Neutral Daze

The Nasdaq is ending the session with one of my favorite day types, the neutral day. These day types are rare. Since January 2012 they happen 23.32% of the time. But when they occur you want to be ready because they are fun times.

Today was no exception. We two ticked the IB high and fell right back into it, setting up a trade back to the mean. This typically happens before we go anywhere else. The exception, and even more rare print, is a neutral extreme which gains speed on the second range extension and closes near an extreme.

Today was the first time I have live traded through a NYSE Rule 48 and it was without question the most bizarre day I have ever seen. Stocks were trading flat-to-positive while the Nasdaq futures absolutely careened lower. It appears Microsoft trading action had a big impact on the behavior, so now we have to turn our attention to Apple.

Less is seeming like more for the portfolio until this range settles. However, I keep looking to buy on the low end. This morning, amid the selling, I picked up some GPRO. The only thing it has going for it is it’s intraday bearish head and shoulders, which satisfies my “flip it over” logic. It also has earnings next week.

As exciting as these big days are, you have to stay focused or the opportunities slide right by. By the end of one of these large range days, I need to blow my muscles to bits, otherwise my mind goes haywire. It’s all about the decompression.

Get your fruit trays ready, it is Apple time. May they outshine the brutality of Microsoft, amen.

Several weak economic data points, weak reaction to earnings in MSFT and CAT and PG, and overall sentiment have the Nasdaq down over 50 points as we approach cash trade. This is pro gap territory. Interestingly, though the range is 2^nd sigma aka abnormal, it took place on a normal amount, or 1^st sigma volume. Typically these big down sessions carry some heavy volume.

At 8:30am Durable goods Orders came in much lower than expected. At 9am we have the Case-Shiller Composite, at 9:45am Markit Composite/Service PMI, and at 10am Consumer Confidence, Richmond Fed, and New Home Sales. After the bell we will hear earnings from Apple.

The NYSE is invoking Rule 48 on the market open, which may make for a choppy open.

Value started to overlap between Friday and Monday but heading into the close it seemed the market was not doing a very good job rolling over. Sellers did manage to take out Friday’s low and we had some excess wick on the upper end of the candles, but value was holding. However the overnight session has pushed us down below the Sunday-Monday Globex session low and back to where prices were the morning we heard from the ECB. It will be interesting to see if the buyers defend this level so soon after capturing it.

Early on I am looking for buyers to work into the overnight inventory and push up to the naked VPOC at 4226.50. In this level I expect to see sellers stepping in and defending and then pushing back lower to take out the overnight low 4202 and test deeper into the morning of the ECB, targeting 4171.50.

Hypo 2 is gap and go drive down. Sellers drive off the open and push through Thursday’s range to test the low at4164.50.

Hypo 3 is choppy, 2-way trade through much of the session as the market pauses ahead of AAPL earnings and tomorrow afternoon’s FOMC meeting.

Right before our eyes, the market behavior is changing. Perhaps it is the New York blizzard. Or maybe it’s Wednesday’s FOMC meeting, or all the heavy hitters reporting this week, or last week’s stimulus package. That’s just the thing, canoodling up to a reason, a ‘why’ if you will, provides comfort and security.

I say to hell with feeling comfortable. I would just as soon trade my clothes for burlap then be in a state of complacent comfort. The modern world is no place for the smiling sloth. Nature still favors the paranoid squirrel, and rewards him with a fluffier tail and sharper eyes.

VA is down a quick 5% on me. This is why you cannot chase VA. This is also why I ease into VA, several times, slowly.

Energy as a sector is looking good today. As an oil, it looks like a bear, grr.

It has been a good day for Elon Musk. His index [TSLA and SCTY] are up nicely to start the week. His autos were the most impressive feature of the Detroit Auto Show, as were his models, brilliant. The NSX was a close second.

The market is trying to roll over but not doing a good job of it. This afternoon I going live on the mic to MC this action and find some money extraction points. See you in the Afterhours.

Buyers are showing some aggression as we approach cash open in the Nasdaq. The session started off weak Sunday evening with some attributing the move to the outcome of the Greek elections. The move lower around 6pm Sunday took place on light volume and buyers defended the upper edge of value formed Thursday afternoon. Once the globex auction turned around it spent the rest of the session slowly churning higher.

This week’s economic calendar starts off slow and builds in complexity. We have tons of earnings out and a heavy calendar of economic stats. Today we have Dallas Fed at 10:30am and Microsoft reporting after the bell.

Taking to the charts, we can see the Nasdaq went on a four day unidirectional streak to the upside, with Friday’s profile forming a balance on top of the range.  Typically after three days of trade in one direction we start to see price action become more two-way. After four days it becomes even more likely.

Price has so far managed to push up to the upper third distribution of volume. The current micro composite structure as we form this big range has three distinct areas of value with air pockets in between. These air pockets zones are where we see the dramatic, discovery-type moves take place. We could see downside action gain speed, given our current location. See below:

So far sellers are defending the upper region of value. Whether they can continue doing so will be my primary focus this morning. My primary expectation this morning is for a choppy, two way auction on the open with sellers a bit more aggressive. They work to fill the overnight gap to 4268 and test the lower end of Friday’s value 4255-4253.75 where we see responsive buyers. These buyers than work up toward the MCHVN at 4285.25 and potentially test above Friday’s high to tag the HVN at 4293.50.

Hypo 2 is buyers active, perhaps not allowing the overnight gap fill to 4268 before making a move to take out Friday’s high 4286.50 and testing up to 4300 where we find responsive sellers and balance out.

Hypo 3 is sellers extend below 4254 and work down through the air pocket to target the overnight low 4231.50 and the naked VPOC below it at 4226.50. I have highlighted my key market profile levels below:

Here’s the look heading into the open.  Stops are being run, lets see how much speed they bring into the tape:

First and foremost, the eleventh issue of the Weekly Strategy Session has been sent out to subscribers. May you find it of value. As strategy sessions readers know, we have a running counter which tracks the contextual bias calls made each Sunday. After ten predictions, here is where we stand:

So far, if you toss out the Time Stop weeks the data is not showing an edge anywhere but the Dow Jones. In the Dow Jones predictions have been 70% correct. Any stat head will quickly dismiss this data set, as do I. There’s a general consensus that 50 samples are the minimum before an observation can be judged as significant. But my hand is on fire in the Dow. I don’t even trade the Dow, nor am I patting myself on the back. Only suggesting that over the course of the past 10 weeks we have seen a healthier auction occurring in the Dow.

Next, as some of you may know, Option Addict is handing me the keys to the After Hours session to start the week. Monday-Wednesday I will be hosting After Hours with The Option Addict. This will not be another crash course in auction theory. Instead we will be dissecting and analyzing current market action through the lens of an auction. We will establish actionable price levels and have general Q&A.

Finally, if you are even considering trading futures, I implore you to open an account with Stage Five Trading. They are the only futures brokerage I know of who succeeds in creating a learning environment for their traders. Their rates are competitive and they have some nifty tools for helping you sharpen your edge.

This ought to be an interesting week. And I look forward to another week of seeing how my predictions pan out, live discussion of market action, and of course banking coin.

This week tested my skill set from start to finish. The intricate character shift post ECB was simple to recognize and push some risk on. But after weeks where the Nasdaq was ripping loose, this week ending action felt like slow motion.

The slow play actually requires a significantly higher amount of discipline and patience. Restraining myself paid, but I feel mentally depleted. Without an absolute vascular educing pump, I may wind up a hermit crab over the weekend.

THE ONLY WORK IS IRON WORK

I ferried out of FB, scaled TWTR on HOD like a bawse, closed out a 10 bagger in TQQQ (gracias PPT, all hail), bought the blood over at VA, and added to my HABT slow play. Oil continues to bleed me, via the UWTI, a bastard of an instrument who charges a harsh carry for the house.

It was a good week.  Here’s some emotional music to enjoy:

Yesterday afternoon we started to see a behavioral shift from the marketplace. The Nasdaq slowed down and flagged about, much like it did last Friday. The violent waves as we explored the southern tip of the charts opened up to a peaceful, calm, quiet pond. Whether this behavior sticks is unknown but the change has so far carried over into Globex. Overnight the Nasdaq traded on the low end of its normal range on normal volume. Prices drifted above yesterday’s cash highs briefly before finding responsive sellers.

Last night the biggest post-earnings price action was seen in SBUX which traded higher after reporting. At 8:30am we had Chicago Fed Activity and it brought some selling in. At 9:45am we have Markit PMI stats set for release. This announcement shortly after the open may induce some early chop. We also have Existing Home Sales and leading indicators at 10am.

Yesterday was the third straight day of advance in the Nasdaq and price action tends to become a bit rocky on the fourth session. However, bulls have done well to negate the intermediate term seller control, pushing us back into a more neutral-to-bullish stance. We are currently trading in the upper pocket of our triple volume distribution, see below:

Drilling a bit closer to the action, we can see prices are coming into the lower end of a large balance area above. It makes sense to expect some overhead supply in this region. Given the pocket-nature of our current trade location, we might still see some speed in the market.

Early on, I am expecting a choppy open auction, inside Thursday’s range before buyers make an attempt at the overnight high 4275.25. Not far above there I will be looking for signs of responsive sellers who work us back below Thursday’s close 4266 and choppy-two way action takes hold.

Hypo two is sellers a bit more aggressive on the open, pushing us over the ledge at 4258.25 and sliding us down through most of the afternoon push higher to test it’s starting point down at 4235.

Hypo 3 is strong bulls push up through 4277.75 and begin exploring the upper balance zone.

These levels can be seen below:

These lows become weaker with each test. Might see those algo stop run levels come into play soon, see below: