The Pros Have Formed a Gap

You won’t come to the Raul blog often and find my crying about wolves. I study the tape, like a psychopath stalker. Its nuances speak to me. We are waking up to a pro gap down this morning.

The overnight session managed to go second sigma range, something it has not done in quite some time. However, the volume behind the move was a bit less compelling. However there is still a half hour of globex to go.

The Greek situation is heating up in Europe where parties are growing frustrated with how much time is being wasted. Likely adding to European frustration is the quirky 3 week window where daylight savings throws them off with our time and markets. The economic calendar is otherwise quiet until tomorrow when we here about mortgage applications, oil inventories, and bank stress test results.

Yesterday we started the week quietly despite closing Friday out with a strong neutral extreme day. The up move in the Nasdaq occurred around 1pm and can be considered news driven, because it was closely associated with the Apple live event. However at the end of the session sellers began piling onto the bid.

The overnight session managed to pushed down through the micro balance we formed from 2/16 to 2/18 before finding responsive buyers. This zone has a compelling VPOC at 4382 which we are currently priced to open upon.

Heading into today, my primary expectation is for an open auction outside range due to this VPOC. Look for 4372.25 and 4389.50 to contain price early on. Look for buyers to work the range gap up to 4391.75 before finding responsive sellers (responsive relative to the open, initiative relative to Monday) who step in and leg us lower to target the NVPOC at 4360. That would be a big day

Hypo 2 is we gap and go lower to target the NVPOC at 4360 then the gap down to 4345.75 to retest prior swing high 4343.25.

Hypo 3 is a strong responsive buy full gap fill to 4414.75. It has happened a few times in recent history and requires some serious resources to do so, hence the Pro Gap nomenclature.

Levels:

The seller profiled last week, the one directing this market with elegant waves of his baton, that guy, he is still operating inside this market. His actions are swift, patient, and decisive. The day closed out with some heavy selling after bulls managed to stave off the sell flow for most of the day.

Despite buyers working against unfavorable odds, they managed to pull out a win today. Their victory can largely be attributed to the release of a new MacBook laptop. This device, especially in gold offering, managed to work the broad markets to session highs.

You may be a hater of the gold Apple devices, but then again you probably aren’t Chinese. Likewise, you probably aren’t buying Chinese internet stocks down here because it goes against your Anglo-Saxon demeanor.

But the sun will always rise in the east and cast its warm golden glow on your rosy cheeks. Bask in its glory, enjoy its warm kiss while you still inhabit this planet.

Nasdaq futures are indicating a gap up on the open after a session which mostly featured selling. In the wake of this normal range and volume session, participants left behind a somewhat weak looking low at 4396.25.

The economic calendar is quiet today so the market will be left to its natural discovery device with the exception of Greek news flow.

Looking at the bigger picture, the Nasdaq went on a strong rally which started early February around 4220. Part of the catalyst was news from Greece. Before this rally we spent several months in a 2-way grind. Here is an interesting look at the forest:

Last week we started March with a gap up and strength through Monday. The rest of the week was mixed action which ultimately gave way to selling on Friday. Buyers managed to step in ahead of the mini value area around 4380 last week. Heading into today that zone may behave like a magnet.

My primary expectation this morning is for sellers to work into the overnight inventory and press the gap closed to 4406. By doing so they assert their responsiveness and increase the likelihood we continue discovering lower prices. I will look for them to take out overnight low 4396.25 and target the discrete gap down at 4386.25.

Hypo 2 is sellers cannot close the overnight gap and strong buyers take back much of Friday’s selling starting with acceptance above 4414. Buyers will look to target the low end of the value zone above at 4436.

Hypo 3 is we fill the overnight gap down to 4406 and then revert to quiet, two-way trade.

The short term levels I will be operating from are highlighted below:

We are starting the week with oil right where it was at the beginning of last week. There is a reason we want to know where large VPOCs develop. They exert an attraction on the market and when we’re around them price tends to misbehave.

After testing up and away from this $49.13 zone, it is imperative we be on watch for a move to test the other side of it. Accepted trade below $48.60 and especially below $48.46 could reignite the bigger downtrend in play.

I have highlighted the mentioned price levels and more on the following charts:

Monday has all the makings of a wonderfully red horror show. Markets in Crisis, top callers, warm weathers—riots in the European Union. Peak drama, ides of March, hide your wife and pull the children out of class.

Your job is to buy it or wait. So prepare yourself.  Eat well lads and have a good night’s rest, for tomorrow your loins will be the target of predatory algorithms.

Subs, Weekly Strategy Session is out, enjoy.

I tend to favor the higher time frame trend when my overall context read is neutral. Thus when a neutral bias developed on the Nasdaq last week, I was still more apt to work longs instead of shorts. This was the case even on Friday aka I hit my daily loss limit.

The daily loss limit is a good idea. It’s like a seatbelt. You don’t want to depend on it but on days when you crash, it keeps you from dying.

I had the market in my sights. I know you guys don’t like talking about losers or missed trades but I have to air this one out dammit.

This was my thesis for the week, a bold synopsis of 8 hours of Weekly Strategy Session research boiled down for the executive types:

Bias score 3.18, Neutral. Look for signs of cash inflows early in the week as the new month starts. Be hesitant to chase any strength early in the week due to Wednesday afternoon’s Fed Beige Book and Friday’s Non-Farm Payroll data.

So I had the catalysts on my radar before the week even started. Then by Thursday I had a clear view of the footprints a large, influential trader was making on the market. Here is an except from Methodical Action, a blog piece written Thursday afternoon:

The path of the Nasdaq this week has the look of a master at work. I think back to trading legends and how they make the bulk of their money at inflection points. Someone deep pocketed is making an earnest attempt to influence the market.

My catalyst was in place, a higher time frame seller was already on my radar, and the obvious “Strong Labor Markets Reverse Early Index Gains” play was triggered.

Hitting my daily loss limit doesn’t devastate me, though it does sting. What burns way more was the huge missed opportunity. I work too hard to miss these delicatessens. LET IT BE KNOWN HENCEFORTH—I will ride the next sweet inflection point down like a tan bae on skis.

Stronger than expected Nonfarm Payroll data has markets on the move this morning. It was interesting to watch gold react ahead of the data and then a buy-sell-sell reaction from the Nasdaq. As we head into cash open price is pressing the low of the globex session and the low-end of our current value area.

Also on the calendar as we wrap up the first week of March is the Baker Hughes Rig Count at 1pm and Consumer Credit at 3pm.

Heading into today, I am expecting a 2-way open auction to start the session. Then I will look for buyers to attempt a gap fill up to 4450. Like Tuesday and Wednesday, if they are unable to do so then I will look for sellers to step in and press the lows of this week’s range. If buyers cannot defend yesterday’s low 4432.75 then I will look for a move to target the NVPOC at 4418.

Hypo 2 is buyers close the overnight gap to 4450 and sustain trade above it to set up a leg higher. If they can sustain above 4465.25 then look to target the gap up at 4478.75 and then swing high.

Hypo 3 is we stick around 4450 and close the week out flat.

Levels are highlighted below:

Today the Nasdaq worked through my favorite day-type aka the neutral day. For some reason it didn’t have everyone as riled up as it usually does. Nevertheless, it provided some sweet intraday opportunities for mean revision play.

My day trading is at a stage of discretionary action with mechanical execution. Entries types are planned well in advance. I have 9 now, up from about 5 a few months back. Some are variations of what I have observed the greats do while others are complete brainchildren of my own.

Many times I have been told to create my own trading ideas. It would frustrate me because I simply wanted to be told, “do A + B to earn C”. Anything worth doing is not that simple. Or at the least, it’s only that simple for a short period of time before regulation, arbitrage, or some other force eliminates it.

I am finding my own trade ideas generate the biggest returns per trade. What a blessing!

Swing trading has been a slow earner for me this year but I have managed some good moves. My best performer on the year is another home brewed idea—Sprint. This was based on a giant panel of C-suite banksters nearly all saying to avoid telecoms in 2015. It also had the added essence of the falling wedge chart pattern both Option Addict and I adore.

The same chart pattern the afflicts me with GPRO!…but I digress.

What I am emphasizing on this cold winter afternoon it the importance of thinking for yourself. Embrace your ideas, test them, and reap reward from them. There are few joys better.

The path of the Nasdaq this week has the look of a master at work. I think back to trading legends and how they make the bulk of their money at inflection points. Someone deep pocketed is making an earnest attempt to influence the market.

The month started with a strong Moday—something to corral the bulls and generate a sense of complacency. Then Tuesday they had to wake to a gap down then a knife lower kind of morning, then the seller backed off, created space.

Wednesday same thing, gap down then knife lower only to again back off, create space. Then today we gap up, push higher, pull back a touch, 1-tick the daily high then WHAM—a motivated move across the entire range puts us neutral. Price pulls back to the opening print then a smooth completion wave. Now we are in a corrective holding pattern waiting to see who blinks.

The net effect is little-to-no-change, but the coordinated, methodical efforts suggest a higher time frame at work here. There were also some concentrated strikes on the Nasdaq 100, where nearly 80% of the stocks confined within it down ticked simultaneously. This force or influence has algorithmic resources.

Watch how we trade in relation to the daily MID 4448.75 for an idea about who ultimately holds control on the session.

We started the month of March up near swing high with market trading sideways in the short term. Price went gap up Monday and tested higher before finding responsive sellers, then tested lower yesterday and found responsive buyers. Heading into today, the Nasdaq is slightly positive on the month. Price managed to cut slightly higher than it did lower in the process, likely the case due to its alignment with the higher time frame trend.

Yesterday was a busy day economically and it showed. The Nasdaq was whipping around pretty good yesterday as it digested record builds in oil/gas inventory and the Fed Beige Book. This morning we had Continuing/Initial Jobless Claims out at 8:30am while a Mario Draghi press conference took place.

We also have Factory Orders at 10am and Natural Gas Storage stats at 10:30am. Also at 4:30pm the Fed will release the preliminary results of its 2015 Bank Stress Test.

Heading into today, my primary expectation is for sellers to work into the overnight inventory to target a gap fill down to 4445.50. If buyers can defend then I will look for a move toward overnight high 4458.75.

Hypo 2 is sellers push down below 4440 triggering an acceleration lower to take out yesterday’s low 4422 to target the NVPOC at 4418.

Hypo 3 is buyers continue working up above 4458.75 to target the mCLVN at 4465.25 and work above Tuesday’s high 4472.50.

Levels are highlighted below: