The market is the final arbiter.  This is something ChessNwine reminds traders of weekly in his strategy session.  If you find yourself becoming frustrated, euphoric, or BABA forbid panicked, then you are likely attempting to impose your will upon the market.  You are entering trades knowing they HAVE to be right because you are so god damned bright.

This is a fool’s game.  Well not quite.  It is a game for the humble sportsman (or sportslady?) who is tickled by the extraordinary.  And there is one thing you must impress upon your method if your method follows the tenants of momentum—your allegiance is to be sworn to the heaviest puncher.

The price action we are currently experiencing in the marketplace is peak abnormal, which, oddly enough, normally happens once in a while.  It is a good thing, a notch in the belt of survivors.  But think quick because you have not survived yet.  This is an ongoing extravaganza.

Equity markets are rallying hard today.  The Nazzy wants a 100 print after pulling the inverse last week.  Remember what I said last week?  About big waves?  You settle your heart by taking slow consistent breaths and allow it to take you as it desires until it throws you loose.  Then you begin to swim.

I am still doing very little, however, given the magnitude of the harmonic down, one was fortunate enough to back off the idea of hedging until a proper revision occurred.  Now it has, we are over the mid, and I am wondering if the bears jumped the shark with this move.

I know, it sounds crazy, perhaps fiduciary  questionable, but sitting and taking that sell flow to the nuts for a few weeks might have been the best course of action for longer term positions.  Again, this is all still TBD.

The rub?  They timed the rout about perfectly to zero out your October leverage.  Mine too, those fucks.  But sharpen your axe, purchase common on discount, and hone your strategy for another gregarious thrust.

You thought I was done thrusting, didn’t you?  You must know, Raul possesses the energy of 10 adhd afflicted teens.

All this to say I made no alterations to my book today.  This melt up was a gift however to my long term positions which are making admirable recoveries.  I still might dial them back.  However, this must be done very slowly, not all at once.

Think fast, move slow.

http://youtu.be/2YcIgow6TDk?t=3m17s

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The market pace came grinding to a halt this morning after a strong push higher.  We are still operating in an environment which produces larger-than-normal ranges and slightly elevated volume.  However the bulk of today’s move occurred during the initial balance aka the first hour of trade.

It almost seems foreign, the benign intraday action, after enjoying 10-12 sessions of white knuckle racing across the price complex.  There are several charts setting up nicely intraday for longs, however each time I zoom out to an hourly chart or even a 15 minute chart I see slop.  This is what has prompted me to shorten my target distance and trade duration.  Little bounces up into resistance are the singles that I can currently manufacture to bring home some wins.

Into the weekend I gave serious thought to liquidating some of my longer term holdings including TSLA and TWTR.  Before taking any action and remembering how long I have been with said names, I took my person far north, deep into the Michigan bush where internet cannot be obtained.  From my perch atop the autumn trees the thought of giving ‘them’ my shares seemed a bit callous, like manually killing your prey when you can buy it from a farmer.

Now that call premiums have been cleared off the table slow game is back on the forefront.  Value is drifting higher as the market strings together three up days.  Stay nimble as we head into resistance.

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I am looking to work out of some of my longer term holdings here, and not buying into this move.  There are strong bounces, there may be more strong bounces, but I am shifting slowly to the tall grass.  Don’t love them, not even sweet baby Elon.

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Volume differentials are still running above average but there is a distinct change in the pace of market movement today.  It helps that the day is moving higher which tends to occur at a slower speed, however, on the net we are seeing smoother rotations in the index futures.

The opening was very important this morning, more than any other day because of the location.  When participants started trading this morning it was near the prior day lows.  I was keen to distill who was dominating the tape early because it had heavy ramifications for today’s trade.  Fortunately the buyers made their actions very clear, and continue to do so throughout the session. This can be seen as buyers ‘holding the mid’ and printing higher highs and lows.

The higher prices are motivating sell flow back into the tape after they sat back for most of the session.  I have shortened the duration of my stock trades significantly.  However I saw enough evidence today to increase long exposure a bit after sitting through the biggest wave of selling seen in years.

Oil appears to be the culprit, and also the opportunity zone.  The long trade in energy might only be for the bounce here, but even that little move higher has opportunity to manufacture some wins.

All together, I am sticking with the less-is-more policy, managing risk via scales, and looking for opportunities to raise cash, slowly.

Option expiration is upon us.  It has been a fast month, and soon these dead calls will vanish from my book.  Good riddance and RIP to – KORS, Z, VJET, AMZN …you have each taken a percent of my infinity pool fund.  Damn you all to the depths of an Opera guest chair.

The rub?  The market is too out of whack to take option trades now, so that risk cannot be recaptured for now.  Instead I am swinging slow, via the stocks, and that all depends on whether BABA stocks getting the whack-a-mole treatment. Each stock I currently trade requires my full love and affection, no side action, so I am keeping my position count limited.  After all, a trade is a trade and they are all sacred.  Don’t just toss you money into a flaming barrel of garbage for the thrill of seeing the flames rise. That is selfish to the laws of the universe.  Honor thy stock gods.

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One of the market characteristics we often discuss as part of auction theory is what ‘timeframe’ is interacting with the marketplace.  This can help guide us in our trading decisions, especially when deciding what price levels (market profile, volume profile, daily, weekly, etc.) to pay attention to.

You may have noticed I have been omitting a market profile chart from my recent analysis.  This is because we are operating with the high timeframe who are likely being forced into action this week.  Their effect when interacting with price throws the quest for value onto the back burner.  Instead what matters is price action on the higher timeframe.

They are not interested in intraday levels or discovering value as we typically observe it.  This action, especially in the Dow, is likely (if not already aware) to gain the attention of a very high timeframe.

In short, be aware that the likelihood of your price level being run over is elevated in this tape.  Let the price action (heavy reaction, rotation size, impulse, etc.) establish your bias.

On the day, in the /NQ_F, prices need to sustain above 3738 to consider the long side.

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My biggest goal in these fast times markets is to trade as little as possible.  I was reading through my archived works today, for example, to look at past follies.  The biggest gorilla has always been excess action.  I am a busy body, a hyperbola, one heavily influenced by watching teevee whilst gaming and talking smack in AOL chat rooms.  I have always surrounded myself with multiple screens which pump information at my person.

It all screams DO SOMETHING, if you are not careful you will do anything because you’re bored.  I find these conditions to be anything but boring.  They are more like watching a theatrical performance from the orchestra pit.  I have front row seats at the market where I can closely observe the action on the stage and the audience reaction.  Occasionally I toot out a few notes on my little clarinet, little pieces of sound that compliment the grande display.

This morning was all about the turnaround.  Actually first it was about smashing out some sell orders into the early market demand.  Remember, someone is liquidating when they can, not when it is ideal.  Some big ass Exodus where you need demand to sell into.  Can you imagine how challenging it must be to find reasonable demand to sell into?  This morning’s gap was perfect.  Sold.  Next, it was turnaround Tuesday time.  It was that simple, our protagonist stepped forth and unsheathed her sword for all to see.  It was long and swung with confidence, a buyer.  ‘Toot toot’ buy something.  Here comes lunch ‘toot too’ sell it.  Late day neutral print then CRICKETS, oh the suspense, FADE IT ‘toot toot’.

And so the day went.  It was a good day.  This is the duration I am working at right now.  I can’t trust these things for more than a few hours, sometimes minutes or even dastard seconds.  Speed is the name of the game and if you are too slow you are drinking mist.  Are you able to rush and go slow at the same time?  If not, then it is even more simple, stand aside for now because these are fast times.  It will slow about soon enough and you will need good capital to operate at during the next phase.

All I did today was buy some short term AMZN and sell it, keeping a small runner piece for tomorrow.

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If you are long any high beta growth stock which is green today, rest assured, that number is a fake and you soon will return to your regularly scheduled bloodletting.  The gods are agitated, mere mortals.  You were given sufficient reparations for your dutiful market participation these last two years.  But you demand more.  The moon was painted red multiple times as a clear message to humble your ego.  Yet there you were, nibbling incessantly from the forbidden giblets of our most holy tree without keeping an eye on your arse, your risk.

Now you have been fixed to a proper boiling chair in the furnaces of hell and Beelzebub is your only friend.  He has advice like, “cut that flap of skin between your pointer and middle finger” and “channel your rage into moar trades”.

Your soul now resides inside the third ring of middle earth and it’s your job to retrieve it.  Fortunately these stories of ghouls are as fake as the ‘value’ transfixed to four letter acronyms across the financial complex.  Real work, adding value in a palatable and tangible way, continues to thrive.  Know this, the market could head into another crisis (GMAFB, fake) and there will be virtuous men and women who emerge from the ashes as brilliant innovators.  Are you going to do what it takes, risking everything you have to produce the next note in our grande symphony?  Or will you try paying someone else to do it for you?

The dead days of the summer were a swell time to check yourself, an offseason of sorts in the warm southern breeze.  Now it is cold, the days are short, and the rain is heavy.  Have you built your hut?  Your mind?  Use it now, at this very moment, to be objective in your judgment.

That sack of skin you inhabit, or those old fermented grapes you cherish, see them right now.  The market is no more complex, nor any commenter less bullshit then a sommelier.  See it for how simply it truly is.

Then observe how a farmer sells two train cars full of cantaloupe.  Now we can begin to talk about the movement of price.

When a market moves lower it is seeking information.  It wants to know where it needs to advertise price to entice a motivated reaction from buyers.  Once it does so we see an abnormal rotation.  Something like today’s in the Nasdaq.  However, the evidence suggests we have not done enough to thwart off the tide of supply.  Rallies are suspect and to be observed for signs of liquidation.  Until buying demand creates an event that sickens the lot of yous, the bigger punches are being landed by the sellers.

I side with the heaviest and most consistent puncher.  I sit on their back and hold the reigns as they buck and thrash.  Such is the life of following order flow.

 

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The Nasdaq is busting through the floorboards as we head into the weekend and as I type the final round of margin calls are hitting the tape.  There are a few stocks left in the hot boys encampment but the majority are dead.

The only joy I have today is not buying anything. The only other joy I have is taking 3 scalps in the morning on the Nasdaq to earn a few bucks before the severity of the market decline became too much of a distraction to continue.  Trading is a brute force endeavor.  If you are not mentally ripped then prepare to be torn to shreds.  When statistics became way out of whack and this week’s drawdown on my portfolio set in there was a bit too much distraction to continue ‘chipping away’ at the futures.  So I began checking in every half hour on my positions and stopping out when my levels were hit.

YELP died on me again.  And ZU died.  A piece of my never expected ZU to work.  I was tasked with managing this position longer than I originally anticipated.  When my illiquid weekly option could not be sold for fair value, I took delivery of the shares.  It was like being on spring break and getting fresh with a nice lady at the club only to later find out she’s staying at your hotel.  Now you have a vacation girlfriend.

In other news they’re beating Twitter down today.  It managed to sidestep the bulk of this downdraft before deciding today was as good a day as any to ‘catch up’ to the demented herd.  Alas, who am I to call the herd demented?  After all, they are trampling over my limp corpse into the weekend.

Assets are dead, you need all your money allocated to the value of volatility for this extra VXX Halloween.  I am short on advice today folks.  It is my only short position.  I will be scrutinizing the market and my trades and my very methodology this weekend.  Fortunately, through risk control, I live to fight another day.  I hope you can too.

PS – bless you AT&T, you have been my shoulder to lean on as Xfinity fails into the sleepless weekend.

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Fight, flight, and freeze.  These are the three primal responses which can be triggered when you feel threatened.  They are formulated by the limbic system of our brain.  It is much more powerful that your logical mind and is the force that can drive an otherwise normal person to smash a villain’s skull into pieces if they were to perhaps threaten your child or favorite territory.  Ordinary people are capable of extraordinary and sometimes disturbing feats when put under threat.

Somehow, the market, a mechanism of pricing commodities and other assets has the profound ability to activate our limbic system.  We are all here to make money.  There is no question about it.  Nobody is managing their accounts for the thrill of it.  If you are, then goodness, may I suggest auto racing or biking?  The problem is, money provides security and other luxuries.  If you take a trade knowing you are right, then when it does not work in your favor it causes a threat to your ego.  This is very much a force in trading.  Now your ego is theatened because you knew you were right and maybe your were even a bit of a brag about it. Perhaps you start having a conversation or two with the voices in your head, your limbic system is engaged and you are in the back seat. Said another way, you are like a small man pulling on the reigns of a giant elephant.  This is how sometimes you can look back on a trade and say, “how did I do that?  Was that even me?”  Trust me, I can recall this feeling very personally, I have lost 10s of thousands of dollars in profits this way.

Here’s what I know—I will always have an emotional response to the outcome of my trade.  I must put risk in place before entering any position and stick to it.  Once the trade is on I know it will take most of my energy to keep myself in check and let the market prove my hypothesis.  You need to work on this more than you need to work on your technical trading skills.  90% of this game is mental.

I set up all of my trades well in advance of this fast market.  I took no action today.  Yesterday’s only action was buying YELP.  Should I have sold YELP today?  Absolutely not, it has done nothing wrong even while the markets take another beating.  AMZN, I am still with it.  It looks fairly close to being wrong, but is it wrong yet bro-sis?  No.

The PPT Breadth, one of my cold, dead data points on the market, had its lowest reading of the year today.  Nasdaq cumulative delta (net of trades executed at offer– trades executed at bid) was red, but it was worse on Monday.  I have little data snippets which suggest we might see some sort of reflexive-type bounce soon.  Therefore, I wait these suckers out, one false breakout after another, waiting for my proper goddamned moment to clean up my book, for fuckedsake.

A good bull market never pulls back to let dippers in or shorts out.  Flip that idea on its head and you have our market since the day Alibaba started trading.  Take out a 30 minute chart of the Nasdaq and compare it to BABA and you will see what is killing this market.  We are being liquidated upon, broad scale, bulls.  This is not the time to be heroic and averaging down down down.  Steady you mind and breath.  If you must capitulate then make the market work to take you out.  Do not simply folly out because of fear.  And don’t be a hero either.  Just let the wave take you and spit you out.  Then start swimming.

Final thought-if you decide to switch your internet service provider midweek, keep your old service running.  If I did not have the mother ship wired up with ATT and Xfinity I would currently be Xfinifucked.

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One must be brief as they are coming to change my internet over to speeds unknown to residents in the history of mankind.  One truly is impressed with how far infrastructure has come.  The reversal today was strong and with it moved several momentum darlings like NFLX AMZN TWTR and YELP.  They call me crazy when they see TWTR swell to nearly 20% of my book. There was also a big rotation into old man utilities.  Basically the Fed backed off the idea of raising rates and the market found a bid.

Truth be told, this market was looking for any reason to have a bid.  The depths the Nasdaq traveled before finding a buyer sort of negates the opportunity to call this a higher low.  This makes me think we see some range bound chop in the near term.  What I want to see is whether these conditions lead to range compression and individual stocks decoupling from the broad market.  If not, I will increase the attention and resources allocated to intraday future scalping.

I made one move today, buying back my YELP position in the November duration.  This chart looks splendid to my eye, and I have no shame in reentering a still-valid setup.

Making only one move may seem simple and trite, but you know what I didn’t do?  Capitulate on my longs down in the trough.  Instead I took a long bike ride across the windy Michigan terrace.  The gusts were so strong I managed to hit 37 MHP on flat ground!  The wind helped, as did 3 weeks of training LEGS ONLY at the gym.

As hard as it may seem, the market printed anther neutral extreme.  Yesterday’s pointed to lower prices this AM.  Today’s points to higher prices tomorrow AM. I suppose many of you cannot afford to take this game one day at a time.  But my best advice is to take this game one day at a time.  You are small, use it, like a fast boat on big choppy waters.

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