As we enter another day of trading this market, we find ourselves hanging around near the highs but not pressing higher, it can be rather unnerving to have a large directional portfolio.  Yet we continue to see a resilient market unwilling to give back much ground.  S&P futures were higher overnight, peaking out at 1511, the high water mark set on Monday.

We’re off the highs a bit as we approach the 8:30 hour, and I want to point out a few odd characteristics about yesterday’s profile.  I’ve separated Tuesday and Wednesday’s profiles to the right to highlight the odd mirrored auctions that occurred:

Odd, yes? Also, you can see we booked an inside day with both the range compressing and the value compressing into the prior day’s respective range and value. This signals balance. It also tells up the market is building potential energy, and the next move could have some major velocity. We still have the poorly auctioned range surrounding the 1500 century mark. Should we blast higher, I will stop keeping this observation in mind. But until we leave this area with authority, which starts with sustaining trade above the orange box I highlighted above, I have to keep my aggression in check and keep some cash on hand.

Cash level currently 20% with a 5% TZA hedge (clown college)

Here’s a throwback surf jam for Kai and people like him:

http://youtu.be/1gdG7TZUqY0

Yesterday the action in the S&P did little to change to overall outlook of the direction of the market.  We’re still trading within the confines of brackets and there’s still cock fight action surrounding the 1500 century mark.

Bears can claim a small victory over the bulls yesterday in not allowing the value to be moved higher than last Friday.  Notice the value areas overlap, but the Tuesday value area has a lower VAH, VAL, and VPOC.  Bulls need to contain the downside for the remainder of the week, else the likelihood of an exploration lower increases.

What I want to see most is a healthy auction, represented by a smooth bell-shaped distribution, occurring within the area of 1502-1498.  Once these levels are thoroughly traded, our next move is a high probability hand tip for the direction of the next swing.

The NVPOC from Monday is the major target for sellers today.  If they’re able to reach it, I would consider their ability to dictate the direction of this tape to be increasing.  However, I will monitor the area for signs of buying activity.  You likely want to cut losses out of your portfolio if we begin rotating down to 1496 with behavior that suggests we’re closing the NVPOC because you losers will participate 1.5x or more with the broad market selloff.  Unless they don’t…this could be telling of buyer interest.

Remember to be water.

Today there have been bears all over Twitter, talking about laying the smack down at 1505 on the /ES.  Here we are, lingering at the 1505 level into the one o’clock hour, and I’m looking for the bears.  So far they’re force has been weak, and I’m expecting higher prices.

I got a bit ahead of the market this morning and went ahead and made TPX a full size position.  I like that chart, it’s a tight little pullback to support and it’s in a volume void of galactic scale as my comrade ElizaMae pointed out a few weeks prior. 

The highs today have thus far been poorly auctioned, but here we are retesting them as I type.  I’m looking for signs of sellers, but so far they’re not being very earnest.  All roar no claw.

There’s lots of session left but the bears will need to show follow through sooner than later otherwise the buy orders will start flowing back in.  I’m expecting a hand tip by 2:30pm.

Yesterday was close to forming the rare PBR setup on the S&P future contract.  The characteristics are a P-shaped short squeeze profile followed by a b-shaped long liquidation profile.  Both profiles on their own signal the movement in price to be a temporary phenomenal fueled by shorts covering their positions or longs liquidating, respectively.

When you see the two profiles sequentially, it signals a dangerous environment much like a cock fight.  The moves are violent but until a cock digs their talons into the other fighter the play is to fade back to midpoint.

You can see the naked VPOC was finally closed up yesterday, that point has been on my mind several sessions as it lingered below.  We saw a decent reaction by the buyers down at 1490.25 making it a VERY significant reference point going forward.  Should we not see buyers remerge at these levels on a retest it could signal the environment has changed and reducing equity exposure prudent.

Elizamae asked me a few days back on my thoughts regarding the lack of auction in the four point range surrounding the 1500 century mark. I’ll reiterate that it resembles a bird fight, put that imagery in your brain. Violent flapping and chest puffing are the norm. Think Twitter. If we see a health auction of these levels today, the next move is our tell. Otherwise, the cock fight continues. Until proven otherwise, however, the prevailing trend has the edge.

http://youtu.be/nze096dqID0

Good morning traders.  The Super Bowl is complete and futures are off eight handles from their globex highs.  Early selling has the S&P back to the important 1500 level. How we treat this zone continues to be paramount as can be seen by the number of sharp rejections (read: quick moves away from) this price level:

I’ve marked up the profile showing the poorly auctioned zone from 1500.25-1497.75. There have been many rejections in-and-around the 1500 century mark. I’ve also noted in green areas where I will look for signs of buying activity. The first zone represents 2/3 of the January 31 value area with the top range being a gap fill. Revisiting this level cleans up both a monthly and daily gap on the charts. It’s very constructive action.

Below there we still have a naked VPOC from 01/24. Should the buyers not present themselves at those levels I would consider the action a strong shift in sentiment.

I went over my performance for the month of January this morning and I was rather impressed.  I’m sure people outperformed me, but I turned in a healthy 4.8% for the month.  It was a simple month to make money long, but that by no means makes it easy.

I started digging into the data for my future trading strategy too.  This project has been on the back burner for months as I completed a major overhaul of a business process but with the pesky business tasks and IRS requirements wrapping up it’s time to push my algo over the finish line and get her live.

Whether superstition or numerology or pure voodoo, I find much success in life when I use the number three.  Teams of three, three dips from the well, three sacrificial chickens, and well you get the point.  The environment I trade stocks in isn’t quite as structured as I plan to trade futures because I like to give stocks time to work and this can take days to months.  But with how I intend to trade futures, there will be multiple trades per day with the book going 100% cash at the end of each day.

Given the higher frequency of trades, a mistake is amplified and much quicker to damage my wealth.  Therefore I’m developing a very structured environment that will give me quicker feedback.  Part of that feedback is the rule of three.  These rules are put in place to prevent me from blowing up yet another futures account:

Three losing trades: paper trade the rest of the session and review plan and market context

Three losing days: paper trade the rest of the week and review plan and market context

Three losing weeks: rebuild the plan and algorithm

This will be my first attempt at automated trading.  My prior attempts at trading futures have been purely discretionary.  The key to being a successful (read consistently profitable) future trader is to TRADE ONLY.  That means no running a business and no having a day job.  I like to diversify my income sources and I have big plans outside of this market.  An algorithm solves this dilemma by only allowing me participation in the market when my edge is present.  I will get an alert when a trade is initiated and I can then turn my attention to managing the trade if I want.  Otherwise I can let the algorithm handle the exit too.  I like handling the exit so far in testing because I can’t program market profile context into my robot.

http://youtu.be/1mdgLn5BFRQ

Getting fancy with exotic stock picks has so far not been the best strategy for participating in today’s big move.  Your favorite senator’s bank, Goldman Sachs, and Notorious AIG are ripping in today’s tape.  A simple tech play like Google is crushing.  The non-farm and housing data out this morning was received well by the market and we’re seeing gap-and-go action from the S&P.  The NASDAQ is having a strong day too.

Meanwhile my specialty plays like solar and retail are trudging around, looking like they’re wearing their dad’s trousers.  Overall the morning session has been a progressive one for the bulls with strength in many key areas and a healthy start to February.

The profile today is long and thin suggesting buyers are initiating new trades at these levels.  The VPOC currently resides at 1506 which is a huge jump from yesterday’s at 1494.25.  The ball is in the buyers court going into the afternoon session.

If we see selling enter the tape, look for a fight at Wednesday’s value area high starting at 1504.  If buyers don’t present themselves at these levels we could rotate down through the value area and back below 1500.

http://youtu.be/zQDaGLe2qk4

Yesterday’s auction was successful in cleaning up the toothy lower ends of the prior two day’s profiles.  The price range from 1500-1495 has been very balanced and building pressure.  We’ve seen aggressive entry into the tape by both buyers and sellers at the extremes of this range which is healthy behavior for a balanced auction.

The sellers did manage to push value to its lowest level since entering this new range, down to 1494.75.  There were three shifts in the VPOC yesterday which is another sign of a balanced auction.  The VPOC was resting higher most of the session but as we entered the last fifteen minutes of trading a massive block of orders came through and lifted price higher.  Before the price was lifted the activity shifted value lower.

Honing in on yesterday’s value area, notice the entire value area is below the prior days.  This is a victory for the sellers as they have been able to slow value at best for most of this year.

Being the first of the month and a Friday, I’m expecting lots of trickery and traps.  I will again be placing most of my attention on the afternoon activity and the value placement.

As a trader, your job is not to impose your ideas on the market.  Your job is to research ideas and see if the market agrees.  Losses are part of the process. – FuturesTrader71

Often times we make assumptions in the market using the data at our disposal.  I personally feel that probabilities are the best tool available to a trader or investor.  I’ve built many probabilities into my trading style, and am fortunate to get a glimpse into The PPT which is a treasure chest of probabilities I can add to my stock picking.

Taking a loss does not mean you’re wrong if the process is right.

Taking to the profile we’re seeing some weakness carrying into the AM globex session.  The S&P futures have hit their head three times on 1496 and at 8:25 the level has been rejected in a rather stern manner by the sellers. Should we see trade continue to rotate lower today, I’m looking for buyers to step in at the naked VPOC from 01/24 at 1490.50.  I will be looking for buyers to stabilize price here.  Should they not show up to the party, I must consider cutting weak names from my portfolio to raise cash.

For the sake of keeping things simple I’ve highlighted the two price zones that I consider significant in the short-term for the S&P future.  The scene of the breakout yesterday is interesting.  It’s the confluence of the prior two day’s value areas.  The subtle cue that the balance may break to the upside was the slight uptick in the value area.  Yesterday the breakout produced single prints.  Single prints signal aggressive activity that resulted in a violent movement in price.  How we treat this level for the remainder of the week can be very telling.

Above I’ve highlighted the level where I expect to see sellers enter the tape.  If they can’t show up and defend these levels, it’s pump time.

Today it’s all eyes on Facebook as expectations have been set high by wall street (why?) and they need to deliver. The GDP numbers are rattling the markets a bit, if the bulls actually hold on today they have serious sand.