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Raul3

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

A Thorough Application of Auction Theory Live

Nearly every day you can find a trader on twitter expressing their belief that markets are manipulated.  This type of dialogue is a major risk to your emotional dialogue.  Instead of claiming corruption, focus on exactly what is happening in the marketplace through the lenses of auction theory.

We go heavy on context here on the Raul blog every morning and this work pays huge dividends.  It is always a pleasure to share my thoughts and have them read, but rest assured I do this for my own selfish benefit.

Yesterday the market extended upon our Tuesday rally by printing a moderate gap higher and sustaining the gap throughout the entire session.  We had range extension on the day which tells us new initiating buy flow came into the market during the day.  However, the midday buy flow was not dynamic enough to press us higher and into a second distribution.  Instead a two-timeframe trade ensued with locals and other time frame participants conducting trade amongst one another.  The final daily print resembles a letter-P suggesting a short squeeze.

This action makes even more sense when you observe the course prices have taken since starting the year.  We printed a lower high on 01/09 and a lower low on 01/13.  This type of action will do two things—it causes longs to capitulate and sell and it causes new shorts to initiate positions.  Sellers may have gotten a bit ahead of themselves.  Net inventory may have become too short while we were still inside of an intermediate term balance.  When the snapback rally erupted, a reentry by the long term controller (buyers), it happened fast and left shorts and underexposed longs in a pinch (RIP @tlMontana, this was one of her specialties).  Thus the market algorithms drove price above the 01/09 lower high because that is where the buy stop orders were.

See?  No manipulation at all.  The best part is, the market can still put more pain onto the shorts.  We have a secondary upside algorithmic target based on the year-end swing highs.  The market may want to eventually press into this.

Taking to the NASDAQ futures, I have highlighted the upside target I mention above in yellow and green.  We are trading just above our intermediate term balance.  Just like orbital gravity, it becomes less powerful the further we get from it.  The slingshot move made this week would be like swinging around the earth several times then flinging a ship into outer space.  That is something to keep in mind.  However, the mean revision force is still in place, and we may see price retrace a bit.  If we are breaking out of balance sooner then later, my expectation is for price to fail to fill yesterday’s gap up.  Talking exact prices, my expectation is for our naked VPOC at 3583.50 to hold.  Should this occur, I will be pressing longs hard.

Secondary support exists at 3574.00 and we could still work out of this intermediate term balance while holding this level.  I have highlighted these price points, as well as some max pain algorithmic upside targets, and a few other levels that intrigue me on the following volume profile chart:

NQ_VolumeProfile_01162014

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Mid-Month Checkup

Stocks went bananas today, and our latest big shot short seller has been made to either run for his life or dig his heels in.  Nothing says welcome to the New Year like having your lolli snatched from your pudgy hand, yes my friend?  I profiled a massive seller Monday morning.  The market sat, literally for hours, while the bid in NASDAQ futures was PUMMELED with aggressive sell orders.  The market gave way and promptly sliced to the bottom of intermediate term balance.  I screwed up a bit, selling calls in TSLA that would have launched me into the stratosphere.  Instead, I only rode 90% of my book long for a much more modest ascent.

I sold some positions down today.  I scaled exposure down in CREE, TSLA, and YGE.  I closed C outright ahead of earnings which I later regretted but perhaps tomorrow will exude as genius timing, right?  Honestly, I think they rip post earnings and I wish I had a runner still.  I sold OWW finally too.  This was a December seasonality statistic trade that morphed into a swing trade before finally morphing into a waste of time.  I scratched it as I have no patience for stocks exuding insolence to a broad market on the move.  That is, unless they are sitting out a broad correction.

Today the strength in LITB caused it to swell to my largest portfolio holding.  LITB has taken the proper gaunt stance to propel itself deep into the anus of short sellers.  Something like this:

gaunt

Later in the day, I scaled 1/3 of my MLNX long and parlayed it into MCP.  These are trades RaginCajun and I are navigating with our distinct SHANK and BANK strategy.  Here we are celebrating:

shake-and-bake

Lastly, I opened up some February $60 calls in FSLR.  TAN worries me, the solar ETF, but aside from that little detail, I love this FSLR chart.  Plus, if I win I get to talk smack about the old men at Goldman Satchel purse.  Making money comes first, but roasting Old Wall comes in at a close second.  I know, armature.  I don’t care.   Most of you guys are way too serious.

I have 6% cash, the market is fueled by degenerate stocks, and I am up 6% YTD.  I should just close my book and call it a year, but instead I will press on, hopefully amusing my readers in the process.

I have a bunch of selfies of myself doing birkram yoga in LULUs that I will slowly release as my LULU trade starts to work.

TOPS INTO THE WEEKEND: LITB, MLNX, and Z

BOTTOMS INTO THE WEEKEND: LULU, RVLT, and ANGI

Want list: FB, AMBA, and GS

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Assessing Overnight Inventory and Early Expectations

Inventory was pressed long overnight, with prices in both the S&P and NASDAQ futures continuing higher.  The bullish action started early this morning at about the time European markets opened.  The move was dynamic enough to press us into short term overbought conditions.

My early expectation is to see sellers entering the marketplace who are gunning for an overnight gap fill.  Focusing our attention to the NASDAQ via the /NQ_F contract, I will be watching for selling down to 3574 which is the VPOC and closing print from yesterday.  Sellers will have to contend with a naked VPOC at 3583.50 which dates back to 12/31/13 on their way to filling the gap.

Should they succeed in filling the gap, they will focus on secondary targets down to 3566.50 then 3562.50.

This does not mean I am recommending shorting.  It is instead my expectation for early trade.  If we see a strong gap-and-go drive by the buyers it will be clear the long term timeframe is still asserting itself and we should look for dips to add exposure into.

Given the wide ranges of the past two days however, I am looking for a more balanced, two-way tape.

Upside targets are 3587.50, 3592.25, & 3595.75.

I have highlighted these levels on the following volume profile chart:

NQ_VolumeProfile_01152014

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The Long Timeframe is Back

Over the past two days I have had the pleasure to observe, in real time, incredible auction activity. And for the most part I got it right.

After pressing deep into the edge of intermediate term value, the long term timeframe entered the market and asserted itself, thrusting the marketplace back into the middle of balance.  Their actions were not discreet.  First was the reactive buying tail printed into the close yesterday.  Then today the market could not fill the overnight gap, and after an hour of trade the long timeframe demonstrated initiating trades via range extension above the first hour of trade.

The NASDAQ started the day stronger then counterpart S&P.  Watching the S&P is what caused my second folly on the day.  I covered the shares in X I bought at the bottom of that big red candle.  My primary vision was for balanced, two way trade in the market and considered the early prices an opportunity to scratch the position.

We went to the edge of intermediate term balance yesterday afternoon and found buyers.  Said buyers were reactive initially then they became emboldened and initiated additional risk into the lower tail of balance.  The dynamic move erupted into a feeding frenzy of sorts.  Elon took to the helm of his rocket ship and made high decree that words as we know them are broken.  He made other audacious claims, like inventing the question mark.  As an investor, you have to love this guy.  He times these PR bombs technically perfect to trap and pummel shorts.  Pity I capitulated on most of my exposure Friday.

One cannot mull about their losses.  I opted instead to allow the rest of my very long book to press on and I went for a swim.  I returned to end the day up a tad over 2.5% on the day.  I have one of my algorithms back to full functionality, I have built B.F.S. volume profile charts, and I have momentum to build upon.

Favorite positions into Friday: MLNX, TSLA, LITB, and Z.

Still huge in: CREE, RVLT, BALT, and OWW (I know, a motley crew of sorts)

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Never Waste a Good Tragedy

Yesterday was my worst one day loss since I began trading.  To be blunt, it sucked.  I have broken my diversification rules and exposed myself excessively to the LED industry.  I haven’t adjusted this yet, because I have the conviction of a lunatic.

After spoiling myself with iron work after the bell, I had tones of energy.  Pair that with the massive flesh wound the market opened up and I had the motivation to recode and recalibrate Elroi on the NASDAQ using my new delicious and powerful data.  I have built a beast algo and guess what?  Elroi thrives in volatility and “gets by” profitably the rest of the time.  Aka, he’s built to earn coin while longs get roasted and does so nearly 24 hours/day.

Why am I telling you all this?  Do I intend to sell said algo to you, the internet?  Goodness no.  I built a machine that I put $2000 into and it pays my mortgage.  Exercise induced insomnia and a financial tragedy were the spark that rebuilt Elroi better than ever.  Stat heads, behold the glory:

ElRoi_TTA

ElRoi_SPS

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A Big Dose of Sentiment To Level The Mind

Yesterday we printed an interesting session in the NASDAQ futures.  We took out Friday’s high and inside the Pelican Room I was commenting on how I had never seen sellers push as hard on the bid as they were.  It was odd however, because they were making little-to-no-progress.  A huge amount of aggressive selling was absorbed up at the highs before we finally gave way and liquidated down.

All of that volume was so heavy near at the high that value never was able to shift lower and catch up with price.  This is a huge piece of context today, where we can observe whether value migrates down or price reverts back to value.  A huge gap between the two exists.

If you pull up a daily chart you can see the long term auction is still firmly in control by the buyers.  There continues to be higher lows and higher highs.  Intermediate term, we are positioned on the cusp of balance, the extreme and thin tail where we hunt for reactive forces to press us back to the middle of balance.  This price zone presents the greatest amount of reward for the trader, also the greatest amount of risk.

We saw a buying tail print near the end of the day and if we are staying in intermediate term balance then it will hold.  The force buyers exerted into the bell carried into the overnight session where price was first pinned sideways for many hours following the US markets closing before buy flow pressed prices a bit higher.

We have a potential gap trade down early on if sellers can push down to 3509.25.  Caution on the short side if the open exhibits strong driving action upward.  Likewise, caution on long exposure or new buys on a drive lower.  If we see two way auction early on, we will have a better opportunity to slowly assess control on the day.

I have highlighted a few key levels on the following NASDAQ volume profile chart:

NQ_VolumeProfile_01142014

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Select Gains, Edit->Undo

My book was absolutely pummeled today, and I have done nothing to curb the bleeding.  As we ring the bell on a bloody Monday session I am down a jaw dropping 5 percent, effectively returning me to 2013.  I suppose I should be grateful for my superfluous year-starting earnings, for they have kept me from going red on the year.

Leading the push lower is CREE.  My position was demolished by an analyst who got “worried” about where CREE was trading.  This coward and his worrying have cost me a year’s worth of counseling.

We are holding my bottom most line of support for the intermediate term balance case.  However I am not a buyer today.  This is a long liquidation trend day meaning I should be able to purchase at the same or lower prices tomorrow morning.  Therefore I wait.

Before I knew it was a long liquidation trend day I bought February calls in LULU.  My weekend research had me wanting to buy the stock and I work to it down 15 percent and I simply could not resist the new bargain.

Everything else is in place, should we see aggressive selling again tomorrow, well into the afternoon, I may capitulate.  Otherwise, I am carefully hunting additional long exposure into this weakness.

I am off to lift heavy iron like a rhinoceros.

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A Fresh Look at Market Auctions

The behavior of the equity markets last week cleared up any uncertainty as to whether or not everyone was back to doing business.  Volume increased in most instruments and move have increased in size and speed.   Both the NASDAQ and the S&P have been chopping around which creates opportunistic conditions for day traders.  These benign conditions have allowed individual pockets of momentum to make large runs too.

I spent the weekend building out a few new charts since Mirus futures and Ninja trader will not be working properly any time soon.  The first chart is 30 minute candles of the S&P 500 via the /ES contract.  I am using the 30 minute bars to simulate the TPOs of market profile.  I am doing so with high quality tick data which produces a very accurate volume profile.  In this chart we can clearly see the intermediate term balance occurring since 12/20.  I have highlighted the low volume nodes of this chart, as I feel they present strong opportunities for traders to position their books and also observe sentiment:

ES_VolumeProfile_01132014_to_12202013

Next I have made RTH volume profiles for the NASDAQ via the /NQ contract.  These will assist me in observing the day session and who is asserting control of the tape.  We can see price consolidating recently.  The past four sessions have been “P, P, b, b” in structure.  In other words, two short squeezes then two long liquidations, but neither time did the consolidation break.  This is big players wrestling for control. 

At the apex of this action is 3551.75.  This price level has been the scene of many struggles between buyers and sellers and I will be using it as a pivot of sorts today.  I have highlighted this level and my upside and downside targets on the following volume profile chart:

NQ_VolumeProfile_01132014

 

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Weekly Roundup

My time is limited, finest people of the interwebs, but I am happy to report on the successes of the week as well as the failures.  They started shaking my very long tree yesterday and “they” managed to rattle a few of my coconuts loose…I covered most of my TSLA long and reduced it back down to core size.  I could not stomach the massive size I had built in the name and the potential risk down to $130 without the trade even breaking.  Now that I am back to my core size, I could stomach such a move whilst being team Elon and talking smack on twitter.

I milked most of this huge move in YELP this week, bailing only yesterday when I got an itch to over manage my winners.  I could see YELP quickly squeezing into $100 roll regions given the strong weekly close, however onward and upward, there are more deals to be had.

Finally, I found a spot to sink my teeth into RVLT.  I cannot say I love the management team at RVLT, but I do love how they have positioned themselves in this space.  The chart has come into the old Raul honey hole, and I have made it a point to get large.  Very large, in fact it is my second largest position.  I consider this a victory that RVLT was unable to get moving before I could properly size into it.

I bought X yesterday, in the pits of despair.  I like the way it came off of support today and I want to see if it can build upon this strength into next week.

If you read me on the twitters, where I tend to be much more colorful, you would be hard up to find someone more clearly calling for strength into the bell.  You will always find the after the fact folks groaning about afternoon ramps, but none of them toss their proverbial unit on the table.  My robots liked the action, I liked the sentiment, and I made an educated guess with confidence.  This is how successful traders think.   This was my largest victory on the day.

To sum things up: this was a great week for Raul on the iBankCoin.  I really am just happy to be here banking coin with my people.

Top five holdings into the weekend:

CREE, RVLT, LITB, MLNX, and BALT

May the market be blessed with a fresh batch of bearish bets to squeeze, be well.

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RAUL BUY: $RVLT

I bought much more RVLT today, making it my second largest position behind CREE.  Let the LED Empire commence its march to glory.

 

IF you buy RVLT because of this post you may lose your pesos like Raul

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