Brainard Dovish After Hours – Futures Higher

Lael Brainard, the 53 year old Fed Governor was speaking at a small engagement in Washington this afternoon.  She advises the Fed ‘watch and wait’ until global risks recede.  She also warned again ‘prematurely’ raising rates.

The dovish comments sent NASDAQ futures beyond cash session highs.

I had no idea how smoking hot Mrs. Brainard is.  I don’t write this to objectify her, but merely out of surprise.  Everyone else inside The Fed looks like something I’d scrape off my shoe.

I would gladly take her up on a cup of tea, should she ever be interested.  Maybe she could treat me to some dovish commentary, who knows, I’m optimistic.

Facebook for Business has a new piece out on their site discussing their latest advertisement offerings for businesses.  The article is creating a buzz among investors and traders.  One of the key upgrades is a “Buy” button which allows users to make purchases without leaving Facebook, see below:

We’ve already been testing this feature on ads to give marketers a more seamless way to drive sales with people interested in their products. People on desktop or mobile can click the “Buy” button in ads in News Feed to purchase a product directly from a business, without leaving Facebook.

Where the NASDAQ currently stands is the top-end of a well-established distribution.  Unless the higher time frame comes into work on their day off and pushes this thing, we are in balance.

No sense chasing this, IMO:

You may be tempted to wait for The Fed’s Beige Book, set for release Wednesday afternoon, but by then the market will have already decided its direction on the week.

It will come down to how the market reacts to earnings from Wells Fargo, JPMorgan, and Bank of America.  Citigroup reports October 15^th—this week’s market direction ought to be well established by then.

Barclays had a positive note on Wells Fargo last Friday and JPMorgan put out a WFC upgrade last week too.  They’re all pulling for Wells Fargo while the other expectations for the other banks are mostly muted.

Sporting the largest market cap in the group, it makes sense to keep a close eye on how WFC shares trade Wednesday morning.  They report Wednesday BMO.

My forecast?  It takes the market DOWN.

Rumors are circulating that Twitter is planning company-wide layoffs next week.  The stock is under pressure so far today, down over 6% on the session.

Sentiment is mixed regarding this move to cut employees.  Twitter has not commented on the rumor.  You can imagine, overall, this sapping the morale inside the company.  It is unlikely an employee will produce their best work while the media gets first word of layoffs.

For a company who specializes in communication, you would think they could do a more effective job of handling information as sensitive as this.

Until this news is clearly disclosed, expect the share price to be pressured.

NASDAQ futures suggest stocks are set to start the week slightly higher. The globex session featured a normal range and volume, despite several financial institutions being closed in observation of Columbus Day. Price managed to briefly exceed Friday’s high, and as we approach opening bell price is hovering in the upper quadrant of Friday’s range.

There are no economic events today. There are a few low impact Fed speakers.

Last week the market opened gap up and pushed higher. Then Tuesday through Thursday afternoon we traded sideways. After Thursday afternoon’s Fed minutes we pushed higher. Friday extended the gain by printing a normal variation up. Price managed to go up and close the 09/17 open gap at 4366.25 before stalling into two-way trade.

If you recall, 09/17 was the day the FOMC rate decision came out unexpectedly unchanged. Price spiked higher, NYSE TICK was extreme, and we faded all afternoon—effectively printing a swing high that lasted several weeks. Thus to revisit this level we have to imagine short sellers are on their heels.

Heading into today, my primary expectation is for sellers to push down into the overnight inventory and close the gap down to 4357.75. Look for buyers to defend north of the overnight low 4346.25 setting up a move to take out overnight high 4371.75 and target 4376.

Hypo 2 sellers push down through overnight low 4346.25. They continue lower to test below Friday’s low 4331.25 and find responsive buyers below the level setting up two-way trade south of 4360.

Hypo 3 buyers gap-and-go up, take out 4378.50 early and set their sights on 4392.

Levels:

Last week was an impressive showing from the bulls. The strength in the energy patch trumped any softness seen elsewhere. Biotech even managed to spit out a concentration of 41 big winners (+10% or more on the week). And despite being wrong last week with my bear call, I am back on it heading into option expiration week.

There are these models I build. They are part of my weekend research. Lots of index data is put onto a spreadsheet and graded. Then I add a layer of Exodus which factors in fundamentals. It’s all pretty simple but at the same time comprehensive and that’s why I like it. Right or wrong, I know I did my homework, utilized the resources I’m fortunate to have, and used them to form an objective bias—no one’s master, no one’s slave.

Option expiration week sees a rally lately. The past several months have seen a rally up into OPEX Thursday then a dump shit month-end. Something feels different about this month. Change is afoot. And what better way to end the month with a catapult-style rally then to suck in a fresh batch of shorts during option expiration week?

That was a ferocious 8-day rally. It likely served to flush out the weak shorts. The market cannot sell off with weak shorts in place.

So while I am bullish on the month of October, and positioned to benefit from more strength, I have a short bias this week. I will look to lean harder into my NASDAQ shorts this week and potentially add to my BIS position.

Exodus members, the Weekly Strategy Session has been published.

The harder I work, the luckier I get.  I will not discount the element of luck that went into cashing out some Friday Netflix calls a bit earlier.

It all started Wednesday afternoon…

I had the triple intraday confluence to work on the Nasdaq.  Once I was able to scale off some futures I turned my attention to momentum stocks—to see if there was something I could carry overnight.  Netflix had a nice, tight consolidation so I took Friday $110 calls around $1.40.

Thursday morning I had little intention of selling into the morning strength.  I wanted to keep these calls for the FOMC minutes.  As the morning progressed Netflix was hammered and down like 4% on the session.  This rendered the calls I held nearly useless.  I had room to add to the position so I entered a ‘stink bid’ down at $0.15, yep, 15 cents.

No more than 5 minutes later some chatter emerged that Netflix would raise their monthly subscription rate by a paltry dollar, a brilliant tax increase heading into the desolate winter.  The stock went ape shit, reversed its loss, and trended high all day.  I booked some late yesterday and the rest this morning.  The overall gain was about 300%.  The gain on those fifteen cent purchases was about 2500%.

The feeling of being on the right side of a fluke rumor? Priceless.

I want November calls in something now.  Something longer duration.  Maybe at the close.  Maybe next week.  I’m moving slowly today.

There are reports a gunman attacked Northern Arizona University.  The unofficial tally is one dead and three wounded.

Our country is one of excess.  And if these last 12 months have shown us anything, we have a surplus supply of crazy young adults.  What is the fucking problem here?  Not enough hugs from mom?  Too much pressure from the strict father model?

This is a horrifying landscape for any parent to send their children into.  Kids are like the most expensive thing you can have, and you send them off to campuses where gunmen prey.

Then we have the media vultures swarming freaked out students and exacerbating the situation—look at this shit interaction sequence on Twitter:

Keep the affected families from these last 8 days in your thoughts and prayers.

The market isn’t showing much reaction to the news.  Unfortunately, these horrifying events have become commonplace.  Columbine and Virginia Tech shocked us.  Let’s not get complacent on this madness.  It takes a village to raise a child, not a TV and iPad.

I don’t fuss around with the futures too much on Friday.  I have reams of stats that show me plundering away my own gains on Friday afternoons.  It takes some color out of the weekend, and who likes that?

Anyhow, I worked the primary hypo from this morning’s report, see below:

Heading into today, my primary expectation is for a slow tape.  Look for sellers to work into the overnight inventory and close the gap down to 4345.  Look for buyers to defend north of 4330 then make a move to target overnight high 4357.75.  This sets up the gap fill up to 4366.25.  Stretch target is 4370.

I can’t really envision any better than that.

I will take my stipend and focus my energy elsewhere.  What’s on your radar heading into next week?  Should I buy some small bombs because the Russell is a beast? Or should I buy the new Goldman Sachs emerging market ETF and chill?

Either way, I’ll be listening to this album cover-to-cover: