That Friday After Rollforward

NASDAQ futures are coming into Friday gap up after an overnight session featuring extreme range on indecipherable volume.  Volume is split between the March and June contracts because of rollforward.  I will stick with the March contract into the weekend. Price worked higher during the entire session, stalling out just before the weekly high set Monday.

The only economic event today is the Baker Hughs Rig count at 1pm.

Yesterday we printed a big normal variation down.  Late into the session it looked like a double distribution trend down, but the strong end of day bounce radically shifted its form.

Heading into today my primary expectation is for sellers to push down into the overnight inventory and test down to the 4300 century mark before buyers step in and work up though overnight high 4346.50.  From here look for a test above the Monday high 4355 before two way trade ensues.

Hypo 2 buyers gap and go, take out overnight high 4346.50 early on then sustain trade above the Monday high 4355 setting up a big rally to target the 4400 century mark.  Stretch targets are 4407.50, 4415.50, then 4433.25.

Hypo 3 strong selling closes overnight gap down to 4285.25 then takes out overnight low 4282.50.  From here sellers continue lower to target 4267.75 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are set to start today gap up after an overnight session featuring extreme range on elevated volume.  Trade was balanced overnight, quickly exceeding and sustaining trade above the Wednesday close before trending higher from 7am onward.  The trend was driven by news from Europe, that their Central Bank has cut borrowing rates to -0.40% and also expanded their quantitative easing program to include the purchase of corporate debt.  At 8:30am Initial/Continuing Jobless claims data came out better than expected.

See also: Draghi Surprises To The Upside And Throws The Kitchen Sink at Markets

Also on the economic docket today we have a 30-Year bond auction at 1pm and the Monthly Budget Statement at 2pm.  Today is also rollforward.  After the open, most active participants will begin trading the June index futures contract instead of the March, which expires next Friday.

Yesterday we printed a normal variation up.  Price opened gap up but well within the Tuesday range and sellers quickly close the gap with an opening drive down.  Sellers were not able to push the market down below the Tuesday low before responsive buyers stepped in and worked price range extension up.  Sellers made a second aggressive attempt lower, but were not able to push the market neutral for a third consecutive day.  Instead buyers defended session low and then worked price slowly higher for the remainder of the session.

Heading into today my primary expectation is for sellers to push into the overnight inventory and work price down to 4310.  Buyers defend here, ahead of the gap fill, and we work higher to take out overnight high 4347.50 before testing above the weekly high 4355 before two-way trade ensues.

Hypo 2 sellers push a full gap fill down to 4294.25 then set their sights on the overnight low 4283.50.  Selling accelerates and we trade down to 4269 before two way trade ensues.

Hypo 3 buyers jam the gap and go drive higher.  Take out overnight high early 4347.50 then sustain trade above the weekly high 4355 setting up a move to target the 4400 century mark.  Stretch target is 4406.75.

Levels:

Volume profiles, gaps, and measured moves:

For two weeks I was bearish and wrong.  This week I came in neutral, but Switchboard [coded context] keeps nudging its bias long, then back to neutral, flip-flopping, if you will.

The conditions are not conducive for trading inside-out.  Trying to initiate directional trades is likely to chop you out.  Instead you have to work from the outside-in, fading moves back to value.

Trading conditions like this mean markets are in balance.  They are resilient against attempts higher and lower, and are structurally sound.

Aside from fading extremes, this type of action also lends itself to stock picking–a pastime I haven’t actively pursued yet this year.

All the data points to neutrality with a very slight bullish bias.  The huge value areas in play are hard to bust loose from.  Stock picking might be the move, but I am not participating.  The markets are likely to remain in wait-and-see mode until we hear from the European Central Bank tomorrow, resistant to any directional attempts.

SEE ALSO: All Eyes on Mario Draghi

NASDAQ futures are set to begin Wednesday trade gap up after an overnight session featuring normal range and volume.  Price spent most of the session working higher and managed to hold the Tuesday range.  At 7am MBA Mortgage Applications came out significantly better than the previous month.

Also on the economic docket today we have Wholesale Inventories at 10am, crude oil inventories at 10:30am, and a 10-Year Note auction at 1pm.

Yesterday we printed a neutral day, the second consecutive neutral day.  The market opened gap down and spent the morning filling the gap, much like Monday.  In the early afternoon, the market attempted to continue going higher but formed a failed auction as it attempted to re-enter the mutli-day balance formed from March 1st-7th.  We then traversed the entire range to push the session neutral before the settlement period saw enough buying the fend off the ‘neutral extreme‘ nomenclature.

Heading into today my primary expectation is for sellers to push into the overnight inventory and close the gap down to 4272.  Look for responsive buyers ahead of overnight low, however.  Buyers step in around 4265 and make a move to take out overnight high 4299.  Range stays tight as responsive sellers defend the 4300 century mark and two way trade ensues.

Hypo 2 sellers push the gap fill down to 4272 then set their sights on overnight low 4263.  From here selling continues to target 4251 before two way trade ensues.  Should the selling accelerate, the stretch target is 4234.25.

Hypo 3 buyers gap and go, take out overnight high 4299 early on and sustain trade above 4300 setting up another attempt back into the March 1st-7th inventory, an attempt back above 4310.  The achieve it setting up a move up through to 4315.  Sellers likely respond here, at least on the first attempt.  Stretch target is micro-composite value area high 4330 then 4337.75.

Levels, note the healthy balance distributions currently in place:

Volume profiles, gaps, and measured moves:

NASDAQ futures are set to enter Tuesday gap down after an overnight session featuring elevated range on normal volume.  Price pushed lower early on, deep into last Tuesday’s conviction range before finding a responsive bid and trading back into the Monday range.

The economic calendar is quiet today, but we have a 4-Week T-Bill auction at 11:30am and a 3-Year Note auction at 1pm.

Yesterday we printed a neutral day.  We came into the week gap down.  Sellers made an early attempt lower but were thwarted by responsive buyers who worked up to close the overnight gap.  Just after NYC lunch a strong sell hit the market and price traversed the entire daily range putting the session neutral.  By the close a responsive bid worked price essentially back to where the day began.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 4300.25.  From here look for a move to take out overnight high 4304.  Look for responsive sellers up at 4309.50 and two way trade to ensue.

Hypo 2 buyers strong, close gap at 4300.25 then push up through and sustain trade above 4309.50 setting up a move to target 4320 then 4330.

Hypo 3 sellers step in ahead of the overnight gap fill, around 4291 and push lower to test below the Monday low print 4268.75.  Responsive buyers step in ahead of 4259 and two way trade ensues.

Hypo 4 strong selling works down through the Monday low 4268.75 and continues lower to target overnight low 4251.50.  Stretch target is 4234.50.

Levels:

Volume profiles, gaps, and measured moves:

By the looks of this daily NASDAQ chart, and especially since nobody is talking about it [hint: that’s when technical analysis works] we are forming the right shoulder right now:

Right on the multi-year volume point-of-control:

Bearish conviction kicks in if/when we take back last week’s trend day.  Last Tuesday’s range for the newbs lurking on my blog.  Say hello noob, I am a good guy, and sexy.

You think you can defeat me.  Not if I see you first.  Remember that.

We just traversed our entire near-term range in 20 minutes.  30 NASDAQs, poof stolen.

I nearly flipped my bowl of pho when I heard 5-alarms coming from mothership.  NASDAQ futures were just set aflame by what appears to be a liquidity drone.

It managed to vanquish nearly any buyer on the session today.  Here is the range we are working with.  Best you don’t press your luck into the extremes of either side aka shorting is already a chase:

I’ll keep working the short side, but that means nothing to you.  Just be aware the market just had its liquidity tested, and it didn’t go so hot.

NASDADQ futures are set to open gap down after an overnight session featuring normal range and volume.  Price spent most of Globex trading down, but in a slow and methodical manner.  As we head into the open, price is pressing down into the low-end of our multi-day balance.

At 10am we’ll hear a read of the Labor Market Conditions Index Change, and 11:30am both a 3- and 6-month T-Bill will be auctioned, and at 3pm Consumer Credit data is set for release.

Last week volatility receded significantly, the most we’ve seen all year.  There was a big trend day Tuesday then the rest of the week was spent consolidating on the upper quadrant of the move.

Friday printed a normal variation up day, with sellers responding late in the session to close the day flat.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 4323.  From here look for a move up to 4333 before two way trade ensues.

Hypo 2 seller push off the open, take out overnight low 4296 and trigger a liquidation down to 4279.  Look for responsive buyers here and two way trade to ensue, perhaps with a late day gap fill up to 4323.

Hypo 3 sellers accelerate down through the zipper, down through 4279 setting up a full-on liquidation down to 4234.50 before two way trade ensues.

Hypo 4 strong buyers close overnight gap up to 4323 and push and sustain trade up above 4333 setting up a move to test last Friday’s high 4355.

Levels:

Volume profiles, gaps, and measured moves:

Frozen vanilla chai latte to my head, I have a short bias heading into the week, but my models are all coming in neutral.

It is worth noting I had a short bias for the last two weeks.  That didn’t work out too hot.  Being cold to this market kept me sidelined while epic squeezes took place in the energy industries.

I missed some action, fine.  The good thing about trades is another one is always coming, just like buses in the city [not Detroit].

I closed my Walmart investment out late last week.  It was sporting a failed auction and I don’t play around with failed auctions anymore.  Plus Macke has been throwing mad shade on their share buyback program.

Anyhow these days, if a swing trade makes money it makes cents [sic] to book it.  I collected a dividend along the way [old man swag].

Enough about me.  Stocks exacted a serious amount of pain on short sellers and sideliners last week.  FOMO is elevated but not radically strong.  Sentiment is tepid, the wall-o-worry is alive and well, but I don’t like it.

I would rather be tactical, speed boating into position trades and jab, jab, hooking my way through the futures market.  In short, I’m cashed up and neutral.

There are few waves in southern California as legendary and ruthless as The Wedge, which occasionally kicks up in Newport beach.

The wave is a result of man made barriers on both sides of the beach which serve to collide sets of incoming waves.  The result is a wave face that rises up like a skyscraper and instantly crashes down with the force of two massive walls of water.

The behavior of that wave is a great natural example of how I expect the wedge currently forming on the Dow Jones Industrial Average to behave.

Traditional technical analysis considers an ascending wedge a bearish pattern, which is all the more reason for it to surprise investors with a massive blast up-and-out of it.  Sort of like this:

I have no intention of playing the blast up.  However, the rip higher is what I intend to catch, on the short side, and ride like the legendary boogie boarders of Newport beach.

With the right timing and a little bit of luck, I might just get the ride of the season.

TBD