Wed Dec 19, 2018 8:27am ESTComments Off on Fed day: today will set direction into year-end
No need to over think this—how price action behaves into end-of-day today will very likely dictate direction into year-end. I made this handy grid for review during the heat of the action:
FOMC decision/reaction grid:
hike/rally: extremely bullish no hike/rally: bullish hike/unchanged: bullish hike/liquidation: neutral no hike/unchanged: bearish no hike/liquidation: extremely bearish
One observation I forgot during last night’s muse is the relative strength showing up in three names (FD: I am invested in all three) that I consider to be ‘the old guard’. These are immutable legends; immortal entities revered and feared as much as the ancient gods once were. Goldman Sachs, Walmart, and AT&T. I have been noticing their divergent strength during our current sell-off:
My initial interpretation is that the risk cycle has either been reset or is in the process of being reset, with investors rotating back to quality after abandoning their high-risk saas, cryptocurrency, and pot speculations.
A reset of the risk cycle is a positive sign for the health of the stock market, if that is in fact what this small observation is alluding to.
Wanted to drop a quick blog tonight. I have not been doing much night blogging. Lately I read at night, sometimes consuming a hundred pages of fiction at a time. It keeps me off Twitter, but I wanted to drop a quick blog and share some observations I’ve made over these last few days while also touching upon some of my favorite ways to pass the time during a drawdown.
It has been tough being bullish since October 4th, especially since we nailed the turn lower one week prior. When I was on the right side of the action, betting short intra-day and carrying an SQQQ position trade, my visibility was much better than it is today. I have written extensively about failed auctions in the past, and we certainly are operating in failed auction condition on the NASDAQ futures. These false breakouts have lead to months of chop in the recent past, but the recent past has also seen them negated by a strong uptrend. Nevertheless, we again have failed auction conditions and that is good reason to be cautious:
The Exodus hybrid oversold signal that triggered at close-of-business Thursday, October 4th is complete after ticking out 10 trading days. This signal is what turned me bullish right after being short biased during the first week of Q4. Here is the final performance of each major index over the course of the cycle, as represented by their most popular ETFs:
Party poopers. These are third sigma NYSE TICKS. I wrote about these many moons ago. Here is a link for more background. We had a series of third sigma positive NYSE TICKs these last few days. Those are bullish day of, bearish afterwards. They have had me super cautious:
Having a long bias has taken its toll on me these last few weeks. I just wanted to write an honest blog and admit that this has been a hard tape for me too. Trading is quite simple but it certainly is not easy. When I go into a drawdown I rely on some of the hardest learned lessons of trading. The ones no mentor can truly prepare you for. The battle for your mind, for your confidence. When I am going through a rough patch, it is my hard set risk parameters that keep me from blowing up. I am grateful to have established daily loss limits and weekly loss limits well in advance of being on the wrong side of the tape.
Losses are part of the game. It is important that you have routines to keep you from becoming trapped in a rut. I tend to back away from the markets and focus on other important matters. One of my favorites is cleaning. But not just normal cleaning. Deep dive cleans of furniture or appliances or part of the yard. I also kicked off my snowboarding ‘prehab’ program last week, which seeks to diagnose and correct major muscle imbalances in my body. This can significantly reduce the risk of injury when I am hurling myself down the sides of America’s steepest mountains later this year.
What else…I made a bone marrow soup today. What a primal experience. I rarely eat animal flesh. But humans were bone eaters for a very long time. Back when we were relegated to our proper place in the food chain, somewhere in the middle, we often ate what was left of an animal carcass after the apex preditors had their fill. That often meant eating bones and marrow. I think it is a fantastic idea to have these types of inputs. My very elementary belief is that by consuming the connective tissue around the bones, I will thus strengthen my own connective tissue, further preparing my body to be launched off of tree covered side hips high up in the air.
Anyhow, stay safe out there. Remember, the stock market was here long before us and will be here long after we are gone. There is no shame in stepping back to reboot the mind before stepping back into what I truly believe to be the most competitive arena in the world. High finance, baby.
Let me be the first to let you that June is a good month for active trading. Why? Distraction.
Summer has arrived in the economic power centers of the world. Animals spirits are alive. Love and lust are acting on the human spirit. All the while ruthless capitalists are stalking their next prey.
And it really is that simple. Either you keep your feet grounded, using whatever foundation you have for working, or you are eaten up by capitalists.
My only true friends in the battle for domination of the financial markets are raw interaction data and robots. They are both immutable. And with proper maintenance they equip me to be on the right side of June.
A few of you question my whole style and approach. Believe me, I listen. A harsh criticism can carry more insight than praise. Do I feel anything when you call me garbage? Not a wince. At this level there is no room for emotion. I need to execute. That’s all there is to it. Thank you for even taking the time to read my work.
I realize the trade off with writing. You are spending your time, which I consider finite and precious, examining my concepts. This is not a responsibility I take lightly.
The models that guide my behavior are bullish into next week. I was busy last week hustling and only traded the end of the week. This week is different. I am out for NASDAQs and will be working the long side of the tape. You can work the short side. And hopefully you find some opportunities to extract wealth while you are at it. I will be working the long side.
Mon May 28, 2018 7:31am ESTComments Off on Models flip bullish ahead of proposal to modify Volcker Rule, and the rebuilding of America’s urban centers
Happy Memorial Day lads,
Hopefully your weekend is going well and is serving to refresh your mind and spirit as we head into the impressive heat of summer, a season which continues to become more fierce with every passing year.
I have been living a fringe lifestyle, predominantly lodging myself in a van in the city, enjoying an authentic urban camping experience. Detroit is alive with the steady thump of house music—a simple genre of music that resembles the sound of automation—here in a city that will continue to be on the cutting edge of autonomy and artificial intelligence.
I rose early this morning to return to mothership and run the IndexModel before the sun came overhead and made the main control station unbearably hot. The model fired out a bullish bias heading into next week.
Therefore, come Tuesday morning, it will be our expectation that a calm drift will take hold, at least until Wednesday when the Federal Reserve tries to low-key modify the Volcker Rule, likely in a way to benefit bankers of the private equity variety. That open meeting may tick volatility higher, but aside from their transparent acts of capitalism, the week is likely to be calm.
And hopefully you’re felling calm because it is hard to be wound up in this heat. Goodness, 94 degrees on deck today. The city holds that heat, with every surface from walls to ground, then it radiates like a convection oven. But it is these very city centers that are being repopulated and rebuilt by the millennial generation. From St. Louis to Philadelphia, the narrative of urban centers being cesspools of violent minorities is being upended by ambitious upstarts and opportunistic real estate developers.
Soon it will be the suburban setting, where people ran to in fear, shaken by the race riots, that will be less desirable for human habitat. Funny how fear fueled a 35 year mistake, a wasteful sprawl of civilization that has destroyed hundreds of miles of productive farm land, all in the name of owning a stamp’s worth of the American dream.
But as always, time will tell, and our time here is brief, and this Memorial Day is already slipping behind me. Therefore I must wish you well and be on my way.
MODELS ARE BULLISH
Exodus members, the 184th edition of Strategy Session is live, go check it out!
Sun Mar 18, 2018 11:57am ESTComments Off on Interpreting data from the last bullish cycle and how to anticipate the next big market move
As members of Exodus are well aware, we completed our first 10-day bullish cycle of 2018 last Thursday, March 15th at the close-of-business. It was another successful signal from the mother algo. The performance of each major index during the cycle is shown below:
What does the chart tell us, besides Exodus wins again? The Russell 2000 performed the best over the cycle. That tells me we are reaching the late stages of our current bullish cycle, which dates back to November 2016 when our authoritarian leader won the US elections. Investors start to ‘reach for risk’ as a run matures, pushing them higher-and-higher up the risk ladder until they ultimately fall down.
Which is fine. Falling off the top of the risk ladder is part of the game. Ideally, you have ridden the market high enough that your fall leaves you at a higher point than when you began climbing, and in a position to succeed when the next climb begins.
The NASDAQ made a new record high again last Tuesday then reversed. The S&P ascended to new highs alongside the tech-heavy NASDAQ, but the Russell never made it. The Dow was nowhere close.
It still looks like ‘buy-the-dip’ conditions, and we have a really useful piece of compression context to watch in the upcoming weeks—it is happening on the Dow, and when this breaks it is likely to dictate overall market direction. Check it out:
We have a Fed meeting this week and a rate decision on Wednesday afternoon. This is a live meeting, with the gambling halls in Chicago are currently placing a 94.4% probability of a 25 basis point hike. These are still extremely accommodating rate conditions, and quite frankly it surprises me they are lifting rates so slowly.
The March futures contracts are officially finished and active traders will all be trading the June contracts starting this week. This could be a pivot week, but for now we do not have much objective data to base our bias on. So we favor the prevailing trend (up) and patiently wait for more actionable quantitative signals.
Patience.
If it is thrills you’re after, I am told there is plenty of excitement to be found in watching college basket ball. There is a team whose mascot is a golden retriever, the friendliest of breeds, that seems to personify the never-say-never American mentality. You are better off gambling on them than forcing trades into the market.
Finally, I am part of a panel this month on premarket trading. The event is free as is the food and drink. I am told there will be craft beer on tap from two kegs and also high octane energy drinks. If you are in the Detroit area come hang out. We will be down in campus martius aka the heart of downtown. Here is a link to the event and where you can RSVP: https://www.meetup.com/Detroit-Investors-Traders-StockTwits-Meetups/events/248652154/
Models are neutral heading into the week. Best trading opportunity is Wednesday around 2pm eastern. Trade accordingly.
Exodus members, the 174th edition of Strategy Session is live, go check it out!
Coming into the week with a bullish bias played a big part in Monday trade. Monday started out with a small gap down. 7 NASDAQS available. Inside Friday range. Inside upper quadrant from Friday’s double distribution trend up. The overnight high was another 13 points up. Looking for 20, risking 10. Drop dead stop at the overnight low.
Risking 1 to make 2. All day. Hell I’d risk 1 to make 1.25 with a directional bias and layer-upon-layer of auction theory support. I will wait weeks for these conditions. Fasting and waiting. Polishing the robots and reading old books.
Then all at once. Plugging gaps and sending runners for the highs. Or the lows. No allegiance to the bulls. Only the robots. I am their executor.
Anyhow, bitcoin futures are different natural market.
I have no statistics. I lack the reams of raw CME data needed to parse and model upon. I have no internals like TICK or NET ISSUES.
All we have is auction theory. So here it goes:
2-3 day trend: 3
2-3 week trend: 2
strongest volume: 2
nearby magnets: 3
Excess hi/low: 3.5
Score: 3 neutral
No short term directional bias.
What has happened so far?
Bitcoin futures were higher during the holiday shortened first week of 2018. After consolidating for most of the week, bitcoin came into Friday with a gap up and trend higher. The market continued to test higher into the weekend.
Monday it opened gap down, down below the prior consolidation area, potentially trapping supply above. The day began with a drive lower which revealed a strong responsive bid which resulted in a sharp excess low being formed. Price has traded in the first hour’s range since.
What is likely to happen next?
Primary hypothesis is for sellers to defend an attempt back into the prior consolidation area ~14,895 setting up a move lower.
Look:
And with all that in mind, I do not carry enough conviction to participate in the short term auctions for bitcoin. More information is needed. I will, however, continue to wait before adding to my long-term BTC reserve. I want to see how this overplay for the underlay resolves which is, as always, TBD.
Bias elevated my game. It would behoove you to develop a habit of forming your own bias. Maybe you pluck a few arrows from my quiver. Hopefully you craft some of your own. Then you will better understand the nuance of it all. The in-between. The raw materials. Pure, unadulterated data.
A lapse in consistency last week. I failed to update the bias model and produce an Exodus Strategy Session. It was the first Sunday in 160 weeks that was missed. But it is important to nip this error in the bud and not become lazy with my analysis. Consistency was key to the success experienced this year, and I expect it to be how I continue to develop as a trader in 2018. The model flagged bearish last Sunday, 12/24.
I could have been in a solid position to extract several NASDAQ points off the exchange. I cannot stand missed opportunity, when I had an edge against the competition.
Tech took a hit last week. There is a significant nuance in place right now in the tech sector. Apple recently printed a failed auction. Despite being wholly distracted by the holidays, I made note of this event on my Twitter account:
Here is the failed auction I am referring to. This is a bearish occurrence. The signal is in place until Apple goes up and takes out prior highs:
Primary expectation is for Apple to trade down to about $165 then find support at this prior area of resistance. This is likely to continue to pressure the entire tech sector, and therefore the NASDAQ.
You think these failed auctions are just technical analysis guff that does not matter? You think that pal? Do you? Look at what Tesla investors have been dealing with since the September failed auction we noted.
I float around my house all day in a heavy robe, burning thickets of sage, laughing as these brilliant internet people come up with 10,000 reasons why Tesla stock is not going up.
Imagine if more people could observe assets through the lens of an auction instead of their own biases…what a world that might be.
Moving on.
The best performing sector last week was Utilities which hints at risk aversion ticking higher.
The model flagged neutral heading into the upcoming week, heading into the first trading week of 2018. A four business day week. We are taking Monday off to observe New Year’s day. However, come Tuesday, droves of new year new you people will be back to work, all extra on their latest money making scheme. Which is fine. Hopefully it works out well for them and they find satisfaction in 2018. I am only noting that the first week of the year often presents more opportunities to trade.
The model does not give us an edge, therefore the plan is to scalp in either direction. No runner positions will be held in anticipation of the higher time frame stepping in and pushing.
These little nuances, and a few others are presented in the 163rd Strategy Session, which is now live inside Exodus. Be sure to check it out.
In summary, the failed auction in Apple and last week’s sector rotations are slight reasons to be bearish heading into the first week of 2018. But the model offers no directional guidance. Therefore we will focus on trading our price levels and taking profits when they become available. Aka business as usual at the House of Raul.
As much as I wanted to make good time crossing the country by land there are so many natural views along the way that require additional examination. Thus, it was not until 4pm pacific that I reached my initial destination, the pleasant hills of Santa Barbara.
But the model is the model and without dedication to updating the data inside it faithfully, it will lose its objectivity and efficacy. Therefore it was the second matter of business after washing off a thick layer of desert dust.
Once updated, the model returned a bullish reading. Nothing crazy, just a call for a calm drift, perhaps with a slight upward bias. How absurd will it be if this forecast materializes? If we continue rallying, sans pullback, clean into December?
Then a few weeks of locking in capital losses to work through before the holidays add some sparkle. And then we can put 2017 to rest.
We are still focused on healthcare and biotech this week, and will be using this sector/industry to gauge direction of the overall market.
We discuss why to watch healthcare, and other actionable information in the Exodus Strategy Session, which is now live.
Distinguished Exodus members, the 158th edition of Strategy Session is live, go check it out.
To some, the market looks like it is hardly worthy of the unprecedented gains being achieved during these last 5 years. Yet here we are, plugging higher nearly every week. The complications inside the market are all operating smoothly, with very few reasons for concern.
There was some dispersion last week. It is visible when you view the 1-week performance of each industry. This is an easy thing to do inside Exodus. A few clicks of the mouse reveal a bit of weakness below the surface of strong indices:
But then there is this mind-blowing, non-stop rally in semiconductors. This is the real deal. All those promises made back in 1999 about our lives being changed by computers and the internet are coming true and it is going to take billions-and-billions (extra Trump) of semiconductors. Just look at the semiconductor chart:
Anyhow, our job is only to take life one week at a time. And we take each week one day at a time. According to the objective way we evaluate the stock market every week, the IndexModel, according to the model we are bullish. Expectations are not extreme. All we are looking for is a calm drift, perhaps with a slight upward bias, out through Halloween and into November.
Distinguished members of Exodus Market Intelligence, the 154th edition of Strategy Session is live, go check it out!
