The overnight session printed large chop, nearly nine handles wide.  A wave of buy flow swept though the market around midnight EST pressing the market above yesterday’s high briefly before the move was faded back to the midpoint.  The overall action is indecisive but slightly favoring the bulls.

A key price level to keep in your mind as we approach the weekend is 1641.75.  The level behaved as support several times since 8/21 before giving way and becoming resistance.  On yesterday’s tape the level formed a low volume node which clues us in that the level is perceived in a unique manner by the market.  The sellers consider it a wholesale entry point aka it’s where the pros are at work.  If price can be sustained above this level during today’s session, it may force short covering into the weekend and change the overall perception of value in the marketplace.

At this point we could explore higher, searching for value in the large gap above.

Conversely, if price cannot sustain trade above 1641.75, we may rotate back through the last three day’s of value to make sure the buyers are confident enough to react to the discounted prices.

If not, a retest of the swing low is on the docket.

I’ve highlighted this price level and a few scenarios on the following market profile charts:

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The overnight market in the S&P was unable to breach either the high or low from yesterday’s RTH session which tells me there were no new developments overnight and the market is balancing out.

Part of the balancing process is forming a range or bracketed trade.  It’s important to envision where this bracket may exist so we can fade the extremes back to the mean.  The first level above that I could see behaving as resistance early on is the range from 1640.75 – 1642.  Taking out yesterday’s high could trigger some buy stops on shorts which could lead to a temporary squeeze to these levels.  These levels would then make an excellent short entry.  They also coincide with the value area high of 08/27’s volume distribution.

Bracket lows could be between 1627.75 – 1625.75.  We could take out the overnight lows which could trigger stop orders to temporarily press us lower, allowing for a quality long entry.

That puts our mean, or midpoint, right at about 1634.  Therefore we could target this level during our mean revision trades.

This is only an idea based upon the context of balance.  Should the market receive news that gyrates us out of balance, we could see more directional volatility.  I’ve mapped out a few scenarios on the below 24 hour profile and opportunistic price levels on the following RTH profile:

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I began talking about the drone strike algorithm ElRoi during my vacation not because I ever intend to share my coding with the good people of the internet, but instead to get your collective gears spinning about an exciting way of approaching the market.

Imagine earning an average return on your money without the uncertainty of overnight positions.  Take that thought and also consider what could be done with your newly minted free time.  You could learn an instrument, or travel, or stop being an absentee parent.  I, on the other hand, will use said time to trade more markets simultaneously.  Eventually my goal is to trade three unique markets with complete automation, and trade the /ES on a discretionary basis.  All the while collecting my favorite stocks, like baseball cards, to pass down to my kin.

I’ve been trading the ELROI signals since April to enter into the market, but I’ve been managing the exits manually based upon inputs like market profile that aren’t coded into the algo.  Prior to vacation, the system went through a drawdown, then a long (in Elroi terms) quiet period.  That’s when I made the decision to turn Elroi to full automation and hit the road.

It’s almost as if I had to unplug myself to keep from fiddling with the knobs.

The rest as they say is history as Elroi went on a four trade winning streak before taking its first losing trade late into today’s session.  Elroi only traded one contract per trade while I was away, but if someone possessed the capital to meet larger margin requirements, this system could trade much larger size in the /ES as it’s the most liquid financial instrument in the world.

This statistical arbitrage stuff gets me very excited, and promises to be a fun income stream that fits my fringe lifestyle.

I figured the Woodshedder crowd may enjoy a presentation of the following equity curve and data.  Here you go, Woodshedder crowd:

 

Stay tuned for the two week performance results of my new cycle hypothesis, #BOSSRAM ALPHA.

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It has been an interesting session thus far in the S&P futures, where we’ve seen strong volume overnight and near the open but since then it has dropped off significantly.  However, the market has found accumulating buyers after a reactive-type rejection at 1624.75, which is only one handle above the initial breakout point from the post 4^th of July rally.

