NASDAQ futures are green heading into Monday’s cash open.  The globex session spent most of the evening trading flat before turning higher around the time European markets opened.  The session featured elevated range and volume.  Price managed to push up to the Friday, 9/25 high before sellers came in.

This week is light on economic events but there are a few high impact ones including this morning’s ISM Non-Manufacturing Composite at 10am.  Also out at 10am is the Labor Market Conditions Index.

Last week the NASDAQ started with a gap down and sellers drove price lower.  They extended beyond Monday’s low Tuesday then price went gap up into Wednesday.  Price churned sideways through Thursday and Friday was a trend day up after opening gap down.

Heading into today, my primary expectation is for sellers to work into the overnight inventory and close the gap down to 4261.75.  Look for choppy trade early on ahead of the 10am data before sellers push down through 4270 setting up the gap fill.  Then look for a move to take out overnight low 4250.50.  Stretch target is 4243.75.

Hypo 2 sellers struggle to close overnight gap and cannot push down through 4270.  Buyers step in and probe above overnight high 4296.75 and above the 09/25 high at 4298.50.  Sellers do not defend up here and price continues working higher to target the open gap up at 4326.25.

Hypo 3 gap and go up.  Buyers take out 4298.50 early setting up a strong push to 4326.25.  Some churn in this region before continuing higher to close the open gap up at 4341.25.  Stretch target is the open gap up at 4366.25.

Hypo 4 when buyers probe above the 09/25 high 4298.50 it discovers sharp responsive selling and we work lower to target 4270 then a gap fill down to 4261.75.

Levels:

First off, I loved posting this savage entry earlier today–it was a wholesome gathering of words, imagery, and music for the Sunday audience.  But I figured do a dry follow up to support the colorful case made.  Below I list the supporting data, enjoy.

MODEL AND CONTEXTUAL CASE:

• The consistently wrong S&P model—fading my S&P model has been a winning trade 76.1% of the time (46 samples). The model is long S&P going into the week.
• Exodus Hybrid Oversold: Tuesday market close will mark day 10 of the cycle.
• Two out of the last three weeks saw the Utilities sector lead the way.
• Rose Colored Sunglasses—this short signal is 10-for-13 and signaled today. Here is every past instance, on the NASDAQ, with boxes drawn from Friday-to-Friday on the 5-day signal:

WHY BIOTECH?

• Last week, despite IBB (primary biotech ETF) being up 1.71%, there were 67 biotech stocks down -10% or more. There were nearly 150 biotech stocks down -10% or more the previous week.
• The biotech industry has the highest price-to-sales ratio:

SOURCE: Exodus Market Intelligence

• We are in a seasonal safe haven for shorting biotech:

SOURCE: Exodus Market Intelligence

THE SETUP AND PLAN

• Two IBB charts, for risk management purposes.  First the daily, then the hourly:

THE VEHICLE

BIS

I’ve just completed my scrupulous Sunday analysis and we are in trouble.

Call your perception of the world into question.  Wipe the fog off your lenses and form an objective judgment of this moment.  Is your favorite coffee shop casting a rich pumpkin spice aroma into the air?  Maybe you’re seeing the wonderful second bloom; trees changing from green to opalescent crimson and gold.

The markets bounced hard Friday—that’s always a good feeling heading into the weekend.  USA football is on the teevee.  All is well in the world of the fat American, the dream is alive.  Fine, let us breathe a collective sigh of relief.  Then let’s put our guard up.  We are still in trouble here.

When you peel back a few layers of this market, like an onion, you expose a rotting core.  One industry after another is being ferociously corrected.  Heading into year-end biotech is the sacrificial cow.  These investors will be killed and their blood spread across the fields to insure the next planted crop.

I’m real bearish and looking for a rally early this week to raise cash and initiate some shorts into.  That is all.  Enjoy your Sunday.

Exodus members – the latest Strategy Session is out.  Get in there and have a look at Section I & IV.

Watching the Nonfarm payroll reaction this morning was an odd way to start the day.  Some speculators swear they don’t care about data like NFP, others watch it real close.  Some people chart the data out using Bloomberg Terminals.  They pay good money for that data, too much money in my opinion. I just log the events on my daily Switchboard and conduct third reaction analysis on high impact events.

There was no third reaction this morning—at least not in my traditional, short-sighted sense.  Instead was just sold, and sold, and sold some more.

It was so ridiculous, I considered it noise and wrote my morning plan like I always would.

