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Raul3

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

Put a Bow on the Week With Market Profile Theory

The market drifted higher overnight, with the NASDAQ printing two methodical rotations higher.  The action was dynamic enough to press price outside of yesterday’s value, but static enough to keep prices within yesterday’s range.  Thus the risk/reward level is elevated today, but not National Homeland Security Red by any means.  It’s more like a code orange.

Talking overnight gaps, we still have a gap open between Wednesday and Thusday on the upside at 3508.25 and we have this morning’s gap down to 3493.25.  These contextual pieces may lend themselves to a bit of chop in the early market hours.

Yesterday was a digestion/balancing day, with the market accepting it’s marked up prices and buyers on the delta.  Buyers on the delta refers to the order flow intraday, where we saw participants willing to take the offer and actively engage the market to enter long positions (or cover shorts).  We printed the very uncommon normal day  in market profile terminology, where the first hour’s price action was very wide and contained the range for the rest of the day.  We have a buying tail on the low end of our profile suggesting buyers perceived the early drop in prices as deep discount and reacted accordingly.

Overall, we printed a P-shaped profile which signals a short squeeze occurred.  Whether that squeeze will provide the tinder to spark another rally will be revealed today by the auction activity.

I have highlighted levels I will be watching to track the progress made by buyers and sellers on the following market profile chart:

NQ_MarketProfile_12202013

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Hard Coded For Success

There were several stocks on my radar, and given the enticing nature of the market I sat on my hands and brooded.  The market simply looks too great.  My book was up a modest 32 basis points.  Given my positioning, I can quite honestly say it could be worse.

One character trait I have found common and I simply despise is people who criticize the success of others.  This type of sloth is what congests the highways, bogs down higher education, plagues the political arena, and otherwise leads to my reclusive nature.  I sit by the fire in my cold study, quietly positioning to flash past my competition like a ghost.

Speculation is the greatest expression of creativity.  However, I prefer to pair my ideas with data.  And I would like to share a recent gem The PPT served up for me.  My creative mind wanted exposure to the travel industry.  My chart brain wanted to buy TRIP.  The PPT, and its trove of data said forget about TRIP immediately and buy OWW instead.  This idea amalgamated on Friday the 13th.  Then this happened:

OWW_TRIP

This type of performance spread pays for years of belonging to The PPT.  I will never enter the battle field without it.  I have 15% cash and it drives me bananas.  I have RVLT, TSLA, F, and GOGO dragging my book down.  I am at my high of the year performance return.  Should I really complain?

Stay hungry.

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Today Is When You Make The Money

Yesterday afternoon, once we had our news of taper, we saw a clear entry of the long-timeframe trader.  It started with an aggressive buyer reaction to prices perceived as deep discount—a long tail printed off the lows.  Next we saw two-timeframe action where the intermediate term was wrangling for control with the long timeframe.  This action can be seen just below our balance zone’s value area low.  Once we reentered the balance zone, long time frame captured control of the market and pressed us through the value area and up to our hinge of supply near the annual highs.

My expectation today is to see back-and-fill balancing taking place between the shelf of historic price action at the highs and the layers of support built below.  I have highlighted these reference points on the following NASDAQ market profile chart:

NQ_MarketProfile_12192013

 

While the market is balancing out, look for individual pockets of momentum to run as people chase performance in this last full week of trade.  Check out the Option Addict blog and comment section where top traders are sharing the names they will be watching for momentum.

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I Missed My Flight

All the weakness early in the day was convincing enough that I reduced my exposure, selling YELP, before watching the market reverse higher and close near the high of the session with a big tail print in its wake.

This was a bullish session.  It traversed our entire range, nearly a month old.  Sellers made one final attempt at a stand around 2:30pm but we ultimately mowed over by a powerful whoosh higher.  Now we must smoke any remaining shorts out from there holes, using our almighty PPT (wins again, big time) like a fish finder.

Remember, this is the last full week of trading on the year, after which things get light, fluffy and thin.  There is still time to get your shopping lists complete but you have to act soon.

Santa Ben has snuck into our homes, using his Decetaper cloaking device, and planted hundreds of Christmas treats around.  Are you going to sniff them out and eat them?

I have 15% cash burning a hole in my pocket and a big GOGO long riddled with angry, trapped elves.  This ought to be an interesting holiday.

Ho ho ho,

Raul

http://youtu.be/IEKue3SrhOo

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Ignore The Fed and Observe The Auction

It is not necessarily that today’s news headlines are any more important than what we saw last month or any other day or week for that matter.  Instead what makes today important from a trading point of view is the aging balance zone which has developed in the intermediate term.

Long term, we have a market in the solid control of buyers.

Intermediate term, we lack control.  Since about November 26th, the market has balanced and chopped with no clear victor in place.  I have illustrated this intermediate term balance today using the NASDAQ composite futures and the developed Gaussian curve spanning several weeks.  See below:

NQ_MarketProfile_12182013_intermediate_term

On the short term, I give sellers the slight edge for liquidating the market on 12/11 and since then only allowing the market to coil.

Yesterday we printed a neutral print, which signals indecision and tends to occur near inflection points.  This is balancing.

Overnight we bounced back from the late afternoon fade and have chopped along.  More balancing/indecision.

Thus I conclude we are in a balancing environment.  Therefore we must be aware of when the market is moving out of balance, and who is asserting control.  As you can see on the above chart, there is a hinge of overhead supply the market needs to negotiate.  The low end of our intermediate-term distribution shows a buyers’ tail. 

Drilling into the daily market profiles, I list the key levels to monitor as we move about today.  I am especially keen on 3452.50 – 3450 below.  If we do not see buyers at this level, the downside could accelerate.

NQ_MarketProfile_12182013

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Trading Like The Donkey

The markets sold off into the bell today after a session of chop and indecision.  This environment, of balance, is allowing momentum stocks to start working.  The high risk stuff, the strong stuff, like #teamsocials, GOGO, #teamsolars, and TSLA went to work—chipping away at the fragmented spirits of Christmas shorts.

My book rocketed higher for a second day, propelling me 1.5 percent on the day.  The hot knife of momentum cuts both ways.  I sold some BALT today.  Not much, a third of my position.  This is my method of swing trading.  When I reach a logical level of support or resistance I pull out my magnifying glass and stalk an exit.  There was a seller up here at prior swing highs.  There almost always is a seller at prior swing highs—in all stocks.  Jumping into a name as it breaks out worked throughout much of the year, but a more astute trader works tirelessly to position ahead of the move-to-breakout.  That way, if you are wrong you can usually scratch the trade.

I sold GRPN too.  I had a quick 5.5% in profits and I took them.  I do not particularly love Groupon, and ½ the deals I buy usually expire because I work too much to enjoy restaurants in a timely manner.  Most importantly, to my eye, buyers are getting a bit ahead of themselves.

And I needed the cash.

These sales took my cash up to 15% as we head into what may be the day to bust us out of balance.  We have lots of news flow on tap tomorrow and a tightly coiled market.  I want cash to either buy new charts should strength emerge or gobble up deals as liquidation sets in.

I had a firm grip on today’s intraday action.  I bought the early dip and sold the afternoon rip.  I felt pretty fancy.  My low blog view count stats affirmed my context was deadeye dick accurate, as they always fall off before I made a big win.

Let’s do it again tomorrow, shall we?

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Clear Expectations for Today

The NASDAQ futures market showed a bit of follow through on the behalf of the sellers, where price took out our Monday morning low.  However, the probe lower, likely algorithmic in nature, was met with a reactive buy force and price swiftly auctioned back into yesterday’s value range.

Conversely, the SPX futures made no new low overnight, instead continuing to coil.  There has been a subtle bit of relative strength exhibited by the SPX verses the NASDAQ composite these last few days including yesterday where we printed a normal dayIn market profile theory, a normal day features a dynamic open, likely driven by a longer timeframe trader entering the marketplace.  The range of the first hour is not breached for the rest of the session.  These are very rare, occurring in the SPX only five times in the last six years.  Oddly enough, we printed a normal day in the SPX on Friday and Monday.

The action suggests coiling and this uncertainty is suitable for our current situation.  We are nearing the close of a very strong year in the markets.  Many are likely closing their books early to lock in the gains, yet we have strong pockets of momentum in select industries.  The Fed, our current market moving exceptional, is experiencing a changing of the guards from Bernanke to Yellen and we have taper talks given the recent progress in the labor markets.

The markets have two choices today.  Either continue to coil ahead of Wednesday’s Fed announcement or move away from here.  I have bracketed both the NASDAQ and the SPX today as guideposts as the day progresses.  Keep these brackets, or support/resistance clusters, in mind today as the day progresses to measure any progress made by the buyers and sellers.

I have also highlighted a few scenarios for the NASDAQ using the 24 hour market profile chart:

ES_MarketProfile_12172013

 

NQ_MarketProfile_12172013

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The Only Way Out Is Up

The buyers rolled out the cavalry early on, buying up the indices, only to retreat after an hour of progress.  I heard (read) several seasoned traders speak of a subtle change in the character of the market these last few days.  I like to go heavy on context work because these subtle cues come from the footprints of the marketplace.

We need to understand what timeframe is in control on a given day.  By establishing what timeframe is in control, we can decide what reference points become important.  The drive higher early on looked like the long term timeframe taking control of the marketplace but we later learned that was not the case.  The rest of the day we faded the early strength, a slow move lower controlled by the day timeframe sellers.  Intermediate term we lack a clear victor and are instead experiencing balancing trade.

In summary: Long term – buyers firmly in place, intermediate term – balanced/two way action, daily control-buyers, and intraday control – sellers.  PPT nailed a swing low for now, which is always fun(d), now it is a matter of building upon it or sellers blasting through it with old school scud missiles.

When we land our hot air balloon in the thick forest and begin investigating individual trees, we can see risk still being engaged in the marketplace.  Alternative energy plays caught a bid.  Solar stocks started seeing some inflow after an orderly, mind you deep, pullback off the recent highs.  These issues will be interesting to track into year-end as to whether they can put in a higher/tradable low here.  I am long FSLR and YGE from higher prices, -9% and -15% respectively.

I thought I was getting cute last week, selling off my “bottom shares” in RVLT.  You know, the ones I bought at the beginning of September for two fifty.  Lo and behold, RVLT rips higher after signing a contract with the Navy for 17,000 LED tube lights.  This is one of those deals that seems big, but in the grand scheme is really small.  That type of installation however, could yield over 200k in profit margin given the company’s current revenue structure.  I think the market excitement comes from the hope that this is only a primer deal with more potential deals in the pipe.  Investors.com also published an LED pumper piece Friday evening which may or may not have contributed to the inflows in LEDs today (h/t @randadtrade).

However, you did not need to know about the pumper piece or the Navy deal to get long RVLT last week.  No friends, you just needed sentimental confidence as was on display by iBC comrade @Eliza_Mae_iBC who spoon fed the trade in what he called the “holy grail” chart setup.  He shared his thoughts after I sold my “bottom shares” like a jacked-ass.  Fortunately, I still was ¾ sized into today move.  Even Raul, faithful to the LED tech, became discouraged.   I bought more CREE this morning to repent for my loss of faith.  Side note-yes, Twitter is useless.  You should believe what these analysts tell you.  You would not want to encounter likeminded people who engage in real-time, money making conversations, I know.

I still like my OWW shares, as they do absolutely nothing but go sideways.

That’s all that was done.  I was up 1.75% today.  With a little bit of market cooperation, I just may hit my annual target.

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Large Range Indecision Overnight

Note:  All price levels mentioned going forward will be in reference to the March contract. 

If you were just waking up to the market, you may be unaware of the wild ride index futures took overnight.  The S&P printed over a 20 point range in the overnight session after reversing early weakness.  The Nasdaq traded over 40 points in range.  In short, last night featured violent indecision of the overnight/low volume variety.

As of 8am, the S&P is set to open above Friday’s range which tells us we are in a high risk/reward environment.  The NASDAQ is not quite above Friday’s range, but is outside of Friday’s value which gives us a similar context to frame our day.

Early on it will be interesting to see if sellers can reject the overnight progress and press back into Friday’s value.  Turning our attention to the NASDAQ, we are opening in the slippery single prints from early Friday where sellers aggressively auctioned lower.  We may see a similar push from sellers early on and should monitor trade at 3461.50 which marks the value area high on Friday’s session.  Below there we have a VPOC at 3458 and a value area low at 3452.25.  Short sellers will be on the lookout for a rejection of this range as it may signal a bullish reversal is materializing.

I have noted these levels, as well as key resistance points and a few possible scenarios on the following market profile charts:

 

NQ_MarketProfile_12162013

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Where Is Santa?

The selling continues this afternoon, with sellers continuing their blitzkrieg campaign with a 2pm algorithmic shock wave.  A block trade like the one we just experienced at 2pm is a way of starting a siphon—the algo sucks on the tube with the intent of motivating atmospheric pressure to move liquid(ity).  Once it starts the flow, a force of equal or greater value must arrive to stop the force.

There’s nothing wrong with sell algos, they just receive more criticism then buy algos.  They are both attempting the same feat.

Keep the context of our market in mind.  It is mid-December, we have had a huge run, correlations are low, the long term trend is higher, risky assets continue seeing cash inflow, and sellers just controlled their first week since mid-summer.

With that in mind, and despite my extensive coverage of the indices, I think it is important to keep your focus on individual setups and how they are behaving.

My book is going out 95% long after purchasing OWW today at the top tick.  I have other names of interest, including LEDS basing just below one dollar.

My AMZN YOLO lottery ticket was a loser.  I risked the entire premium because it was a lottery ticket.  It had a moment of hope early on, but could not breach recent overhead supply.  The trade needed more time than one day.  I realized this soon after taking the trade, and was discussing how TSLA would have been a more prudent YOLO…if there is such a thing.

I never grabbed ENPH yesterday.  Instead I just watched it and commented on it.  Now I cannot buy it and it can likely go much higher.  I simply lack to conviction to assume nearly 20% more risk.

My book of stocks spun donuts in the mud this week even though I have winners among my ranks.  Here’s the book, largest-to-smallest:

BALT, OWW, FSLR, GRPN, TSLA, YELP, RVLT, YGE, Z, LO, WBMD, GOGO, CREE, F, and my bane MJNA.

Final word of on the market – this looks like discouragement phase, where the market makes an earnest attempt to steal away your favorite shares.  Review your risk plans, make adjustments where necessary, and stick to them.  Do not assume gains are guaranteed.

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