As of this update, the momentum has made a slight turn in the favor of the bulls intraday, and we’re working through the wide value area established yesterday.  A full rotation of the value area would take price to 1639.25 which also marks the VPOC of the last 36 hours of activity.  It’s a logical bull target.

Downside risk increases if we lose today’s lows, and especially if we see the market accepting trade below 1623.75.

I’ve highlighted a few possible scenarios on the following 24 hour market profile chart and noted potential areas of opportunity on the RTH profiles:

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The S&P futures are lower by nearly 13 handles giving back most of the progress the bulls slowly accomplished since last Wednesday. There’s been an above average amount of volume done and the velocity on this follow through move is higher than normal.

As I write, the bulls are attempting to stabilize price near 1642. This level marks the value area low of the lowest distribution from our recent 8/21 – 8/22 swing low. Failure to establish support here (trade sustained below this level) opens the doors for a retest of the swing low at 1631.50 which is a reasonable seller’s target if we see a liquidation trade occur.

Should there be a full fledged panic liquidation lower, beyond the swing low, I will be looking for signs of buyers at 1623.75, the starting point of the 4th of July rally.

It’s been a while since we’ve seen this fast of a move overnight, so I’m interested to see how it’s received during the open. In terms of momentum, although rapid, we’re already into the third dip. Bar complete liquidation conditions, this downward move is already long in tooth. The dynamic action also left plenty of unfinished business (incomplete profiles) in its wake.

A healthy, rational market could rotate higher and auction levels like 1650.75, the scene of the overnight breakdown and eventually and the low volume node at 1653.75. Eventually, it would come as no surprise to see a more thorough auction of the entire range from 1659.50 (very key level, lots of supply trapped above) to the 1653.75 level.

I don’t have the technology to draw out these scenarios today, so you’ll have to visualize them. But we can still give a reasonable expectation to seeing the market stabilize and properly auction the above levels if buyers are able to perceive today’s pricing as a discount.

A gap and go situation although uncommon is possible today so use caution and predefined stops with any attempt to fade the market.

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The S&P futures printed nearly a 10 handle range overnight, printing a fragmented profile in its wake. The lack of any symmetrical shape clues us to the lack of balance in this price range.

As we approached midnight a a rally ensued but was entirely given back. We didn’t quite make it into the gap above 8/15 before supply came into the market. Going forward this week, it will be interesting to monitor any further strength in the market and whether or not price takes out today’s globex high at 1667 since swing high/lows most often occur during regular trading hours.

By this I mean we’re likely to see a more active test of the gap soon, where we can more actively assess the condition of the supply overhead.

Capturing 1559.50 was the accomplishment of the week for the bull camp. We’re trading right around this level early on. Whether buyer or sellers make the initial push from this level will be our early look into the market sentiment.

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Buyers push.  Sellers pull.

1654 a battleground

From it, our bias formed

The first level catching my eye this morning is 1654.  Back in July, we rallied up to this point, found quite a bit of selling force before eventually the force of buy flow became too great and sent us spiraling higher to all-time highs.  The price level wouldn’t be visited again until late last week, where buyers worked adamantly to convert the prior resistance into support.

Since losing the level, we’ve tested it several times, and it’s been an environment where sellers are absorbing buy flow and reacting aggressively.  Overnight, we’ve churned around this level, but oddly enough, the price level marks a low volume node on the profile.  Price continues to behave like two magnates with the same polarity at 1654, flinging price away.  Something is afoot at 1654.

Into Friday’s tape, I’ll be keen on my observance of 1654 to see who establishes trade relative to the level.  As we approach the 7am hour, we’re pricing just below the level and the buyer’s momentum has stalled out a bit.  It wouldn’t surprise me to see sellers making the first move today.  However, control of the afternoon will be paramount going into the weekend, and they know that, which may keep sellers quiet early on.

The overnight profile marked a poor high at 1658, a point shy of my upside target for the latest move.  Any trade above 1660 would mark quality progress for the bulls.  Sellers will want to pin us deep into Wednesday’s value area, pressing south of 1644, the opening print yesterday.

I’ve highlighted these levels of interest and also mapped out a few scenarios on the following market profile charts:

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Large waters overnight in the S&P 500, where the globex session printed a 14 handle range.  Wednesday’s late afternoon selloff continued into the evening before stabilizing around 9pm at 1631.50, which is right at the lows of 07/08, the Monday after Independence Day.  As of this writing, the market stalled out 1645.25 which marks yesterday’s volume point of control (VPOC) and also the tip of the lower breast we observed yesterday afternoon.

The upward rotation overnight picked up steam around the European open, and put the squeeze on from 1637.75 – 1643.75.  What I mean to say is the market made no pause or rotation lower throughout the entire move upward, giving overnight shorts little room to cover.

Since then the market has stalled a bit, but is aligned in such a manner that welcomes bulls back into the tape.  Whether or not they will oblige early on is debatable.

I’ve split the overnight profile into two parts to emphasize the short squeeze P-shape that developed and highlighted a few scenarios for today’s trade.  I’ve also marked the RTH profiles with levels of intraday opportunity on the following profile charts:

 

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It was another frustrating day of RVLT sucking wind only today it was accompanied by APP.  I’m a huge fan of the APP brand, so their ticker is a permanent fixture on my Always Stalking watch list.  When it fell out of the tight/multi-month consolidation I took it to be the head fake, the shakeout, before the actual move.  Well wouldn’t you know it, I was -10% on the name in a flash reminding me how important entries are on these low priced stocks.  I simply don’t have a ton of conviction here, so I cut my loss and moved on.

You know my thoughts on RVLT.

YGE was interesting today, being one of my largest positions and all.  I want better prices before parting ways with any of my shares.  They’re Chinese and solar, I mean, what’s better?

Yelp had a decent day and some clown ‘angel investor’ put on his big boy pants and bet five stacks Yelp will be out of business by 2015.  Oh, you bad.  He made his bet via FB, BTW.  Have you heard of the stock market, you coward?

Nothing else really materialized in my swing portfolio.

Meanwhile, you hear traders calling days like today a day trader’s dreams or a day trader’s environment and I’m pleased to report #BOSSRAM concurs.  On the session, Bossram Alpha took 12 trades covering three different cycles and went 12-for-12 to earn a staggering 13.75 handles.

Based on a one contract position size Bossram yielded $687.50 before commissions.  Considering the position size can increase by one contract for every $1800 earned, you can see the scalability.  All trades taken must have seen price to go through the entry and exit by a tick in order to validate the walk forward and provide conservative numbers.  I think it’s safe to say BOSSRAM does well in choppy environments.  Aka, this is the perfect fix for a momentum trader stuck with summertime sadness.

I’ve been overly excited for algorithms I’ve built in the past, so believe me, I’m still a skeptic.  But today’s performance was dead on with what I’ve seen occurring in my seven month back test.  ROBUSTO!

I look forward to taking the cycle live alongside my current /ES trading repertoire.

Be on the lookout for odd moves overnight, it seems like that kind of night…especially with the rare moon.

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A simple price check of the S&P futures via your favorite electronic device may give you the impression the market has weakened overnight.  However, when you frame the overnight auction in the context of our recent profile developments, you’ll see the market is still stuck between two large value humps and working at filling in the cave.

Market profiles are quirky characters that insist on adhering to the familiar bell-shaped distribution.  It’s nature, really.  For the most part, we can play along with these formations to build context into our trading.

The momentum ball is still in the seller’s court but the bulls did a decent job of stalling their progress yesterday.  My initial expectation is to stay stuck in between the two value humps highlighted below until we get some Fed talk to move the market.

I’ve highlighted a few scenarios in the following profile charts, as well as marked up the relevant price levels on the RTH chart:

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