Looks Like a Long Liquidation in the Euro

Just as technicians define recurring chart patterns on their price charts, so too profilers attempt to gain insight by spotting a picture. However, they’re not as clever it seems, opting to name the following setup to define exactly what they interpret the activity to mean. Behold, the long liquidation:

A long liquidation resembles a lowercase “b”. Where the setup occurs in the context of prior profiles gives additional meaning. Observing the current market on a pulled back chart we see the Euro has been trending higher since working through a long consolidation of annual lows July-August. We put in a higher low on 08/27 but are yet to make new highs which would add significant conviction to the long trade:

The idea behind the long liquidation is the same as a short squeeze; they’re a short term phenomena/reaction. The long liquidation can happen when the market gets “too long” and needs to rebalance the inventory. Once complete, one could expect price to continue in the direction of the trend.

A little bullying if you will, but without the beef to back it up. Get’em bulls. You could play a break of the bracket high and set your stop below the volume point of control on the long liquidation profile.

UPDATE: The move did indeed go higher. However, placing a stop below the VPOC of the LL profile would have resulted in a stop out prior to the move:

Last night I suggested bulls stepping up and defending 1.2475 as constructive price action. Well the price area indeed turned off the selling spigot and ushered in a rally back up to recent swing highs:

If buyers are able to build value near these highs, the constructive price behavior suggests we could see the swing high taken out. As much as I would like tomorrow (today) to be Friday, we can carefully watch where the next value is established and if positioning into this week’s news events is supported by the volume footprint being established:

Overhead resistance bulls need to clear: 1.2572 and things could really get moving above of 1.2585.

This evening the Euro dollar is exploring last Tuesday’s large distribution. The price range was left in the dust as accumulation pushed price higher. By the end of the week the buying pressure receded and gave way to sellers. Since Thursday afternoon we have seen sellers controlling this tape. They were able to push price near the initial breakout and then put in a lower high.

Now this evening the selling pressure has ratcheted up and the breakout has been negated. If buyer don’t show up soon they may lose much of their hard fought gains.

1.2475 would be a healthy level for bulls to defend, however this evening the bears have smashed into that level with a head of steam. 1.2460 would be the next target (08/21 value are low) and ultimately the interesting confluence of price and volume at 1.2425.

It looks like selling pressure if you look at the delta starting after lunch on Friday:

Market profile is an enjoyable way of assessing price and volume activity on a futures contract. When interpreting market profile, it’s interesting to look at the shape of the profiles.

Looking at a bar chart of the EUR/USD will show you price has come a long way in a short period of time. Viewing the action through the lens of market profile I see a bit more.

Pull your eyes in a bit closer on the most recent profile activity:

1.26 was a significant price level for many reasons. It’s a big round number, it was a “high volume node” on the volume composite of the prior range, and price slowed in the area in the past. After coming within seven ticks of touching the price level, we see sellers entering the market, and responding to the higher prices and resistance with selling. To put it blunt, buyers were slapped the fuck down, back into their prior range, or value area.

What we now want to see, should we be speculating on further downside, is our volume delta (see last night’s post) show a steady red, indicating sellers hitting the bid. This pressure should also show sellers dictating price (driving price lower).

Should we see the selling be absorbed by the market while a more time-based correction occurs, it could signal patient buyers in the market confidently absorbing the sell flow.

Starting around noon of yesterday’s session, we can see the sell flow entering the market.

Up unto this point however, price has been relatively stable. The bears appear to have slightly gained the initiative and now need to dictate more direction into the tape or else get run over again by the breakout market.

The pullback occurring on the major indices over the last three sessions occurred in a very smooth manner. Compare it to the pullbacks occurring during the early summer months leading up to our most recent advance. The character of this pullback is defined by steady rotations, overlapping price bars, shorter “candle wicks”, and tighter daily ranges.

Tomorrow and Monday will be critical to the pullback we are experiencing with Monday having a higher possibility of producing a gap. If we continue to see this type of less violent price consolidation, it could stage for a healthy leg higher. “The Fly” is cautioning us about a September surprise, and investor sentiment is cautious at the least.

Should we see price stabilize and attempt another leg higher, I will put more cash to work. At today’s close I bought back my Expedia position. I think the EXPE chart exemplifies the price action I want to see prior to a thrust higher. Should the market rise it could be entirely reasonable for EXPE to do likewise.

Stupid trade of the day: buying the highs in WFM. I may close this position out tomorrow should this bearish momentum continue.

http://www.youtube.com/watch?v=Ealy0P7bicQ&feature=fvst

One of the interesting characteristics tracked in futures contracts is volume breakdown.  Very quickly it’s calculated as follows:

Delta = Buy Volume – Sell Volume
Buy Volume (Ask Volume) = volume that traded at or above the ask price.
Sell Volume (Bid Volume) = volume that traded at or below the bid price.

The above volume analysis can be applied to any timeframe or range to get a feel for the type of trading activity occurring.  Buy delta (buying the offer) can be interpreted as more aggressive, accumulative type buying. It could also be shorts getting squeezed and hitting the big red “panic” sell button.  I believe the former (accumulation) has been occurring in the $6e (EUR/USD).

Tracking along the bottom of the following chart is a moving average dating back to 8/15, when the contract was trading near the midrange its recent consolidation after making new annual lows in July:

Ignore the rest of the hubris on this zoomed back chart and focus on the bottom line. It’s a nine period moving average of the volume breakdown. It appears smooth calm-handed accumulation has occurred throughout the entire breakout, with most red delta only resulting in mild price consolidations. This aggressive buying continued throughout today’s (yesterday’s?) day session.

The move has already covered much ground but unless we see sellers aggressively entering the tape, I see more upside in the currency. Another puzzle piece to the risk appetite of the market.

A down day atop a strong rally tends to garner much emotion from both sides of the tape.  Bulls that have not yet scaled any profits start getting squirmy and trapped bears breathe a sigh of relief.  Both parties may begin considering buying volatility ETFs like UVXY and VXX.  If your thought process has deduced you to this decision, I suggest you wire me said funds.  It’s worth the $25.00 fee, and I’ll just dig a hole in my garden and delicately lay your funds to rest.  I charge a small labor and carry fee of only 15 basis points, however this fee can be waived if a genuine thank you is given.

Hell Keith “Sweat” McCullough isn’t even blowing his ‘tard horn today.

PROTECT YOUR NECK, SURE, but adorn VXX tits with extreme caution and acceptance of your likely fate.

As we work into Monday afternoon’s trading session we have a market firmly in favor of the bulls.  Beneath the surface of a rather benign tape we have productive action in banking, miners, and Apple.  Even hated Facebook has made an interesting intra-day reversal and is firmly in green territory.  Not the entire energy space, but refiners participating in the upside as well.

TLT notching higher has been a discussion point today, but considering the violent move lower last week it could be interpreted as a relief as opposed to genuine support.  On the weekly chart, a green close in TLT would signal an opportunity for me to buy for a swing.  It will be interesting to see how TLT plays out this week as it now has overhead resistance to work though should it work higher.

US Dollar also looks poise on the weekly chart for a bounce.  It also faces recent supply and resistance should it trod higher.

YELP is murdering longs.  Being in a six percent loser on a benign day where other sectors are rocking can be damaging to ones psyche.  I implore you to have a solid plan in place should you choose to play this name and others like it.

Overall it appears money is rotating into miners and banks.  I initiated a position in Gold man Slacks, aka your congressman’s bank, to partake in a potential financial equity inflow.  It helped my man Ragin’ Cajun highlighted the name over the weekend.  I also bought SNY via Scotty Bleier’s commentary on the healthcare sector.  iBC FTW.

I started a small (~2%) position in VHC.  I’m willing to double down sub $22.75 should I like the price action.  I’m using my second setup, the lower probability one (see last post), to participate in this story.

I’ve increased my equity stake with today’s purchases to 35%.  The rest remains cash.  I will very patiently put the rest to work should we see price action continuing to favor the bulls.

TPX and EXPE make up the rest of my book.

Top pick: EXPE

Online travel services empower smart phone wielding travelers to navigate the madness of bookings via their ever impoving mobile apps.  The charts for three big dogs PCLN, TRIP, and EXPE all have my interest.

The EXPE setup differs from the setups in PCLN and TRIP.  I thought this would be a good opportunity to explain my two setups.  First, the charts:

Setup #1:

“Define the direction of the trend, trade the pullback and potential thrust in the direction of the trend.”

Expedia currently has the look.  I see price in a clear uptrend.  Recently we’ve pulled back.  I bought shares at the close.  This is a setup I trade in many markets including index and currency futures.  I will play this position with as large as a 20% position.  Currently I have a 6% position.

Setup #2:

“Fade an overextended directional move using a two tier entry.”

PCLN had the look over the last two trading days.  I was stalking the name, but ended up missing the entry.  TRIP however still is a candidate.  The play here is put a half position on with a plan to double the position should it trade lower.  The key element to taking this type of trade is defining “I’m wrong” price.  The other key element (perhaps the most important) is to scale off the original purchase when price trades higher.  This lowers the risk on the trade and gets your cost average down to the second tier of purchase.  Then, you can reassess the risk and potential.  I have no position in either name, but would be more apt to purchase TRIP at this point.

The republic of iBankCoin has spoken.  The blogger network has been demoted.  I can hardly say I’m surprised.  Reading through the unnamed board member’s comments, it’s easy to assume many related to my person and my pseudo existence on the interwebs.  Does a sense of shame wash over my mind?  Ghast, no!  The Fly is a kind leader, and will continue to let us roam the lesser halls of iBC.  However the finest confounds of the internet pale in comparison to the lesser halls of iBC.

Do I deserve to be tabbed, on this holy of holiest site?  You’re god damned right I don’t.

I’m not a professional of any rank currently.  I’m a fucking accountant, for now.  As I write this however, many young wheels are slowly taking motion.  These vehicles have begun extracting income from our leaky economy and soon will replenish my coffers at a regular basis thus freeing me from the tyranny of my corporate butt fuck job.  Mind you I never intended to be an accountant; it’s just the easiest job one can obtain these Midwestern days.

Which brings me to why I don’t belong iBC tabbed:

I would sully the great works of the tabbed geniuses with my incessant drivel.  Have you ever seen an accountant up close?  Drivel literally spews from the facial orifices all day like an overheated basset hound.  Vile fucking humans accountants are.

So until I shed the dog skin suit of an accountant and run free through the interwebs naked for the world to see, I will remain without tab.  And will certainly not procure my own blog domain.

I enjoy much of what the blogger network produces.  Especially the following:

Rhino lives where generations of acid have degraded society into a cup of raisins.  And he has super hero like strength.  His picks are good.  Sometimes he writes really long paragraphs and I skip them because they lose me.  He may want to beat my person to a pulp.  However I run a low ten second 100 meter dash and can transition that immediately into a six minute mile pace, so I’ll run.

Both Zenhunter and Noodleboy trade in a manner similar to mine and I enjoy their posts.

AffluenzaVirus posts great chart setups and I always make it a point to peruse his picks.

NoBull Marc David is a professional and anything he writes I consider important to my overall health.

Mr. Partridge was pretty great, but he went away.

I really enjoy reading schadenfreude.

Kcscott puts together some ace comprehensive pieces.  Mostly I click to see his cropped babe on a chart uploads.

Research Donkey really seems more news feed based, but I enjoy.

Vking…I don’t know why but I get quite the kick out of his work and he’s an interesting character.  His time stamps have really messed up the blogger network’s chronology.

Elizamae, Redman59, and many more I’m sure to forget are all great reads for me.

Some suck dick and that’s fine too.  All together it makes for an interesting community of likeminded individuals.

Bottom line:  I navigate away from iBC ONLY when I can’t find something new to read.  I go to other sites, read them for like 30 seconds, because they have one writer and fucking leave and come back to iBC.  Battle well my fellow blogger network people and continue to add value to my iBankCoin experience.

I LIVE ON THIS SITE.com

Going forward I will focus on risk management.  It’s my favorite.  You will continue seeing my posts because I’m drawn to the work by a strong force.

Indeed, these are interesting times we live in.

TOP STOCK PICK: TPX

TOP POSITION PICK: CASH