I do a few things well.  One is treating news driven moves differently than ‘real’ moves.  I expect the old check back, the old knee tap, the old turn your head and cough.  With that in mind I watched the open then started my buying campaign.

So nice, so clean, so in accordance with a working hypo.  I hope by demonstrating this stuff enough times you guys will give this form of analysis some credence and implement it into your own practice.

Otherwise you are a puppet of your emotions and certain to be corrected repeatedly and without relent by the markets.  Have a great weekend!

We talked about taking our perspective out a bit and viewing the higher timeframe heading into October.

This interesting context level, the 14-year gap, is/was in play. Heading into the weekend, and especially if we close out strong, look how nice this candle looks. This candle is how babies are made:

News driven moves are great context.  Typically, and eventually, the market likes to ‘check back’ to the price level where the move initiated.  We call it returning to the scene of the crime.  It was the basis behind my primary and 3^rd hypo this morning—this proclivity to return to the crime scene.

The Nasdaq is doing just that and almost exactly how we envisioned in hypo 3 this morning.  I am done trading futures for the day.  We hit my hypo 3 mark at 4160 and I am cashed up for a weekend of cider, pumpkins, and fast women.  But I will stick around and see if I can hunt down a nice little stock to take into the weekend.

There’s order to these markets.  There has been for weeks, despite the downward directional force.  I like it.

NASDAQ futures took the elevator down this morning after a much weaker-than-expected Nonfarm payroll print.  Prior to NFP the globex session was working higher.  Price managed to push into the low-end of last week’s range, just like yesterday morning, before reversing lower.  However, we did not exceed the globex high set Thursday morning.  The NFP reaction managed to push us into another extreme range/volume session with price now trading on the low-end of yesterday’s range.

Also on the agenda today we have Factory Orders at 10am and Baker Hughes Rig Count at 1pm.

Yesterday we printed a neutral extreme day.  After opening gap up we had a sharp drive lower but held Wednesday’s range.  Buyers stepped in and defended it twice—once in the morning and again in the early afternoon before reversing the auction and closing the day out at session high.

Heading into today, my primary expectation is for buyers to push into this NFP reaction.  Liquidity is still way out of whack as we head into cash open which can lead to quick directional moves.  Look for buyers to trade up and close the overnight gap up to 4187.25.  From there look for buyers to continue trading higher to ‘check back’ to the scene of the reaction up at 4213.25 before two way trade ensues.

Hypo 2, sellers gap-and-go lower.  The way USD/JPY is breaking lower supports this hypothesis.  Look for sellers to test yesterday’s low 4116.25 setting up a gap fill down to 4074.75.  Look for responsive buyers down at 4062.25 otherwise a move to the stretch target, the open gap down at 4031.25.  If the liquidation really accelerates then also look to fill the open gap down at 3997.50 from the China Rate Cut.

Hypo 3 so kind of two way trade ensues.  Sellers test below yesterday’s low 4116.25 and immediately find responsive buyers who struggle to fill the overnight gap up to 4187.25 stalling instead around 4160.

Levels:

We have been operating within the confines of a 6-month Exodus hybrid overbought signal for 9 sessions and tomorrow marks its arbitrary completion. It has been a successful mark for the algo, and one that I won’t soon forget. I was headlining the day it fired. I was juiced up and convinced we were going to the moon.

My headline rights were revoked, both OA and FLY said, “dude, chill” as did Exodus. Here’s the performance of every major index since:

The NASDAQ went down over SIX PERCENT during the cycle—a tad extreme no?

I now look for an extreme snap back to start October. The real fun starts next Monday.

Active Oregon shooter has investors selling their gun stocks.  The shares came under pressure over the last hour as the devastating news of another campus shooting came out of the Pacific Northwest.

Look for sellers to pressure the share prices of SWHC, RGR, CAB, and BGFV as this news continues to develop.

UPDATE: 10 deceased, 20 wounded per CNN

One of the reasons I write morning trading plans is to lay out a few ways the day could progress that wouldn’t surprise me.  Today was a primary expectation day, my favorite kind a day, the kind day I clean up on—killing unsuspecting and unprepared enemies.  When markets behave as I expect I start pushing on more risk.  Today I put on more risk.

Tier one tech has been my preferred theme of late.  When all the dust clears we will remember that technological innovation is the only virtuous capital endeavor left to man.

Nothing else interests me, which is why I outsource most of my stock picking to the GARP portfolio.  I added some funds to my GARP motif as well.

From order comes chaos, chaos for the enemy, chaos for the bear.