An Outside-In Kind of Day

After the strong rally yesterday we have a benign market which is digesting the move via a sideways correction. Shorts working the range extension down were rewarded but only by 1.5 points before finding responsive buyers (responsive relative to the open, initiative relative to yesterday).

Despite the sellers winning the range extension battle, the best trades of the session have been from the outside-in. After a big up day markets tends to consolidate. On the surface, it makes sense to have a slight upward bias after yesterday’s neutral extreme print.

The hard part was buying what looked like an mid-day breakdown. Without a price level to lean on it’s not a simple trade to take. You could also do well shorting from the top-end of value as long as you managed risk when that push higher forced its way though most of the range.

This is a strong version of hypo 2 from this morning’s report.  Today could have been stronger had it featured a range extension up as opposed to down.  Now bulls are playing for neutral at best.

The key is knowing the context of the session and trading accordingly. Today you were better off working the extremes and essentially playing ping pong. Having spent many days being the ping pong ball, I can tell you without doubt it is more enjoyable being the paddle, even if only on one side of the tape.

I wish I had a screen shot from earlier, but the Nasdaq market profile told the story for working the short side today, despite the higher-time frame context slightly favoring longs. Have a look at the current profile anyhow:

I spent the morning updating my charts and stats to the current market conditions and the result is overwhelmingly neutral. Nasdaq futures are trading lower on the globex session after taking out Wednesday’s session high by a few ticks. The range and volume are both on the high end of normal as traders actively debated the true value of this instrument.

At 8:30am Initial/Continuing Jobless claims data came out mixed and brought sellers in who made a new overnight low. At 10am Leading Indicators and Philadelphia Fed info will be released. At this time Fed’s Tarullo will also begins his testimony to the Senate. At 10:30am Natural Gas Storage data is out.

Turning to the charts, yesterday we printed a neutral-extreme profile print suggesting strong upward directional conviction. The major move up was news driven. Participants drove price higher after the release of the FOMC rate decision and commentary. In the wake of the move is a zipper or single prints which are vulnerable to fast selling. Should price trade down below 4400 it may setup a fast move back to 4350 to reassess the crime scene.

Conversely, there are a few price magnets just above our current prices. Just above overnight high (4435) there is a micro-composite volume point of control (mCVPOC) and a bit higher an open gap (4472.50). These areas may attract price and lead to a drift higher.

Thus, my primary expectation heading into today is for buyers to work into the overnight inventory to close the gap up to 4421.25. From here look for buyers to attempt to take out overnight high 4435 and target the MCVPOC at 4444.25.

Hypo 2 is buyers are unable to sustain trade above yesterday’s close 4421.25 and responsive sellers step in to push below overnight low 4412.75. Look for responsive buyers ahead of 4405 who stabilize the action and balanced, 2-way trade ensues.

Hypo 3 is sellers push down through 4400 and sustain trade below this level setting up a fast move down the zipper. Look for buyers at 4385 but ultimately they are run over on the way back to 4350.

These levels are highlighted below:

Trading futures during contract roll forward is a frustrating endeavor. Volume metrics go haywire since some participants are still trading the March contract. Also delta is useless, and noisy shenanigans tend to take out stops on otherwise good trades.

Thus it was a strategic time to instead do something fun. Instead of wading through the bologna only to come out the other end a smelly mess of meat parts, I barreled down the side of gigantic mountains in a tee-shirt like a cowboy gunslinger.

Along the way I avoided 100s of thespians all hot about the word ‘patience’ …fuckers who successfully aligned the collective eyes of finance on one piece of minutia. What a pile of zero value added nonsense.

You know what was valuable? The PPT signaling oversold last Wednesday and hammering the swing low almost perfectly. Thus my life is rather bella stu gatz. I essentially manufactured the PTO my former overlords used to dangle over my parched beak. Alls I need to do is ring the register before the whole shit house goes up in flames again.

Plus I have the added benefit of stepping away and smelling the sweet scent of fresh ideas that comes from doing so—10 pages of maniacal scribbles all aimed at dominating the financial markets. I love coming back to work, do you?

I’m just going over my notes from last week’s Strategy Session.  The Executive Summary was pretty bang on, as was the Goldman Sachs entry zone plus risk profile.

Let me explain exactly what my goal is with the Executive Summary.  It takes every scheduled economic event, auction theory, rotations, or any other market influence and consolidates it down to 2-4 sentences.  The striving for brevity means every word counts.  There will always be written details to back my Executive Summary.  But come on–your ADD addled brain got you to the top, why are we even wanting to challenge the mechanics of it today?

Anyhow, here’s last Sunday’s Executive Summary and Goldman chart:

I. THESIS FOR THE WEEK

Bias score 2.55, Medium bear. Anticipate weakness early in the week—perhaps even some swift selling but look for an inflection point to form before Wednesday afternoon’s release of the Fed’s Bank Stress Test results. Look for strength in the US dollar to continue. Oil may be setting up to resume its downtrend.

Everyone has their reasons for pursuing an existence. You form a vision of yourself and you set out to achieve it. People market the allure of trading and the freedoms it promises. The truth is any entrepreneurial endeavor can gain you time freedom, they all take a heaping mound of work.

So if you work so hard for freedom, then why not enjoy it a little? In other words, Raul is hitting the road. That doesn’t mean I intend to fuddle around in the mountains without putting speculative funds to work.

Gentlemen I have procured long exposure on the Nasdaq and OIS. I have fixed my risk in place and am going to enjoy some freedom. This is a hands off the rudder trade anyhow.

Godspeed mates,

https://youtu.be/YnwfTHpnGLY

There are several compelling reasons to be hesitant about buying into today’s trade. There are several compelling reasons to be stalking a swing long into today’s tape. Some traders find the ability to separate day-time frame mentality from the swing. Others don’t.  But if you organize your working day to think through both, you may find the result to be a better contextual feel.

We went range extension down by about 10:45am which threw up the caution flag that says we’re playing for neutral at best. But I don’t hate the way we’re trading.

Developing…

What if you had a large data set that said you suck at Wednesdays? It would give a whole new sting to hump day, wouldn’t it? For reasons unbeknownst to me (I have looked over the data with a comb) my will power breaks down and old bad habits creep in by Wednesday resulting in poor trading performance.

And that’s okay because will power is finite. These days I only take the highly qualified trades and only early on. Once my will muscles are stronger I will increase duration.

Nevertheless today is incredibly important in the grand scheme of things because today we make an earnest attempt to find a tradable low. Early this morning we had MBA Mortgage Applications which had a sell, buy, sell reaction affirming the sellers are still in short term control (the number was a bit better than expectations). At 10:30am we have oil/gas inventory stats and the market is working higher from VAL already, constructive. At 2pm we have a Monthly Budget Statement, and most importantly we have the results of the Fed’s Bank Stress tests after market close at 4:30pm.

The short term trend is seller dominated. It started Friday with a motivated move out of balance. Monday price drifted higher but found a sharp responsive seller (responsive relative to Monday’s open, initiative relative to the upper balance, VITAL you understand this). Then yesterday we had a pro gap down and completion-type wave which closed down near the low of the session.

Overnight prices drifted higher on normal volume and range but were unable to reclaim the lowest seller-defended area from yesterday at 4349.50.

Heading into today my primary expectation is for sellers to push into the overnight inventory and test below the overnight low 4330.75. Just below there at 4326.75 there is a wonderful NVPOC magnet. I will look for signs of responsive buyers here, otherwise we continue lower to test the 2/12 session low gap zone.

Hypo 2 is buyers hold above 4336 and we start working higher. Look for a move above 4349.50 and look for buyers to become initiative above 4353.

Hypo 3 is a quiet digestion of the selling with price holding yesterday’s low 4328.50 and reverting to quiet, two-way trade.

Levels are highlighted below:

Oil is holding the low end of value. And unless sellers can push below 47.50 with some conviction my bias would be to play this low end of a well defined bracket to the long side.

I waffled out of my long at these prices yesterday afternoon, but it still looks good.

Oil inventory stats later this morning could be your trigger.

See below:

Gone are the days of benign corrections which satisfy the need to courrreccct the stock index market whilst traders sip kahlua and enjoy safe harbor in wild-eyed momentum stocks. These days correlations elevate fast, stock picking is a dart master’s feat, and short duration is an open invite for crimson portfolio shades.

During the chopfest of January and early February I developed “fungula” logic wherein you buy literally the ugliest looking technical chart you can find and voila! It made money. It was fast, fun, and profitable. Then we all climbed aboard another moonraker mid February and went exploring.

The problem was, at least for your dearest Raul, catching some meaningful momo was spotty. So you poke-poke-poke your boat, gently up the stream, gathering trades and then blam-o, a seller works the market over.

If I sound a touch jaded then you’re on to me. Fortunately I’ve had success today operating the SS Harmonic Raider across the fast waters of the Nasdaq otherwise I would be downright salty.

I sold out of oil today on low tick of the session. I thought my support level was failing and down went UWTI. I also sold out of VA and S, booking those ideas to free my mind a bit and challenge it to discover something new.

Tomorrow afternoon we find out how our benevolent banksters fared in this latest round of Fed stress testing and, let’s be frank, these types of events are all that matters to the stock market.

Greek—noise, laptops that are 80% battery—noise, earnings—noise.

Listen to your leaders at the Fed and watch their mechanism, the monthly Non Farm Payroll data. Without QE their only variable is the (as many believe) inevitable rise in interest rates.

Dollars FTW

Last Friday I found myself on the wrong end of tape barreling lower. But the market opened today and was on sale from the opening bell. Being wrong is okay, staying wrong is a different story entirely.

I am finally coming up for air, but still wondering if this seller is done or merely taking a break to dine on some bull caviar.

This type of trading day make me wonder why I trade all the other days for table scraps. If I could just trade these big trend days I could make a month’s wage in a few hours and spend the rest of the month on iron pumping and urban exploration.