Changing Gears

Nasdaq futures were set adrift higher overnight after closing out the session at a new swing high. Volume and range are a bit light but still well within the confines of normal. The behavior has a 1-timeframe feel to it, never managing to put in a counter rotation of significant magnitude during the session.

We have U of M Confidence numbers at 10am. It is the preliminary read for February. Last month this data had an elevated impact on price. Fed Fisher is speaking at 1:30pm.

Yesterday the market had a “pro gap” up and didn’t give much of it back before working higher for most of the session. The resulting profile has an air pocket from 4335 – 4329 in what looks like a double distribution trend day.

Intermediate term we are bullish with a slight neutral skew given we are just above swing high. When the market takes out a major level I like to take my eyes out to a weekly chart of the composite to see what has happened. See below:

My primary expectation heading into today is for sellers to push into the overnight inventory and work at a gap fill down to 4345.75. Sellers can penetrate yesterday’s range and work through the volume pocket 4335 – 4329 to ultimately target the naked VPOC at 4326.75.

Hypo 2 is sellers cannot press into yesterday’s range and we take out overnight high 4362 and continue exploring higher prices.

Hypo 3 is a gap and go drive higher.

Hypo 4 is stronger than expected selling which takes out the air pocket 4335 – 4329 early and works toward testing yesterday’s low4315 putting yesterday morning’s gap into play for a sharp reversal back into the multi-month range.

Key levels are highlighted below:

Market profiles show the footprints participants leave as they determine the value of a commodity. Big tails or wicks (single TPO prints, one letter instead of many stacked) show points of aggression and motivation.

This is just one piece of the story.

Buyers are making an earnest attempt at thwarting the recent motivated sellers in oil. Team Sell could be seen yesterday vehemently defending $51 during US hours yesterday. But our early-morning aggressor, speculated to be operating outside of the United States, laid a stone on $51 and pressed higher.

Into today, we are coming into the upper-end of where sellers were last seen defending.

These are your key short term price levels in oil:

When the markets are deep in the trough, momentum stocks can be your worst enemy. They cut fast, both ways, but most often lower. But when you’re pressing up on the peaks, they inflict ruthless harm on the shorts.

You need to press momo at the peaks. I know how counterintuitive that seems but it truly is when they reap the best gains.

What is momo? Hot stuff: 3-D printers, Cyber security, internet stuffs, China stuffs. Actually The Fly, RaginCajun, Option Addict, and The PPT know more about the stock picking process. It is far more art than science and I am by no means an expert on the topic.

My game is risk, consistency, and riding momo as best I can.

There is a ton of minutia associated with trading. I find the same to be true with any personal endeavor. You consistently grind out 80% of the time so you are in the right place 20% of the time when profits are to be had.

Variable income can be hard to palate. You have to make the numbers work. But freedom is the ultimate value if you treasure this short stay on earth.

In other news—my goodness am I still strongly combating a rug-pull mentality. I think others are too. It has that wall of worry feel about it, no doubt.

In other, other news—our boy Lawrence is proving to be a formidable contender over in OIL.

As we draw near the close of the week, the Nasdaq performance is well out in front of the other indices, 3x as much performance as the Russell and 50% more performance than the S&P. The strength this week in shares of AAPL [4.31% this week] likely attributed to this behavior, but with bearish Friday on the horizon one has to wonder if the Nasdaq is bluffing or truly taking the reigns of this bull. One would be wise to keep a watchful eye on Apple.

Futures are higher as we head into cash open. There was a flurry of buying yesterday just after cash close as participants received more news about the Greek situation. The action came to an end just before 5pm after it tagged the Christmas Eve (12/26) HOD 4322 to the tick. We then reversed lower and cut into yesterday’s range a bit, down just below the MID 4288.75 before reversing and trading all the way back up through the 4322 high.  Despite the seemly big overnight action, the range managed to stay 1^st sigma, although range is elevated to slightly abnormal 2^nd sigma levels.

Price was at this level when Advance Retail Sales came out well below consensus. The bad news received a positive reaction. Bad news-positive reaction is a v.bullish behavior.

We are trading on the upper end of a range dating back to late October. The market behavior leading up to today would lead one to expect range high to be defended, sending us back lower. However, the range is mature, thus it is possible we shift into a discovery phase up.

The market profile structures leading into today are anything but normal. We have printed FOUR neutral days in a row, and several more in the last few days. This speaks volumes to the compression taking place and the battles it’s creating.

Early on I will look for sellers to press into this overnight inventory and work back to around 4305. There I will look for responsive buyers to take us back to to target the overnight high 4325.50 and close the gap up at 4333.

Hypo 2 is buyers are more aggressive on the open and drive higher at the start, take out 4333 early and look to make new swing high.

Hypo 3 is sellers push down into yesterday range and close the overnight gap to below 4298.25, and continue lower to target the overnight low 4285.75.

These levels are highlighted below:

There is an aggressive buyer of oil who inhabits the region below $48.75. He is awake early in the morning and perhaps operates from outside the United States. Two times he has made his presence known at these prices, once on 2/5 and again late yesterday morning. For now, we shall call him Lawrence.

If he is to defend his position, then it should appear that any advances upon his territory will be met with defense. But his adversary is emboldened, they have power in numbers and have pressed their ranks closer, their camp is just above at $51.

Let’s see who blinks:

So jaded by this market, but to expect anything different would be to tempt the tempter, the succubus. Range markets can bring out the climactic best, and worst, in people.

It’s sort of like having tons of money. The money doesn’t make you an asshole—it only reveals who you truly are when you don’t have to care what anyone thinks.

Digression aside, here we are mates, range high. The game in Nasdaq has been ping pong and its fun as it comes for a day trader. I know that can be frustrating for swingers to hear, and by best offer is for you to learn basic auction theory. This advice I offer [extra Putin] because it helps your mind morph with the shifts in the market. No other tool really does it as well, visually, IMO.

Second digression aside, I am having the hard time pulling the trigger on any new longs. I am riding current longs to the best of my ability, but I lopped off a good piece of DDD exposure way too soon. You’ll never hear me calling it easy, though I may suggest it’s simple.

The pavilion dog in me is hearing a bell ring that says, “don’t chase, they love to pull the rug on the Thursday before OPEX—those rug rats.” So I insisted to book a little long exposure and accept my returns may be slightly smaller than the downright disgusting gains that may have come from greater exposure.

And that’s okay, because its one less thing to worry about while I sharpen my ping pong skills.

In other news, I bought the dip in oil again. Woof

Nasdaq futures are trading flat as we come into the cash session. Range compressed down to an abnormal sub-1^st sigma range on low, but normal volume. We traded in the upper quad of yesterday’s range.

A few of the bigger players who reported earnings this morning are trading higher (PEP, TWX, ING) and the economic calendar does not have any major events for today. Fed Fisher is speaking in New York to economists, he has been doing so since 8am. We have oil/gas inventory stats at 10:30am and at 2pm we have the Monthly Budget Statement.

Yesterday we opened gap up from Monday’s neutral day. Buyers defended re-entry into Monday’s range and then the market began one-time frame trading higher for the rest of the session. The print was technically a neutral extreme due to the double range extension but the formations of value areas along the way and subsequent breaks higher looked more like a trend day.

Price exceeded Last Friday’s high and pushed into the large value distribution at the top of our intermediate term range. At this point we are on the high end of range and traders will be on watch for signs of an aggressive seller entrant. Over these next several days, buyers are tasked with proving their initiative, otherwise one is more wise to assume the current market behavior of bracket-range will continue.

My primary expectation heading into today is for choppy, 2-way action with a buying skew. Price will look to target the MCHVN at 4285.25 and continue higher to target 4293. Stretch targets are 4300 and 4302.50.

Hypo 2 is sellers us down the zipper to 4262.50 where we find responsive buyers who manage to take out yesterday’s HOD 4284 but not much more and begin the process of cutting into yesterday’s gains targeting 4254.25 then 4240.50 with a stretch target of 4233.25.

Hypo 3 is strong buyers off the open who press up through 4290 early and then put together a second leg up to test 4302.50.

These levels can be seen below:

Oil Longs Were Liquidated

Yesterday oil printed one of the more unique profiles, the long liquidation. It suggests a higher time frame participant came into the market hard causing a large directional move which triggered additional order flow as longs were stopped out. The resulting print takes on a lowercase b-shape.

In the context of a larger uptrend this type of profile tends to occur at-or-near an inflection point. In oil’s case we are operating in a long term bearish chart, intermediate term neutral-to-slight-bullish thus we cannot weigh the print the same. However, we can look to see if it induces more sell flow, down through the next distribution of volume. Also, if we trade higher in crude today, we can see if the higher time frame participant, let’s call him Lawrence, defends their position territory, see below:

In some aspects, today started like a trend day, with the gap up. Then the morning linger and a range extension lower had it looking like a neutral day when buyers pushed the highs.

But when all the cards were dealt, and of course the river card is still in the deck (the close), we are looking at a trend day.

Value isn’t following yet, but we keep building little range distributions and then breaking higher, like a trend.

There’s little for me to do in a trend, day trade wise. I am managing my longs and considering the usefulness of my SKF hedge. These hedges are good when they lose money because that should mean you’re making money net-net. But they can become a dragging anchor when the wind is on your sails, if you know what I mean—a regular Debbie Downer.

Nevertheless, my prediction early this week was for strength into tomorrow afternoon then a roll. If that occurs then I will want SKF-philis.

In other news, I bought the dip in oil.

Nasdaq futures traded a balanced session overnight before running higher at 7am on news of an extension to the Greek bailout. It is important to note when a move was news driven as the market tends to ‘check back’ to the originating point of the move to ensure it still garners the same type of reaction.

Volume and range are normal on the session and the economic calendar is quiet today. Fed’s Lacker has been talking since 8:20am and we have Wholesale Inventories at 10am. This may result in a choppy, 2-way open as we wait for the news shortly after the bell.

The intermediate term is neutral dating back to late October. We had a strong up move last week, and yesterday we printed a neutral day after starting the week gap down. Responsive buyers were found inside of last Wednesday’s range.

Heading into the open with a ‘pro gap’ up, my early expectation is for an open auction outside range open type which attempts to reenter Monday’s range at 4232 and more importantly the crime scene at 4225.  Hypo 1 is buyers step in ahead of Monday’s range and press higher to target Friday’s NVPOC at 4249.50 then work toward retesting Friday’s high 4268.25

Hypo 2, we penetrate the range then I will be expecting a tag of the VPOC at 4219.25 then a full gap fill to 4215.50.

Hypo 3 is a drive down gap fill to 4215.50 and continue lower through Monday’s low 4201.75 and push to test the MCLVN at 4198.50 and a stretch target of 4189.

These levels are highlighted below: