Netflix Is A Freak Beast

I have zero intention of fighting the 45 degree ascent in the markets as long as Netflix is putting up big numbers.  This stock is insane–up about 12% over the last two days.  It is literally trading with impunity since the latest dip.

My model got one thing right.  It calls for a sharp bounce at some point during the week.  The only problem is the last two instances have seen the sharp bounce start Monday morning.  That is not exactly helpful.

Nevertheless, I have been on the right side of the tape all morning.  My systems are back to 100% operational.

The mothership is a force in the marketplace.  A fast and nimble boat that rapidly adjusts to the changing conditions.  Netflix is like an ambulance clearing a pathway down a traffic infested street.  Follow the leader.

A few months back I started working with Bookmap to better understand order flow.  This product does wonderful things for visualizing the order book beyond a basic depth of market or DOM.  It has made a huge difference in my performance.

Anyhow, despite operating without algos this morning I managed to catch this nice little consolidation break and work a long up through initial balance high, and I wanted to share what I was looking at.  Check it out:

This trade was one of the core ideas discussed last night during Jeff’s online investor conference.  Having this vital trading principle solidified last night already paid off handsomely. Thanks Heffe!

Also: I bought Walmart this morning for a long term investment.  The idea is the exact same as what you see above, only it is playing out on a 10 year chart, not a state-of-the-art order flow chart.  Different fractals, same core concept.  That is how I like to execute.  I booked my short biotech via BIS this morning also.  I hope to revisit this idea from about IBB $354.

The NASDAQ futures are priced to gap up this morning after an evening of balance gave way to buying early this morning. Range and volume are both slightly elevated above normal on a session that managed to push up and test the low from last Thursday. At 8:30am Consumer Price Index data came out slightly better than expected. The number brought in a small spurt of buying that was faded.

On the economic calendar today are a slew of low/medium impact events. At 9:15am we hear the Industrial/Manufacturing Production read. At 10am NAHB Housing Market Index, and at 4pm the Net Long-term TIC Flows. Keep in mind we also have FOMC minutes out tomorrow afternoon.

Yesterday we printed a trend day up. The session started flat and the early attempts of sellers to press lower were defended. Before lunchtime buyers were in control and they continued initiating higher prices through the close.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 4561.75. Look for responsive buyer just below at 4557.25 who work to take out overnight high 4585.75 but achieve little more as the market enters a wait and see grind ahead of tomorrow FOMC minutes.

Hypo 2 buyers gap and go. Take out overnight high 4585.75 early and press up to target the HVN at 4603.75 before two way trade ensues north of the overnight high.

Hypo 3 sellers become aggressive. After closing the gap down to 4561.75 they set their sights on overnight low 4552. Below here are single prints which price accelerates into, pressing the market down to 4517.25 before two way trade ensues.

Levels, note-the gods are testing me this week. Yesterday market profile was broken, today Multicharts is broken. I cannot make this stuff up:

Shares of Walmart [NYSE: WMT] are trading higher this morning following the Q3 earnings results.  The company reported EPS $1.03, adjusted EPS $0.99 vs $0.98 estimate.  Sales were $116.8B Vs estimated $117.79B.  No big deal, they had over one hundred billion dollars in sales last quarter, lol.

Anyhow, after attending day 1 of Jeff’s online Investor Conference last night, I wanted to take a longer term look at Walmart.  2015 has been brutal for Walmart shareholders and ‘retail is dead’ is the new war cry of bears.  However, when you zoom out to the weekly chart, we are finally coming back and checking the 12-year consolidation that took place.  I like the idea of tucking some WMT shares into the investment portfolio this week and just ignoring them:

You want to keep the mind game simple when trading.  I have concentrated my technique down to bias, hypothesis, level, then trade.  I have done my best to codify bias with Switchboard.  Below I highlighted the two major cross currents which are in conflict and make me question my overall short bias:

Having the wrong bias means you are only looking for small scalps on the side that is running while trying to press position trades in the side that is being run over.  This makes trading NASDAQ futures suck, but it usually does not end up a losing endeavor.  However it carries more significant implications for the 10-12 day horizon.

Back on Friday I was buying longs by the afternoon for the 10 day hold via the Exodus Hybrid oversold.  Then, seeing us trend down into the close I relied on market profile theory to ensure me the high probability I could re-initiate my longs at least one tick below the Friday low.  The logic played out, but all the sudden I was not interested because Oh shit short caution was activated on Sunday AND all things considered the Switchboard bias was short.

So I missed my swing entry.  Therefore I ask two questions of you, if you are willing to help me.  I know most of you root for my demise. but a few on the same journey as mine are allies.

QUESTION ONE: How do I handle mixed signals?
A. Completely separate behavior – use Exodus for swing and my model for working NASDAQs
B. Do not trade – too mixed a message, just do nothing
C. Shit can the model
D.Rely on the Context Synopsis (final call of Switchboard) and fiddle with the amount of weight each item earns (i.e. Exodus 5 instead of 4)

QUESTION TWO: Does anyone have a better name for the Oh shit signal?  I am so sick of calling it that.  Offer a new name in the comments below.

Just when you think the market could dive lower, Netflix puts in a +7% day.

The morning showed early signs of selling but just the typical slow walk.   The new normal. Buyers rested on the bid, accumulating, before shifting to full power long initiation this afternoon. Now my model is just a few points from turning in a loss on the week and I have been working the wrong side of the tape.

Resisting the trend is futile. There is insatiable demand for stocks, especially the real tech hero stocks. Add Apple to the roster—straight ripping off an Exodus oversold reading Friday.

We still have Wednesday Fed minutes, but this action is hardly bearish. I suppose I will get long again just before the next ferocious downside move.

If you are like me, completely befuddled by the 2-12 day time frame, then you might want to join me in listening to Option Addict redo his investor conference this week. I am pretty sure it will be recorded if you cannot attend live. SIGN UP HERE

Thanks to the rapid response team at Fin-alg, I have my market profile chart back up and running.  Here are levels I am working on the /NQ:

Note the nearby magnet up above.  If buyers managed to take out IB high, that is the logical target.

My primary expectation here is they lose their footing, give up open print 4493, and we go target the 4471 zone.

One of the biggest names in the biotech industry, Clovis Oncology, is enduring a huge gap down this morning on the highest volume of the year.  It did not take much to knock this giant on its ass.  A mere FDA request for additional clinical information regarding one of their stupid drugs, rociletinib.

The news is putting pressure on the whole industry this morning despite an early rally in index prices.

Keep an eye on CLVS.  Either the buy the blood investors see this as an opportunity, or the -70% gap down scares people away.  I am looking for the latter.

NASDAQ futures are priced for a gap down to start the week after a globex session that featured extreme range on elevated volume. Price opened Sunday evening to a gap down and spent most of the session working higher. The market managed to push back into the lower quadrant of Friday before sellers reemerged.

The only economic event scheduled for today is MBA Mortgage Foreclosures at 11:30am. Keep in mind we also have FOMC minutes scheduled for Wednesday afternoon.

Last week price worked lower for nearly the whole week. We had 4 gap down days, including a gap down to start the week.

Friday was a trend day down.

Heading into today my primary expectation is for sellers to push down into the overnight inventory and target the overnight low 4455. Then look for sellers to tag the CHVN at 4450 before responsive buyers step in and two way trade ensues.

Hypo 2 buyers work the overnight gap closed up to 4502 and stall. Sellers step in but cannot exceed overnight low 4455 before two way trade ensues.

Hypo 3 buyers close overnight gap 4502 then set their sights on overnight high 4517.50. Stretch target is 4533.75.

Levels, note my market profile charts went down this morning. I will update levels once I get them back up and running:

Normally, after completing all my research and coming to the conclusion that my model has a short bias, I come here, to public forum, and pen a melodramatic epilogue foretelling fire and brimstone raining down on the financial markets. In light of the recent terrorist attack, I am going to just tell it to you straight.

My model has a short bias. The model is based on scoring all four major indices (SPX, COMPQ, DJIA, and Russell 2000) similar to how Exodus goes about scoring stocks and ETFs. I then subtract the Exodus score from my bias score. If the difference between the two scores is greater than 0.50 I have a short bias and if it is less than zero I have a short bias. IT ONLY OFFERS SHORT BIASES

Most of the time the model is neutral, but it has carried a short bias since October 4^th aka it missed a HUGE rally.

The two short signals expect different conditions. The one that triggered last Sunday called for downward pressure on the tape. I named it Rose Colored Sunglasses because the index scores come in way higher than Exodus, which ranks each stock individually. It is like the indices are painting a reality more optimistic than what is actually going on. This is what happens when you wear rose tinted sunglasses, especially during the autumn colors.

This week we triggered the Oh Shit [OhS] score, a reading below zero. It is actually the lowest score recorded over the last 52 weeks. The name came from the action I historically observed when this reading happened—fast, capitulation type moves lower. I call them capitulation moves because over the last year they were almost all sharply reversed by mid week, V-shape style. This week, given the recent terrorism, may just be hard liquidation.

The most important fact you need to know is past performance is not indicative of future results. When dealing with models and probabilities you are working with just that—probabilities. The OhS signal only has 8 samples. So far all of them have featured fast moves.

Here is the bias log thus far. Today is my models birthday. 52 weeks ago I started this baby:

Exodus members, the latest issue of the Strategy Session has been published.  Check it out.