Working The Gap

Nasdaq futures are down overnight on an elevated range and normal volume. Price managed to exceed yesterday’s RTH high by 2-ticks before falling back through the entire daily range.

Pre-market we had Initial/Continuing jobless claims data which was mixed and Housing Starts which came in lower than expected. At 10am the Philadelphia Fed data is out and at 10:30am Natural Gas storage.

Yesterday we printed a neutral-extreme up day after the range extension down was quickly rejected and buyers put together an afternoon rally. The profile left behind had a pronounced pocket from 4417.25 – 4411.75. I would expect this area to trade fast on a revisit and afterward we’re likely to spend some time filling it out.

Heading into today we are set to open on the low end of yesterday’s range. My primary expectation is for buyers to work into the overnight inventory and attempt at gap fill. If they can trade up through 4411.75 they likely don’t see much friction on their quest to 4421.50. Then I will look for 2-way trade chop to ensue.

Hypo 2 is sellers defend the volume pocket and start working lower to target 4386.25 then choppy conditions.

Hypo 3 is buyers push the gap fill and continue on to take out the overnight high 4429.50 and target the NVPOC at 4435.

Hypo 4 sellers take out 4380 before finding a responsive bid.

Levels:

Hopefully you were able to book a few gains into this afternoon’s strength because come Friday the market intends to ram a fist through your toothy grin. People are way ahead of themselves, like summer is already here.

You may think it is safe to plant annuals, but frost is coming—a frost so thick it will crumble traps and wilt your impatient plantings. Wearing shorts and other revealing clothing will result in frostbitten knees and midriffs.

Today means nothing in the grand scheme of things, an unseasonably warm day. The Nasdaq rallied, the ubiquitous Netflix is blazing higher, Intel pleased investors, Goldman Sachs is being front ran, and energy is making delicious and powerful moves up.

Odds are still elevated for lower prices come Friday’s close. There have been little clues bears are waffling an opportunity here. Their last hope for swift death are the lagging transports. They (I) will point to this chart and pray to Darth Vader if breaks lower.

Watch it closely enough, and you won’t see all the stocks posting double digit gains.

I’m off to devastate dumbbells for being pathetic and light.

Tax day is upon us. This day often marks a turning point in the market. Take last year, for example, we were all freaked out by the ultra-violent marketplace. Then, as if a switch was turned, we gracefully ascended from about tax day thru to 4^th of July.

This year we have little to fear. Markets are behaving well, the Russell is undergoing a major breakout, and oil has a bid. My hypothesis of a down week calls for Wednesday strength, thus I will stick with my cautious theme.

The Nasdaq trader higher overnight after catching a bid around 3am. No particular economic event stands out at that time. Around 10pm the China GDP data came out in line and on deck for today we have Industrial Production at 9:15am, NAHB Housing Market Index at 10:30am, Crude/Distillate Inventory at 10:30am, and Fed Beige Book at 2pm.

Intel traded higher last night after reporting, BAC is slightly lower after their premarket earnings. On deck this evening are NFLX and SNDK, while C, and GS are set to report tomorrow BMO.

Taking to the chart, we can see the 2-way conditions present. We started the week continuing to explore higher prices. By mid morning the market managed to find sellers and roll. That selling continued into Tuesday before managing to print a decent looking low (excess wicks on candles) before firming up into the close.

Heading into today, my primary expectation is for action early on to fizzle out relatively soon and put us into a holding pattern ahead of the Beige Book. Look for sellers to work into the overnight inventory and test down to 4397. Here I will look for buyers to step in and take out overnight high 4410.75 to target 4414.75 before two way trade ensues.

Hypo 2 buyers take out 4415 early and set up a leg to 4435.25

Hypo 3 we test down to 4381.50 – 4378 before finding buyers and balancing out below 4398.

Levels are highlighted on the following market profile chart:

We haven’t done anything yet in the Nasdaq which is trading essentially flat on the week. The auction has done a good job of cleaning up naked VPOCs. A clue like this tells me the markets are operating well.

My data set suggests everyone came into the week with rose colored sunglasses so my overall consensus is sideways or lower by Friday.

Here are the levels I’m working with on NQ_F*:

*SOURCE: 04/13/15 -04/17/15 Weekly Strategy Session.

Range elevated just a touch beyond normal overnight while volume came in normal during globex. The market continued pushed lower overnight before finding buyers around Friday’s session low to bring us back flat headed into Tuesday. Advance Retail Sales came in a bit softer than expected at 8:30am and the data encouraged a bit more buying.

This is where the week starts becoming interesting. WFC and JPM earnings are out this morning and neither has made a dramatic premarket move. The financial sector has coiled over time and we may see the compression resolve as the banks earnings continue to roll in. Also important is tonight’s GDP data out of China. All eyes are on the red giant as its stock market soars. Finally, the Nasdaq is likely to be reactive to the INTC earnings scheduled for release after market close.

Yesterday the week started with a small gap up then an open drive higher. Price managed to tag the naked VPOC at 4438.25 and go slightly beyond it before stalling out. Sellers then slowly worked the market lower before accelerating down through the open drive to extend the range lower.

Intermediate term conditions are neutral, but overall context is bull.

Heading into today, my primary expectation is for sellers to make a push to test 4395. Look for responsive buying here. Choppy conditions between 4395 and 4405 give way to another leg lower to target 4382 and a stretch target of 4379 before 2-way trade resumes.

Hypo 2 is buyers push off the open to 4415 where responsive sellers are found and two-way trade ensues with buyers sustaining above 4395.

Hypo 3 is buyers make an aggressive push back above 4415 which leads to a second leg up to 4429.25.

Levels are highlighted below:

Please, by all means, pull up a chair. We have to discuss the situation we’re in.

Despite a valiant attempt to mend the charts bulls are stumbling about the china shop. Their hooves are slipping every which way on millions of marbles strewn across the floor by clown suited algorithms. Don’t laugh bears, they intend to exact the same hilarious gag on you.

The markets are no longer permitted to look good for bulls or bears. Much like the internet, they are designed to squeeze profit margins down to extinction. They are destined to test every drop of fortitude you’ve got.

It is your job, your only job, to become exceedingly selective with your trades. I have reduced the number of day trade types I will pursue down to 2 from about 9. Only the milk mates—the crème is off limits.

As for swing trades, duration is no less than 3 months and it would be a cold day in hell when you’d find me buying something without the institutional support of Exodus. Oh indeed, you may have noticed 3 months means earnings will be held through…you’re god damned right. Therefore the names I choose must pass a moderate litmus test of fundamental growth and valuation.

All my data is fine and dandy and pointing to lower by Friday, but ultimately our fate is in the hands of WFC, JPM, BAC, and C. I suppose GOOGL and INTC too.

Now some might take this news harshly, and perhaps even lose their cool. When I look at how we traded today, paired with some data I’ve been keeping, this has the makings of a down week.

And that makes sense to me because things were starting to look too good.

Whenever conditions percolate into a lovely pot of honey, the counterparty comes in and bats said honey onto the floor for all the ants (algos) to slurp up.

It’s not even honey for the bears, if we go down this week. They’re stopped out. The honey goes to the worker robots who feed their queen.

Early this morning I cut out of XLE. I sat with the position for many weeks, and still feel constructive on the ETF, but it tagged its VPOC and turned decidedly lower. I feel better prices may be offered up.

This was a huge position and thus my cash is back up after being all in for the last 10-12 days.

Perhaps my data is misleading me, but a red week would not surprise me whatsoever.

Part of the reason I work with market profile is it allows me to envision how the day might progress. The idea is simple. Going back and reviewing a market profile chart shows you how markets often trade in statistical bell curves. Therefore, if you come into a session with a slightly incomplete bell curve, you and visualize what type of trade would be needed to smooth it out.

The economic calendar is quiet to start the week and earnings are starting to roll in. But for all intents and purposes Nasdaq futures will be left to their own device today due to limited external factors.

What was constructive about last week was how we auctioned each price level thoroughly before advancing to the next. The prior auctions that took place from about 4377 – 4425 were fast jerks through price. When instead each level is debated as we go, it sets a better foundation. See below:

Heading into today, my primary expectation is for buyers to continue exploring higher prices. However, I will be looking for signs of responsive sellers ahead of 4425 and two way trade to ensue. This is the green hypo on the below chart.

Hypo 2 is buyers continue exploring higher prices, trade up through 4425 early on and sustain trade at these levels before setting up a second leg to 4440.

Hypo 3 is sellers go to work off the open and churn us down below 440 before finding responsive buyers and 2-way trade ensues. This is the orange hypo on the below chart.

Hypo 4 sellers take out 4395 early and set up a fast leg down to 4382.25.

Chart & Levels:

Feast and famine has been a consistent theme since branching away from corporate mediocrity. Instead of slow financial ascent and rapid soul deterioration life is a big wave competition with jagged crests and deep troughs. Such a ride demands mental and spiritual focus, and sharpening. I’m grateful.

It took about a year to embrace the power of focused intensity sessions followed by active recovery. Yet, at my roots, this is my nature. I was always a sprinter who demanded every muscle fiber give every drop of energy for a specific performance. Then it was back to chilling and watching the distance runners.

This weekend was thick cut rib eyes. Now I have to listen to my body tick because all that red meat likely made me aggressive. Isn’t there a big golf match on? That might be just what the doctor ordered.

Weekly Strategy Session subs, the latest report is out. It covers some interesting contextual notes and one potentially harmful undercurrent. Check it out and let me know what you think.

Want to start the week with a solid grasp of what’s driving the stock market? Then check out this week’s report by clicking here.

There is something special about micro breaks, micro anything really—just enough of something to make an impact. All too often the greed comes out, you know, and once you have a taste of something good you go hard like a glut. This is a problem, dude.

Today had the early hallmarks of a sell type day, but buyers refuted the action, early, and have been leaning on the levee ever since. It’s a special sort of day, one where I rekindled a relationship with an old friend and also a general day of gregarious winship.

One must of course remember these fine days and savor them like a nugget of chocolate. There’s little for me to do (my bed is made and just right) and I feel no urge to work for the sake of occupying myself. The winds outside are blowing a consistent 30MPH and enterprise is calling my name.

Top picks into tax weekend: DE, CHGG, SUNE, and the magnificent Elon