Busting Loose

Here we are, at the end of a short month and what a ride it has been these last few days of business.  Things certainly have busted loose in the indices, where we’re seeing the largest ranges of the year.  This type of volatility makes for a higher risk/reward environment.  With that in mind, it’s important we have levels in mind as guideposts to the overall context and stance of market participants.

Clearly the most important level to keep in mind today is 1516.  This price level is the confluence of the selloffs VPOC, yesterday’s rally VPOC, and where we closed out the session.  Both forces have made themselves known near this range, and who wins out the battle going forward gives us insight into who is best dictating the direction of this tape, the buyers or the sellers.

I have a close target to the upside at 1522 because I’m giving sellers the benefit of the doubt since they’ve managed to string together a lower high, lower low.  If you can hammer lower high lower low and vice versa into your mind, you’re a long way to understanding momentum trading.  Back to the tape, sellers managed to accomplish this, but should buyers disrupt the pattern today by capturing 1522 it could put us back into a sideways chop.  Chop isn’t ideal, but it allows individual longs to work.

This morning I’m looking for sellers to try and reassert themselves.  I’ll be on the lookout for reactive buyers at 1515 (globex low) then 1511.  Should they not show up, I expect sellers to hammer us back down to 1504.  I’m looking for range compression.  They key is where the compressed range builds value.

Ladies and gentlemen I’ve done it again.  The session is wrapped up, the best day of the year for the Dow-as a matter of fact-and looking at my portfolio’s gains you would think I was levered long.  I gained 2.4% today even though I started the day with 50% cash.  Bananas, I know.  I had a couple monsters in my port though.  They did horrible things to the shorts today.

I was in a rather gregarious mood from the moment I woke up today, mostly stemming from the fact that I recaptured my raw tick data on the S&P March future contract.  When it was taken from me last night, it felt like the time my Spanish teacher took my magical deck of cards away.

He caught me shuffling one handed while we watched Salina and snatched the cards cold out of my hand.  I met him after class and kindly asked for the cards back since they were a gift from my parents.  I explained how they traveled to the mystical lands of Las Vegas for the cards, and how it was quite the journey.  I did not get my cards back, but was instead shown the trash bin, where he proudly displayed his work: he had cut each and every card in half.  I learned that day to never trust a Spaniard.

Anyway, with my data in tote and a fresh coat of snow on the ground, I smooth cruised (No Triumph) into the office.  As the day progressed, I started hearing the pump whispers.  It was time to throw out a few #trampstamps:

Here's 1500, first big test coming @ you 15 minutes in. Place YER bets

— Raul (@IndexModel) February 27, 2013

Man the dip turrets, man the dip turrets, prepare to engage

— Raul (@IndexModel) February 27, 2013

#pump #pomp #pomo

— Raul (@IndexModel) February 27, 2013

I was in a gregarious mood then, it carried throughout the session and before I knew it my 50% cash became 30% and I had many more shares of CMG, ZNGA, ANGI, and CREE.  Hell I bought some KORS too, hoping to get elizamae back hooked on that crack.  Now I have a bit of a shameover © because a few of the names lost crucial ground at the bells.  But like a proper bad influence I have BIG Ben handing me a fresh cup of kool-aid, telling me, “ga’head, speculate on the GOOD stuff.”

The morning has been all buyers, contrary to my original thesis.  The dip buyers are out and about, dressed like knights and swinging their rubber swords like drunken barbarians from northern Europe.  I have a couple of big wins occurring today, and thus I must pen a bullish post to stop this reflexive jerk higher in its tracks.

The rally has found sellers at the second important level I highlighted this morning.  A thin void in volume was left behind during the big selloff and thus far we’ve seen a rejection of the level by sellers.  The main question we need to be asking ourselves is what type of momentum environment are we in?  Buy the dip has been the script since the year started, but now we may be on the other side of the mountain. 

The main thing I’m on the lookout for today and the remainder of this week is range compression.  If we see the market stalling out and balancing into a tight range, we may be experiencing only a counter trend reflex rally.  Given the overall context of our market this year, and where we are in the trend, this is a less likely scenario, but it’s worth giving consideration. 

Yesterday and today (already) have featured wide range, snap-back, action.  If we see a tight day before the weekend, I think that’s your cue to take any hard earned profits on the long side and consider trimming exposure, adding some hedges, or shorting broken charts.

In the meantime, keep ZNGA, ANGI, TPX, KORS, and CMG on your radar.  I’m long all of them, and they all look ready to pump.  VHC is also wanting a pump.  I don’t have Z yet but stalking.

Note: as of this post, I’m 50% cash and up 2% on the day.  Call it crack rock portfolio.

Stay nimble, be water.

I was thrilled to recapture the necessary data yesterday evening to get a proper readout from the selloff.  The first data point the jumps off the screen is the confluence of interesting data points surrounding the 1500 century mark.  It is likely investors and traders keep this level in their mind regardless of their method of observing the market, but given the context of market profile we can verify significant activity occurring at this price.

It just so happens the value area low from the selloff (although a trend day in many ways lacks a value area) aligns with the VAL and VPOC from 02/21.  The market worked its way back up to the level yesterday, but did not make it all the way for a proper test.

Yesterday featured reactive at the open when the market gapped higher overnight.  The sellers were quick to react to the gap, and pressed their orders in, effectively filling the gap and even taking out the lows from 02/25.  Then we say an aggressive reaction from the buyers which left behind a buying tail.  Should that tail be violated it would suggest buyers have lost their conviction.

The profile yesterday also tells us the bulls struggled to maintain control after the initial reaction.  The progress made on the bounce was ample, but they didn’t rage higher.  There’s certainly overhead supply to consider now.

Today I’m looking for selling early on again, I’ll be monitoring for buyers to step back in and balance price out around 1486 and then attempt a test of the 1500 level.  Should they push through, they will have to work over a value mountain spanning from 1502-1504 which could slow price.  After that, things get slippery meaning we could either see a swift rejection lower or a pump right through.

Note this scenario is only a hypothesis.  Should the day play out differently, that will provide me contextual clues to trade my stocks around.

This afternoon word came down that Governor Christie signed the online poker bill into law, effectively bringing the game and its betting back to the internet.  It’s long been speculated that Zynga would benefit immensely from the resurgence of online poker playing due to their existing community and platform.  Forget all that Farmville macaroni.  This is what the company is all about.

Leading into the event, players have been bidding the share price of ZNGA higher all year.  RaginCajun and I have banked a great sum of coin in the name already.  However, our coin pumping in ZNGA may have only been a first act.  If this stock gets moving, it has lots of open air above.

The issue with important news events that affect a company is whether or not the decision has been baked into the share price.  Often this is the case, and even when the outcome is favorable to what participants expect, the shares sell off.  Therefore it’s important to define your risk, regardless of the positive news flow.

I like ZNGA down to three, but that does not mean I have a hard stop in place at $2.99.  Instead I hone my attention into the stock as we near that price, look at how price behaves, and act accordingly.  I added shares this afternoon on the initial announcement, but I’m fully aware of my risk.  You have to ante up to see the flop, and I’m working with a big stack on this name.

Even with a realtor, I still love the information I can access on the go using the Zillow app.  Their strong mobile platform and disruption of the real estate industry has kept my attention on the company since the IPO.  After trading to an all-time high last week, the stock has seen aggressive selling.

Should we see buyers step in and buy this dip, I really like how Zillow is setting up on the daily chart.  I’ve played along partially with this name, riding the January rip and earning some nice coin along the way.  However, it pumped one day and I ran out of bullets, taking my final scale.

Since then, I have kept the name on my radar, hoping to see a buyable dip form.  Thus far, the dip we are seeing in price is violent.  However, gap fills of this variety tend to behave violently.  Looking back at how price behaved around $38, we can see it was a tough resistance.  I’m looking for that level to morph into support.  Should price stabilize and turn higher, it will threaten to break the steep trend lower.  The steeper the trend, the more violent the break:

My home computer aka JET FUEL ONLY was so aghast by yesterday’s session that it could only stomach charting half the session.  And even though I calm it with restarts and data massages it refuses to provide me a full readout of the auction from yesterday.

The session yesterday was the widest range since 10/18/2011 and it was all selling after gapping higher on the open.  Headline risk drove the markets, which used the Italian elections as an excuse to selloff.  The stability of the Italian state came into question.  I can tell you as someone who has spent extensive time in Italy, they LOVE politics.  They love food, fast cars, and beautiful people.  And that’s it.  All of this gives them a dramatic flair.  They’re taking the election confusion in stride, it gives them something to live for.  The market has wanted to gut momentum traders for weeks.  This was as good a reason as any.

As for the rest of the week and how we should trade it, the key is taking it one day at a time.  There is a major low volume void at 1481.50.  If we begin rotating lower today, we could see this level behaving like a magnate.  Sometimes the market sharply rejects these low volume voids.  This is also where we put in the globex lows (which were yesterday late-afternoon). Below I show support at 1471.50.

Upside, let’s see how the market behaves from 1500-1504.  That can give us an excellent feel of sentiment. 

Here’s my chart output from yesterday:

We have certainly seen an uptick in volatility, yes?  I can say with the certainty of someone who “enjoyed” a 3% gyration in speculative funds that volatility has indeed picked up.  All of this movement occurred in my portfolio even though I started the day with around a 30% cash position.  It makes sense however.  I own some of the hottest potatoes out there.  Here’s an ode to my hot potatoes, may they be passed to another participant before exploding molten hot potato goo on my person.

First Solar, you were a good chart, perked up and dipped down, ready for a pump.  It’s a shame I top ticked you today, making my position full sized.  Thirty three seems as good a place as any to stage a rally from.  I’ll revisit you, I’m sure.

Cree, you are awesome.  Your lights are so bright!  And with such low energy consumption!  I don’t care what the others say about your death march higher.  They’re just jealous.  Go on with your bad self.  I wait with bated breath to see you trade around forty.  I bet I’ll buy more there.  I’m holding this one through the storm.

Zynga, you’re that person I never trusted, and you come through in a pinch.  I look forward to the days when my children hack into my bank accounts and use said pirated funds to gamble on your platforms.

Angie’s List, we all know your milkshake brings all the boys to the yard.  Do what you have to, as long as it’s not filling your entire earnings gap.

Chipolte, I’ll never trust you.  Not in a world with Cool Ranch tacos.  I’m watching you.

Temper Pedic, you have had the same product your entire life.  Your new product has a new name, same feel.  Market it well.

I’ve held other names, and continue to hold a few more.  They’re not crack rock like the above though.  I’m not going to downplay what we’re seeing here.  I don’t mean to be overly cheeky at this juncture.  I got slammed so hard this time last year I cringe when I see March.  I’ve raised my cash up to 50% by blowing out my GS, FSLR, TSLA, and scaling some ZNGA profits.  Let’s see what tomorrow brings us.

The newest trend sweeping across my blog is the bullish morning post followed by a swift and smooth distribution in stocks.  I step up and buy something in size, like FSLR, wholeheartedly embracing where we are in this rally, and I get wet noodle slapped by the determined sellers.

There is never a reason to fight the market.  There is NEVER, a reason, to fight the market.  Just go with the flow, Joe.

Well you would think my portfolio was getting shredded to bits, given this 20+ handle move lower, but I seem to exist in some kind of microcosm.  I have a few winners buoying me into a nice green day.  Zynga of course helped immensely, I rang the bell and cashed in on some of that.  But I also have TPX aka the memory foam bed.  SIDE NOTE: these are nice beds.  RETURNING TO BANKING COIN: TPX is putting in a solid day, it needed to today or I was cutting the full size position out of my portfolio.  But here it is, going “onward Christian soldier” while the rest of the market dies a pagan death.  That’s quite curious because you get to wondering what this stock could do if a turnaround Tuesday develops.  I may make this a plus-sized model position by feeding it my DNKN cash from last week’s sale.

 I’m not being stopped out of anything yet, the day is still young.  But my least favorite position is Goldman slacks.  I already banked sic [sic] coin in this name.  I should just move along and plow it all into BX.

Sellers have done well.  They haven’t done great until the close us on the lows.  Otherwise, buy the dip mentality steps in.

UPDATE: Sold GS a few ticks > $150 – still feel like a boss.

If we are going to stage a low volume lift to new highs this week, you want to be in the names that stand to benefit from such a move.  You want to be in the charts with the best risk profiles and potential upside. 

With that in mind I sold TSLA when it was met by sellers this morning.  I didn’t want to over stay my welcome at casa de Musk.  I booked the gain and refocused the funds into a higher probability setup.  Today, that setup is FSLR.  Solar has been hot this year, but last week offered us discount pricing on the premium we’ve been dealing with in solar.  I bought First Solar in size.

ANGI and CREE are getting sold today and I couldn’t be more excited about this.  I need more of both.  I have a legacy ANGI position from before earnings, and I dipped my beak back into CREE Friday after selling my initial beak dip for a 12% gain.  I’m ready to buy these names on the cheap, stay tuned.

I locked in some of this massive ZNGA win again too. Still holding about a 3/5 sized position.

Find your location and position for the pump.  If we dive instead, you should have your risk defined.  Take your loss like a pro and move on.