Just Watch

The market is rewarding participants who have the nerve to call its bluff. The uglier the chart, the more likely you can milk a quick 3-9% out of it. And let’s be honest, that’s all I want. Slow plays are just that, slow, and something you earmark 4 times a year. But the fire needs to be on the menu every day.

That’s just one small component to the Weekly Strategy Session. The rest is designed to build a thorough contextual feel while I trade. Does the entire thing matter when I am taking a 60 second scalp? I actually don’t know the answer to that.

Happy Martin Luther King Day. Enjoy an extra day away from the markets then be ready for an intense week of Central Banking foolishness, economic data pointing, and earnings season whipsaws.

Last weekend value/balance was really taking shape in the S&P (it still is) and this week its really coming together on the Russell:

When prices action grows in size it is always good to pullback and take a look at the higher timeframes. The weekend is a good time for such leisurely activity. Shall we go for a ride in Raul’s magical mystery balloon?

I don’t find time to get up here enough anymore, what with the voracious ground battles occurring at important territories. Up here you see just how far we’ve come as a race, the bulls, in such short order.

Look at this chart:

Have you noticed those silly price levels drawn across the latitudes? Those territories mean the world to me. Claiming them took brawn and persistence. It paid well. Alas, here we are again at gridlock with the enemy, defending what we worked so hard to claim.

Will you soften your ranks? Will you retreat? Here’s the back story on this zone, dating back to July, just in case you’re in the mood to spend a few hour of your weekend reading my loosely penned bloggery.  I present them in chronological order:

http://ibankcoin.com/raul3/2014/07/02/the-14-year-gap/

http://ibankcoin.com/raul3/2014/07/07/wrap-your-mind-around-the-nasdaq-auction/

http://ibankcoin.com/raul3/2014/07/21/nasdaq-round-up-heading-into-the-week/

http://ibankcoin.com/raul3/2014/08/22/half-gap-complete/

http://ibankcoin.com/raul3/2014/08/25/gapping-into-the-week/

http://ibankcoin.com/raul3/2014/08/27/gap-fill-complete/

http://ibankcoin.com/raul3/2014/09/03/bend-the-rules/

http://ibankcoin.com/raul3/2014/09/08/starting-the-week-in-balance/

http://ibankcoin.com/raul3/2014/09/12/the-curious-conditions-of-balance/

http://ibankcoin.com/raul3/2014/10/27/big-picture-context-update-for-a-busy-week/

http://ibankcoin.com/raul3/2014/11/10/fresh-nasdaq-levels-and-analysis/

You take what you can get and adjust to your conditions.  The sooner you tune into a paradigm shift, the better.

Information costs money. Sensing the proclivity of a certain asset class, we shall call it MOMO, to form ‘fake moves’ before making ‘real moves’ was not a free lesson.  Quite the contrary, mates.

Nevertheless we must will ourselves into accepting external events one way or another and on we go.   Fungula, that is the pet name.  It also harks to tones from the underworld, earning it the persona of a succubus.

It’s fast as is the evidence of whether your right or wrong.  None of this waiting around, wringing your hat baloney.  And I appear to have acclimated to it.

In short, now would be a perfect time for volatility to vanish entirely and put me back on the drawing board.  FML, I suppose that’s why I toil away 10 hours of my weekend on the WSS.

The market has a special way of keeping participants right on the edge of their seat, doesn’t it? Right when you think all hells about to break loose, you are given a gasp of air. One to keep you going so you may live to be milked another day.

Or do the milking, your decision.

Me I have committed to the fungula methodology. It is a system developed behind three security doors at the Raul facilities. Our Asian correspondents have labored 1000s of hour to perfect it and it is my task to implement it.

If your humor reservoir is drained after a hard start to the year, I understand. Know that your faithful servant Raul is dancing on the rim of the volcano with you. I am wearing a coat of chainmail and it s putting a nice singe on my nips. But here me out: Wednesday my play was AMZN and I scrapped a win off that trainwreck of a chart albeit smaller than I would like and with both hands on the wheel. Today’s fungula play is FB. Look at that horrific chart. Brah, I like it into the weekend.

Because brah the music is still playing, and even if it’s a big ragtime, we can still get down, yes?

Nasdaq futures are lower overnight and as we come into cash open price are hovering just below Thursday’s range. Volume and range remain 2^nd sigma elevated as the aftershocks continue to rip though global markets after an unexpected move from the SNB.

We came into the globex session with sellers pushing and the continued to do so into the afternoon and evening yesterday. INTC earnings were inline yesterday but shares still traded lower which may have contributed. Price pressed into the open gap from 10/27 before finding responsive buyers ahead of a closing of the range gap. Buyers pushed up but were unable to reclaim Thursday’s low 4077.75. We then revisited, but did not take out, the globex lows giving the session a weak looking low.

At 8:30am CPI data brought some buyers into the market who again struggled to reclaim Thursday’s lows.

We had Industrial/MFG production numbers out at 9:15am. We also have U of M Confidence at 10am, Fed’s Williams speaking at 11am, and Fed’s Bullard set to speak at 1:10am. The markets are also cruising into a long weekend as they will be closed Monday in observation of MLK.

Yesterday’s session featured sellers continuing to control the action. There was an interesting shelf formation at 4106.75 which served as a pivot for much of the session. Sellers eventually claimed victory of the area. Early on my primary expectation is for buyers to work into this overnight (short) inventory and close the overnight gap to 4089 to target the VPOC at 4095.25. There I am looking for responsive sellers to step in and continue driving lower. A return to the scene of the CPI bounce at 4061 puts us at the overnight midpoint. From there we continue to take out overnight low 4041.50 and close the range gap to 4040 then the full gap to 4033.

Hypo 2 is sellers drive off the open and run into a bit of demand at 4061 but overrun it and go fill the gap at 4040 then 4033 and overshoot to tag the NVPOC at 4028.

Hypo 3 is sellers early who are defended away above 4061 and buyers push the gap fill and retake the shelf pivot at 4106.75 to set up another leg higher.

You can see these price levels below:

Oil is by no means out of the woods, but on this week’s round of buying it did show signs of auctioning well. The first push up went right to the MCVPOC formed in the balance formed at the beginning of January. Then the subsequent completion wave went and kissed the daily VPOC from 01/05 before we found a sharp responsive seller.

Coming into today sellers made a strong defensive response at $47.74. This action is responsive in relation to where we closed out yesterday, but initiative in relation to the bigger trend and also the initial response up over $50.

On the buyside, we saw buyers active at Wednesday’s VPOC. Overall, we are seeing some order in the behavior of oil prices, a constructive sign for the otherwise plunging commodity.

You can see my levels below:

The primary hypo today was to ‘spill over’ the shelf at 4106.75. The site has been the scene of some valiant responsive buyers a few times this morning. However, we are lingering here as we press into lunch.

The overnight stat is still open (89.52% odds of taking out either ONH or ONL). Buyers need to show up soon or the door swings open for lower prices. But, the formation has the chance for balance. So, it is a v.edgy sitch, no doubt.

Volume and range shot well beyond second sigma overnight. This is a clear signal that what you are seeing taking place in the markets this morning is anything but normal. The primary driver of this volatility was forex macro moves resulting from an unexpected move by the Swiss National Bank.

Also occurring overnight was a move higher in oil. This morning the markets are dealing with more earnings from big banks who one after another are seeing share prices lose value post earnings. BAC is trading lower as is C although Citi is currently holding its prior lows.

At 8:30am the economic data including initial/continuing jobless claims, PPI, and Empire Manufacturing brought in some buyers who were quickly faded. This afternoon after market close we will here from INTC while the entire semiconductor industry teeters on the edge of a breakdown. We also have many more banks set to report tomorrow morning and CPI before market open.

Turning our attention to the auction, we can see some weak shelving occurring right at 4106.75. This level will be a big tell today. My initial expectation is we ‘spill over’ the shelf which opens the door for a test of the overnight lows which puts us in range of testing the prior swing lows and the Nasdaq on the cusp of breaking lower. See the context below:

The intermediate term shows sellers controlling the market.

Yesterday the market continued trading lower until we closed to open gap from 01/06. Once we hit these levels a sharp buying response took hold and saw some continuation off the value zone around 4118.75. Buyers were unable to push through the early highs of the session during the afternoon ramp but did see their progress carry through into the overnight session.

The overnight session carried over 100 points of range and as we approach cash open we are trading right near the midpoint of that range. Early on I am looking the yesterday’s VPOC at 4138 as a short term pivot. If sellers can sustain trade below this level that adds confidence to my primary expectation for trade to take out the market profile shelf at 4106.75 (seen above).

Hypothesis 2 is strong buyers off the open who take out yesterday’s session high 4159 and continue probing higher into the volume pocket at 4171.50 and a continued auction higher to target overnight high 4190.

Hypo 3 is a slow open auction inside yesterday’s range and then 2-way chop between 4171.50 and 4118 which eventually gives way lower during the lunch hour.

I have highlighted these levels on the following volume profile chart: