Examining This Wednesday Neutral Print

We printed a neutral day over on the NASDAQ. Neutral days are my favorite day type because they are uncommon—only about 20% of sessions end up neutral. The probability of consecutive neutral days is even lower.  It is like spotting a rare bird.

Late last summer the market defied statistics and went on a 10 consecutive neutral day streak. It was insane—the so called long-tail risk that is ubiquitous reared its ugly head and humbled my inner statistician.

A neutral day is when both the high and low price from the first hour of trade (initial balance, or IB) are exceeded. Pressing past the initial balance is called range extension and suggests higher timeframe participants are becoming initiative as the day matures. I highlighted the range extensions from today on the following 15-minute bar chart:

The neutral we saw today comes at an interesting location because they tend to occur at-or-near inflection points. The market is about 5 days into a pullback after making new contract high. However, this neutral day closed in the lower quadrant—earning it the neutral extreme nomenclature.  It also formed a a prominent excess high, shown as a shadow or ‘wick’ on the daily candle.

The main idea to take home when seeing a neutral day is its market behavior footprint.  We are coming into short term balance. Both higher time frame buyer and seller are aggressively engaging the market but neither can break away from the magnetic force happening inside value (about 4650 – 4620).

In these conditions it usually makes sense to fade extremes back to the mean, at least until a definitive break occurs. Some prefer to play both sides, others stick to their bias and play their side of the ping pong table.

Speaking of value, we have a nice one formed, check it out:

Neither sellers nor buyers have much structure to lean on outside our current value mass. The next levels for bulls are a distribution formed during a globex session down at 4580. For bears it’s a series of chutes and ladders aside from the chunky formation up at 4703. Therefore it will be a challenging fade trade going into tomorrow. Maybe tomorrow would be better spent taco Thursday style…developing…

Healthcare is the worst performing sector on the session, currently trading about one and a quarter percent lower. The bulk of the selling is taking place in the home health care industry with hospitals not far behind, but we all know which industry is really to blame here, yes? Investors are being spooked out of those bastard biotech stocks.

The industry, as tracked by IBB, is heading into the close near the low of  the week. Despite shrugging off weakness Monday, it appears the polytetrafluoroethylene (Teflon) surface of this cancerous industry is wearing off.

The industry is swirling with allegations including their hot, 30-year old female Steve Jobs being thrown under the bus AGAIN by The Wall Street Journal.

The hubris level peaked this week, prepare to see all the weak hands flushed down the shitter and back to their home—living with the penguin.

Guess what?  This Friday is the 13th (extra Hitchcock) and the grim reaper will be out for biotech bull blood.

The bloated healthcare sector is leading to the downside here.  Their unicorn, the biotech industry is standing broadside in an open field, and I am perched 30 feet up with a sniper rifle ready to put fifty calibers in its chest.

Futures are priced for a gap up into Wednesday over at the NASDAQ 100 after an overnight session featuring normal range and volume. Price spent most of the session drifting higher and managed to take out the Tuesday high and continue up through the Monday midpoint before stalling out on the top-end of current value. At 7am MBA Mortgage Applications came out slightly lower than expected, there was a muted response.

There are no other economic events scheduled for today.

Yesterday we printed a normal variation up day. Price opened gap down and made a liquidation thrust lower that responsive buyers quickly gobbled up. One more attempt lower was made just before 10:30am which managed to print an excess low. After setting the low we grinded sideways above the mid before one last sell program tested for interest below the mid. It was faded and we rallied into the close.

Heading into today my primary expectation is for sellers to work into the overnight inventory but to stall before closing the overnight gap. Look for responsive buyers to defend 4648.75 and make a move to take out overnight high 4661.75. Just above here look for responsive selling and two-way trade to ensue.

Hypo 2 sellers push a full gap fill down to 4643 before two way trade ensues. Look for sellers to keep price below overnight high 4661.75 and to make a move to take out overnight low 4636.25. Look for signs of responsive buying around 4622.75 and two way trade ensues.

Hypo 3 is a pole climb. Up above overnight high 4661.75 is a thin profile structure. If buyers make a strong push above overnight high, then it is likely to continue all the way up to 4683.50 before finding responsive sellers.

Levels:

Apple announced their intention to add 1,000 new jobs to their operations in Ireland (per Reuters).  Earlier in the year they announced plans to build an $850-million-euro data center in the land of stout beer and rain.

It appears this expansion of Irish operations is at least in part because of an upcoming tax ruling from the European Union.  Apple claims most of their overseas profits at the sweet rate of 2.5% and if they do not demonstrate a substantial footprint in the region, the whole scheme looks real shell-like.  And if it is only a tax shelter (which it more or less appears to be) then authorities are going to bust them for back taxes.

If the European Commission were to recover Euros from Apple, I imagine the money would be spent frivolously  supporting the Greeks.  Let’s hope Apple can appease the authorities through their good-faith hiring and infrastructure build.

This is like what, the ninth televised debate?  These things are awesome and networks are making tons of money off the political theater.

There was a brief moment in the late-days of the Roman republic where they attempted to ban bribery and favors from the election process.  The people went apeshit and demanded the system return to its nefarious ways because restaurant owners and merchants lost tons of business.  Also, people felt less connected to the the popular pastime of watching the electoral games.

It has always been a power game to a few and entertainment for the rest.  That was literally 58 B.C.  History does not repeat but it often rhymes.

Anyhow let’s see if republican white guilt continues to propel herb dealer Ben Carson to the front.  My hat (literally, I bought his hat) is with Don T.

Death and taxes are certain, and most professions require some form of higher education.  You want to be a professional, right?  Then plan to buy overpriced books from John Wiley & Sons Inc.

Dollars earmarked for buying stupid-expensive books are dolled out quarterly via the student loan program.  Even if some college students are smart enough to find work-around tactics for floating through class sans book, they are in the stark minority.  The stock is consolidating down into a nice support level and looks easy to manage here:

College is designed to suck as many dollars out of these loan programs as is possible.  Yes, it is also a place where people learn and prepare to be a professional.  But these days everything you need to know is online.  We are democratizing information and I am a huge fan of this approach to learning, even if it does not carry the same credibility as a degree.  Show them your worth by generating net worth.

Since we are on the topic of learning, for less money then you would spend on course materials for Intro To  Biology, you can learn to trade for a living from our resident educator Jeff Kohler aka The Option Addict.  Click here for the details.

After voluntarily closing 43 restaurants in Seattle and Portland due to reports of E. coli, Chipotle Mexican Grill plans to reopen all the locations in the coming days. According to their Business Wire health officials see no ongoing risk from the incident.

The company handled the poisonous gut rot (aka E. coli) well. Despite only eleven locations being linked to the reported outbreak, they closed all 43 Pacific Northwest locations and rage cleaned them. They also stayed in front with Public Relations.

They needed strong execution on the crisis-control front. Shares in the burrito and fiesta bowl maker are down at annual lows. With any luck this whole incident will fade, and the working American will return to pounding out their Mexican fare on the regular.

Prices over at the NASDADQ exchange are down near the Monday low after an overnight session that featured an elevated range on normal volume. The price action was nearly contained within the lower half of the range established Monday.

The economic calendar is slow today. We have Wholesale Inventories at 10am.

Yesterday we printed what can be best described as a double distribution trend day down. The week started with a gap down. A tight compression formed off the open which broke to the downside and triggered a fast, liquidation move lower. By lunchtime responsive buyers stepped in, and after about 3 hours of balance near the lows we saw a late-day rally.

Heading into today my primary expectation is for buyers to work into the overnight inventory and push price up. Look for buyers to stall out before the open gap up at 4652.25. Look for responsive sellers (responsive relative to the open, initiative relative to yesterday close) around 4645.50 who target the overnight low 4624.50. Below here price action is thin. Look for buyers around the 4600 mark then two way trade ensues.

Hypo 2 buyers push into the overnight inventory and close the gap up to 4652.25 before sellers step in and work price down through overnight low 4624.50. A test below ONL/Monday low 4622 reveals responsive buyers and two way trade ensues south of 4655.

Hypo 3 strong buying closes overnight gap 4652.25 then sets its sights on overnight high 4662.25. Trade is sustained above ONH 4652.25 setting up a pole climb up to 4692 before two-way trade ensues.

Levels:

This is not cool–the western world will not stop messing with Russia.  Our latest attempt to alienate and dehumanize The Federation is to sick the World Anti-Doping Association on their state athletics department.  Now this nark agency is trying to kick Russia out of next summer’s Olympics down in Rio.

The associations founding president and co-author of the report, Dick Pound, went so far as saying, “This is an old attitude from the Cold War days,” during a news conference according to The New York Times.

Apparently the economic sanctions are not enough.  We must to demoralize mother Russia by kicking them out of sports; one of the things these people are really fucking good at.

The markets are already behaving odd.  Like what was that bitcoin surge last week all about?

The media loves this doping claim.  It is one more hit piece for them to run against the savage Russians.

The western world is ostracizing Russian sports while you play lazy American fantasy football and gamble your family’s savings being a sofa coach on Draft King.  Turn off your damn sports channels for two minutes and focus on something else.

I hope this whole fiasco goes away.  Sometimes I watch too much Vice and think the world is about to end.  Just last Saturday I finally watch their season finale (Cold War 2.0) then some jackass Canadian named Dick Pounder goes after Russian sports.  FML

I woke up rested, had a proper breakfast, saw to my morning preparations, lit my ritualistic death to biotech candle, but still managed to make some errors during the session.

Sometimes you do everything right but still make mistakes—for now I am still human. A few things tripped me up:

• Gaps into a new week often get faded
• TRIN had abnormal readings which call the first move of the day into question.

The problem with the above two events is they have no data behind them. I never ran a study to quantify the validity of these observations. Slippery footing gives way fast when you get out of sync with the market flow.

As a result, despite coming into the week with a short bias, I was trying to fade the market by 11am. Try is the key word because it felt forced. I managed to escape break even the first time but the second fade try took a drop dead stop—something I have not done in over a month.

Meanwhile, biotech was bulletproof. The industry even shrugged off another Citron attack. I am still short via BIS, but I feel like I am standing blindfolded in front of a firing squad.

When the market gives me a good spine twist I like to make sure my mental game is still centered. I am off to find my inner voice and listen to it until it stops talking o_0

I am also looking forward to hearing The Option Addict run through the investor conference content again.  Expert commentary is always useful when assessing your own strategy and approach.