More Slow Play at The Nasdaq

This morning promises to be a choppy one. After a sedentary session yesterday, price and value have settled into a stable pocket with a well-established distribution both above and below our current area. Please, see more clearly what I mean below where I have marked the key reference points and a two visual hypotheses:

Adding tinder to the potential for a choppy open is the sexy world of economic releases. CPI (Feb, YoY) was out at 8:30am and firmed up more than expected leading to rate hike talk. Price initial pushed lower by has since gone unchanged off the data. Several more data will spatter out this morning including House Price Index at 9am, Markit Manufacturing PMI at 9:45am, and New Home Sales at 10am.

Heading into today, my primary hypo is sellers work down into overnight inventory and take out overnight low 4431.25 and do their best to fill the gap down to 4424.50 and target the NVPOC at 4422.25 before finding responsive buyers.

Hypo 2 is buyers defend around 4438.50 (overnight gap fill) and push up through overnight high 4449.75 and continue on to work the value area high of the upper distribution around 4457-4460.

Hypo 3 is a strong drive higher up through VAH 4460 and a gap fill up to 4472.50.

Levels highlighted below:

The First Commandment This Week is Thou Shall Not Chase

The biggest mistake to make in this environment is chasing a move after it happens. But you also have to avoid putting risk on before anyone else is interested in playing along. It is sort of like being a small girl testing beds and porridge inside a bear den.

Seek out the weak baby cub and take its food and shelter.

Today changes nothing. If anything it makes me MOAR boolish. A big piece of my weekend strategy was oil strength early in the week. So I can check that off the list.

This afternoon selling in the Nasdaq reminds me of the boogie man. The intentions are to generate fear.   People who behave out of fear go down a path of self destruction.

This takes me back to this week’s First Commandment. Chasing is the result of peer pressure. Your friends have jumped from a bridge and are now celebrating with aggressive fist pumping and pelvic thrusts in your direction. You’re afraid they will abandon you if you don’t join in their stupidity, so you take a leap of faith. This was never your idea and you realize it just before you smack the water. Perhaps it’s bad luck but more likely by bad form you hit a low spot and your knees come completely through your body and replace your arms. Your arms have been blown off and are now floating away, and all your friends can offer is solace in the form of fist bumps to your foot-hands.

You cannot survive trading without qualifying ideas on your own. Sloth is a sure journey to insolvency.

I see you pumped and faded my CHGG call and guess what guy?  I don’t care. This is a longer term bet that lazy college students will go hard on Chegg’s services. Plus we all know higher education is the greatest bubble of all time, so how in Sam Hill tranation can this go wrong?

Statistically speaking, this week is no longer in duration than any other. However, by process of super computers running 1000s of hours of probabilities and research, one can draw the conclusion we are in for a grind haus.

In these conditions it is imperative you take care to not overly tighten risk. On the flip side, chasing a move in either direction will likely result in your receiving a swift castration.

If you’re working options, this means making sure your momo pocket is heating up before putting the bacon in the skillet.

I am exercising my right to expand my timeframe a bit, and since I love small caps so much, all I have done today is buy a metric butt load of CHGG common stock. Risk is well out of the way so feel free to go hunt it, bastard internet algos.

It takes every piece of self control I’ve got to not stomp my foot to the floor long here. Instead I will eat this elephant one bite at a time.

Nasdaq futures are starting the week flat after rallying last week. The overnight session printed normal volume and range but did manage to take out Friday’s session low a few times before bouncing back to unchanged.

The economic calendar is quiet stateside today with Existing Home Sales at 10am as well as Fed’s Williams talking economic outlook. At 1:15pm attention will be on the European Union where Chancellor Merkel is meeting with Greek Prime Minister Tsipras for talks on Greece. They are meeting in Berlin.

Turning our attention to the charts we can see how the Nasdaq went gap up through a prior well-established value area. Price worked higher for much of Friday’s session before finding responsive sellers 1-tick ahead of closing the gap dating back to March 1st at 4472.50.

4444 serves as a helpful pivot point especially if sellers decide to work into the below gap zone today. Please see below:

Heading into today, my primary expectation is for an open auction inside Friday’s range followed by a push higher to target overnight high 4461.25. If buyers sustain trade above 4459 then look for a push to new swing high 4477.

Hypo 2 is sellers contain trade below 4448.25 and work down into the gap zone below to target overnight low 4439, Thursday’s range gap 4432.50 and a full gap fill to 4424.50. The ultimate target of this hypo is tagging the NVPOC at 4422.25.

Hypo 3 is aggressive selling takes us down through the NVPOC at 4417 and begins working down into the Fed rally. Look for signs of responsive buying down at 4400 but be cautious of a full take back down to 4355.25.

I have highlighted key market profile zones below:

With winter behind us and conditions still brisk in the north, I have that strong sense of optimism that comes with the return of sunshine.

Almost overnight moods have shifted and skirts have returned to the walking streets of towns and universities.

Meanwhile in the land of stocks, our supreme overlords at the Fed have surgically removed a toxic piece of minutia sending bulls into a feeding frenzy. Yes, the bulls resemble salmon, and yes, salmon is a bear’s favorite meal. But with the currents at our backs it makes catching us a most difficult endeavor. Perhaps the eagle is better equipped to land a meal.

WSS subs, who are without question cut from the finest cloth, I couldn’t help myself—I spent like 10 hours creating this week’s strategy session. There was a contract roll forward requiring 100s of price levels to be manually adjusted *shakes fist at Multicharts* and some key events I wanted to highlight. I hope you enjoy.

Outsiders, public school kids of the world, I am brewing up something fun for you, but in the meantime why not treat yourself to this week’s strategy session?

This is my formal declaration that the Russell 2000 Small Cap Index has undergone a major breakout, and I am of the opinion it goes much, much higher.

My reasons are technical so here’s a chart:

WSS subs, I will provide more color on this topic to you tomorrow.

These markets can turn a nice guy into a jaded urchin. Most who try their hand at active management are relegated to role of barnacle, affixed to rocks, watching dolphins swim about devouring chicken of the sea. The barnacle instead suckles on little ocean floaties until it dies of starvation or human intervention.

Option expiration has a funny way of sorting the wheat from the chaff because mankind makes important financial decisions about four times a year. A trader’s marks are now subject to draconian judgment by the collective owners of risk capital.

In many cases it’s your own money at risk. You need to decide if your resources are properly focused. What trade type worked? What were the conditions?

I need to be able to justify every trade with a plan and a story. The story is what I think the market is trying to do and what hypothesis best fits that desire. The plan is using specific entry qualifications and trade management.

Then there’s risk…but alas it’s Friday and you want to get “turnt up”.  That’s a Wednesday kind of topic.

People, we are in transitory times. Soon watches will replace doctors. Cats will live gluten free organic lifestyles. Human life expectancy will stretch to 150 years. Are you on the right road?

The chase is officially on today, you can feel it. Momentum is running like the salmon of Bristol Bay. Goldman Sachs, a firm recently called into question during the Fed Bank Stress Tests, is trending higher.

Oil is running like a banshee.

How hard is it to buy up here? Remember how hard it was to buy two Wednesday’s ago? Today makes that moment seem like child’s play.

Not only how we are running, but what is running, will be enough to make under-allocated bulls nervous heading into the weekend.

This thing can push all day, but don’t be surprised if we see some shakeout shenanigans at some point. After all, quarters are being made here.

Nasdaq futures are up sharply as we head into monthly/quarterly option expiration day. No news appears to be behind this overnight action (correct me if I’m overlooking something) and heading into cash open we are working with a pro gap.

The economic calendar is quiet today. There are two Fed heads speaking—Lockhart at 10:20am in Georgia and Evans in Washington. Energy traders will likely be closely watching the Baker Hughes Rig Count at 1pm as well.

Yesterday the Nasdasq printed a normal variation with a range extension down. Overall a quiet, balancing session in the upper quad of Wednesday’s Fed day move. Once the cash session ended however prices began trading 1-time frame up.

Heading into today, my primary expectation is for buyers to build off their overnight progress by attempting a gap and go. To succeed in doing so, they will need to sustain trade above the very prevalent mCLVN at 4459. If they do, then look for a push to target the open gap up at 4472.50.

Hypo 2 is sellers defend the mCLVN at 4459 and begin working into the overnight inventory. In that case, look for swift action back down to 4437 area and a potential full gap fill down to 4424.50.

Hypo 3 is a big gap up and then sideways grind to wear out any intraday theta on options.

These levels are highlighted below:

Although the winter could not succeed in overcoming my immune system with illness, it is evident I was plagued by boredom. Boredom is dangerous.

I have accomplished no less then 5x my normal productivity today. I chuckle when thinking back on how intensely absorbed in the minutia I became at times.

There is no reason to constantly be trading.  The data proves it is better to be trading only when a strong directional conviction emerges. I used to think I had to be plugged in at all times to capitalize on these moments, but now I realize it’s possible to extrapolate high opportunity moments using an objective read on the market.

Objectivity becomes a reality when you rely on quality data to guide you. Instead of buying a few good looking stock charts a week, why not only buy when The PPT is oversold? You know why it’s hard? Because it takes a Zen like commitment to patience.  You need patience like Aunt Janet.

I have tools at my disposal for knowing the best weeks to short the market as well as the best weeks to be long. Why work all the other weeks?

Work for the sake of work is the only reason I can come up with. It is time to go Pareto on my trading methodology. My goal henceforth is little bursts of excellence.