the session we ramped back to the daily midpoint.

Heading into today my primary expectation is for sellers to reject a move back into Thursday’s low 7407.75 setting up a move down through overnight low 7393.  Look for buyers down at 7379.50 and two way trade to ensue.

Hypo 2 stronger sellers trade us down to 7343 before two way trade ensues.

Hypo 3 buyers work up into Thursday’s low 7407.75 setting up a move to close the overnight gap 7456.50 then continue up through overnight high 7470.25 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

 

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Day after trend rules apply: here is the Thursday morning NASDAQ trading plan

NASDAQ futures are coming into Thursday flat after an overnight session featuring extreme range on normal volume.  Price was balanced overnight, hovering along the bottom quadrant of Wednesday’s range.  As we approach cash open price has yet to take out Wednesday’s low.  At 8:15am ADP employment data came out below expectations.  At 8:30am initial/continuing jobless claims data came out above expectations.

Also on the economic agenda today we have ISM non-mfg/services data and factory orders at 10am followed by crude oil inventories at 11am.

Yesterday we printed a double distribution trend down.  The day began with a gap down and drive lower, a selling drive that pressed clean through the first hour of trade.  Sellers briefly pushed the market into RE down just after the first hour.  Then we worked back to the daily midpoint, which sellers defended.  We spent the rest of the session inside the lower half of the daily range but never making new lows.

Heading into today my primary expectation is for sellers to work down through overnight low 7509.75.  Look for buyers down at 7495.75 (08/24 gap) and two way trade to ensue.

Hypo 2 stronger sellers trade us down to 7487 before two way trade ensues.

Hypo 3 buyers work up through overnight high 7544.50 and sustain trade above it, setting up a move to target 7597.

Levels:

Volume profiles, gaps, and measured moves:

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