This morning I highlighted my bias line and suggested you cut your weakling positions early. Yesterday demonstrated indecision and the gap below offered a tantalizing target for shorts. Heading into lunch the market began selling off and the market cut through the bias line. It’s understandable if you didn’t cut weak names at that point, but when the market failed to reclaim the price it was my sign to clear out weak names:

The action in the S&P was still constructive for the bulls and we found support in the afternoon and reclaimed the important 1420 level.  It wouldn’t surprise me to see bulls testing the sellers’ conviction into the weekend by pressing longs into the weekend.

These elections are too close to watch—I have much respect for all the candidates and their hard work up unto this point, but MAN do I want to win.  VOTE FOR RAUL3!  150^th blog post HEY-O!

Futures are set to gap higher again this morning, and value has gone exploring higher.  Last night I was tired and expressing my disdain for the barrel of monkeys my portfolio has become.  Today I love said monkeys and wish to harbor them into the day.

One of the biggest mistakes swing traders make is over thinking a trend and bailing on it too soon only to look back mouth agape at the profits they left on the table.  I didn’t do that with The March of The Chickens (PPC) and it made my year.  Now I intend to do the same for any degenerate position who wants to continue to run.

The market is going to have to really force me out, either by definitively breaking the 9EMA or by closing below it.  Otherwise, we’re going on a gorilla raid of the shorts.

TAKING TO THE PROFILE…I’m so glad people enjoy this.  As you can see, the S&P 500 has gone exploring for sellers, and price will continue higher until a stronger force of selling is met, because most short term resistance has been cleared.  We want to see buyers hold their ground at yesterday’s high first and foremost, but that could be wishful thinking an excessively bullish. Next level is 1432.25 value area high, if this areas breached we have to be on the lookout for a rotation down to the point of control (highest volume traded at price yesterday) at 1430.75 then things get slippery down to 1427.  It would be clear the sellers have stepped in hard if they can sustain trade below 1427 and could be your cue to raise cash if you’re very long.

Otherwise, if we continue higher have some fun, pop into RaginCajun’s bomb and squeeze screens and find something that fits you for inflicting pain on short sellers.  These are simple market times, simple but never easy.  Stay nimble because we have The Fed speaking today too.

As of 8am, ES Futures are priced to gap above last week’s high at 1423.  The question now is whether bulls will step in and make a big thrust higher, or if we’ll see another tepid afternoon of mixed trade.  One item of note from the profile that I’ve continued to emphasize in this tight price range is the ability of the auction to take value higher every day since the slap the p fade that occurred on the first trading day of December.

Essentially, anyone who bought the hype going into December is now whole, and beyond that has watched value creep higher each successive day.  Value looks ready to go exploring higher.  There are too many buyers at these levels.  At least that is my interpretation of the current value shift.

When I refer to value “shifting” I’m referring to volume at price.  The price that trades at the highest volume is the most accepted price traded in any given day.  The value area represents ~ 70% of the trading volume.  Note its march higher:

Watch for bears to capture 1418 then yesterday’s low which closely corresponds last Friday’s volume point of control at 1414.  Caution if either level is recaptured.  Otherwise, blue skis for Santa’s sleigh.

Aside: I’m building my next multi-quarter thesis.  I’ll give you a hint: it involves yesterday’s purchase of MLNX.

http://youtu.be/Zde6APNQiV8

Late last week, I started seeing several charts setting up in a manner I prefer, and with the docile behavior of the S&P I began buying up shares in names like ZIP, F, ATML, FB, and DDD.  These stocks were added to my other wiry positions: VHC, PPC, and TSLA.  Having a portfolio of these types of names can be more fun than a barrel of monkeys. But anyone who’s ever kept a pet monkey will attest to the fact that at some point the monkey will challenge you.  You’ll come home, and that cuddly pet will have grown into a fucking gorilla, perched on your china cabinet with a fucked up look in its eyes.

Last week’s buys took my cash levels down to 25% and I intend to rebuild that cash level at the slightest sign of weakness.  Top of my list to sell include: DDD, TSLA, FB, and ZIP.  If their behavior demonstrates weakness they will be cut.

Should the ground the market stands on (profile) begin to look shaky, I want to be back to my core holdings (GS and AWK) with a much smaller portion of degeneracy.  However, should said degenerate stocks continue to hold their respective nine day exponential moving averages I’ll ride.

Looking back at the profile from last Friday, we can see the early NFP numbers had us opening above all respective value areas for the week.  Again the sellers stepped in and smacked the penis lower, recapturing much of Thursday’s value area before we found buyers and spent the rest of the day methodically auctioning higher; a slow grind if you will.  The resulting auction succeeded in pushing value higher for a third day, but failed to place value above the important 1415.50 level (142.15 SPY).

We’re set to open right on this key level again this morning.  Bulls want to see 1414 hold, otherwise 1412.75 value area low.

Upside targets include Friday’s high, 1420, then last Monday’s above 1422.

When the daily price bars start to tighten up on the SPY ETF, I like to take out my magnifying glass and take a closer look at the auction activity. Looking at a chart of the cash trading hours (9:30am-4:00pm EST) shown in market profile accomplishes this task.

We started the month this Monday with a euphoric gap higher and price was quickly knocked down and with enough steam to blast price below the value established at the end of last week. Price gapped too high, and the sellers reacted by smacking the penis or whatever it is Rhino likes to do.

Tuesday formed a very balanced, Gaussian curve of activity. Look at the shape of the profile, a very uniform bell curve. Balance was reestablished after the bears controlled price Monday. The buyers were back. Then yesterday morning (Wednesday) the bears showed some aggression and tested lower. Shortly after a vicious short squeeze ensued, giving us the familiar “P” shaped profile.

A short squeeze profile during a downtrend usually indicates a temporary market imbalance, and a continuation in the trend lower is likely to resume. However, during this indecision, after a V-shaped recovery, it can be the spark to get a rally started. Today’s action was tight and contained mostly within Wednesday’s value area. It sat put, while the euro dollar went off a cliff.

I glean bullishness from this closer examination. What firms my stance? Key levels above need to be captured ASAP by the bulls:

Wednesday’s high: 142.16 SPY
Monday’s VPOC: 1415.50 ES_F (right near Wed. high)

Sustaining trade above these levels gets the bears on their heels.
Watch for a flush if we spend too much time below today’s value area 1408-1405.

Royal Gold (RGLD) investors, I wholeheartedly understand building into this name and making it a cornerstone of your portfolio. But if you’re long with a three to eight day timeframe I suggest you give significant weighting to today’s tape.

Price looked bullish into the beginning of November, putting in a rounded bottom support. I’m going to assume I’m not the only person who bought into the held support and is down 2-5% on the name. Read supply. Bulls held the critical $80 level once, the second time they’re going to have to prove themselves.

The $HUI index isn’t adding any benefit to the bull case, setting up for a flush too. Knifing through $460 means a throwback was in order, but be on the lookout for sellers to return to the scene.

Finally and quite possibly your earliest flush bellwether is the AM action in US Dollar futures. So far, it’s weak. Wednesday could have been either aggressive selling or seller exhaustion, and price momentum suggests the dollar bulls may go for a pump. No equity bull wants the pump.

Don’t discount the bulls too much. Let the day play out. The markets may be a bit thin and a late day surge could be the juice the bulls need to spark a spine-busting multiday squeeze.

I’ve been positioned short long term treasuries for many weeks via TBT, riding through a reverse split and three gyrations of waning momentum to the downside.  The correction beginning in the late summer had two very promising rotations downward, but since then has failed to make new lows.  Worse yet, when we take our view out to a weekly chart, it looks like we may have experienced a false breakdown.  Oftentimes the most violent moves occur after a highly visible chart pattern fails to fruit.

There have been calls for a generational trade in shorting the risk averse bonds.  A short bias has even been touted as the trade of the decade.  Many of the methods for obtaining bearish positioning on bonds contain elements of decay.  This decay has been eating away at the bears for quite some time.  Looking at the zoomed out weekly chart, you can see the correction has been mostly time-based.  This is die slow action for any decaying bearish position:

Be prepared for the possibility of new highs in the bonds.

The last time we checked in on the Euro dollar contract was at the beginning of the month. At the time it was suggesting bullish undertones pared with a slice of healthy auction. Since then bulls have moved the price much higher, nearly five percent, to achieve a significant land grab and target destination of the composite high volume node. This price level, 1.3160, represents the price where the highest volume of transactions has occurred on data dating back to January 2010. The matter in which the price target was achieved is most impressive. A thrust, if you will, that even the V.King would appreciate.

Since then price has auctioned in a manner that suggests mild profit taking, and a healthy rotation lower to revisit some low volume pockets left behind during the aggressive mid-September pump. Taking to the daily bar chart we can see the composite volume on your right along with some annotations:

Going forward, the psychological barrier of big round 1.3000 paired with it being the range high of this very low volume pocket makes the price level my bias line. I’m have a bullish bias above, and bearish below, for the unwashed until further notice.

So far this evening the Euro has bounced back into the highs of last Friday. Midway into Friday, around 11am EST, sellers reacted to the new swing highs and faded price lower. Therefore it will be interesting to see if the Euro bulls can hold onto and press the gains they’ve earned while Americans were grilling oversized cuts of beef on the grill. For now, the tail is wagging the dog.

What is most constructive about the push higher in the Euro is the health of the price auction taking place. If we look at the most recent profile, we see a well shaped distribution, suggesting a healthy auction occurred and resulted in higher prices. The opposite would be a volume profile that looks jagged with deep peaks and valleys.

Going into tomorrow, I’m looking for the Euro dollar bulls to advance their gains at best or build value higher at the least. Either way, I have a bullish bias in the contract unless we see aggressive selling dictating price back into the long consolidation.

Potential areas of resistance for the bulls are:

1.2640 immediate term. The price bars printed since late Thursday resemble a head and shoulders pattern with the head topping out in this area.
1.2670 comes from the June micro composite and would be a constructive accomplishment from the bulls.

Potential support levels:

1.2595 also from the June micro composite- volume point of control
1.2585 composite HVN

Buyers are strong this evening, but how price behaves when our markets come online could dictate what we can expect this week.

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: