The Temptress Is Still At Large

We have a theme here. It is mythological, it is showing its teeth daily, and you might want to listen. There is a succubus in the marketplace. She swears no allegiance and is out for blood.

Her favorite haunts are at the cusp of breakdowns and breakouts.

If you choose to collude with the succubus, you would be wise to wear a mask and other protections and by all means do not give into her temptations.

Today’s victim was AMZN. Never has the stock complex seen a more clearly setup short. Therefore it had to be bought.

Fun-goo-la, FUNGULA!

You know we keep it simple.

In other news, a vicious short covering rally took hold in energy names today as the January contract went into expiration. OPEX shenanigans continue. Gird up your loins and report for duty, this doesn’t end tomorrow.

Nasdaq volume and range went 2^nd sigma overnight as the index traded lower for much of the session. As we approach cash open prices are below Tuesday’s range and we are in a “pro gap” type environment. The selling accelerated at 8:30am when weaker-than-expected Advance Retail Sales data hit the wires. We also had an corrective-type event in copper prices, the Japanese Yen is very active, and JPM missed earnings. WFC is trading lower premarket as well after reporting earnings.

Today we have crude oil inventory stats out at 10:30am. The weekly report is likely to be closely followed by all speculators as the commodity continues to correct lower. We also have Business Inventories at 10am and the Fed Beige Book at 2pm. Premarket tomorrow we will hear Continuing/Initial job claims and also earnings from BAC and C.

Yesterday prices opened gap up and we had an opening drive higher. After a strong first hour of trade buyers pushed us above the IB and we unable to test Friday’s high. The lack of order flow above the high was ominous and we quickly fell back to the daily mid. From there buyers were unable to defend and we gave back the entire opening drive and then some in a large impulse-type move. The overall print was a neutral print, perhaps barely able to classify as a neutral extreme.

The overnight session looks like a completion of the impulse wave. Early on my expectation is for buyers to push into the overnight short inventory and test Tuesday’s session low 4126.75 and likely push into the range a bit up to the LVN at 4138. From there I expect responsive sellers will step in and continue pressing lower to close the open gap at 4102.25 and test recent swing low 4082.

Hypo 2 is an open drive down. The risk of a drive is elevated given the recent price action on open and how we are out of balance to start the day. Drive down looks to test recent swing low 4082 early and push through to test 4069 then 4053.

Hypo 3 is a stronger than expected open which takes out the LVN at 4038 and sustains trade above it. This type of action likely builds into a full gap fill up to 4158.75.

These levels are highlighted on the following profile charts:

CEMENT THIS BEHAVIOR INTO YOUR BRAIN, it always riles up traders’ emotions aka creates opportunity:

According to succubus theory the best momo stock setup going into tomorrow is long GPRO. Believe me—this new dichotomy of trading stocks is tough for me to palate. But then again I eat a massive bowl of spinach covered in unfiltered flax oil and lemon juice every morning. Sometimes I throw in a few forkfuls of sour kraut to stimulate the ole’ economy, if you know what I mean.

This is ugly trading designed for practitioners with the iron stomach and testicles of a similar fortitude.

To the interzonal (real word?) trader goes the spoils—you are extracting money from this market intraday. To the passive investor, this noise likely doesn’t register, his market updates come from paper news? To the flip flopping swing trader, demise is near.

I am close to cutting SCCO. It shows signs of a bearish breakdown. But then I remembered the succubus and how charming the short copper trade must look right now and I thought, “Let’s give it juan more day.”

Look at what AMZN did on the cusp of breakdown, look at the GOOG, the NFLX (which came down and stopped me out, chagrin!). Flip the market on its head. “Fun-gu-la” in Chinese, which funny enough sounds like “fuck you” in Italian. Slightly different annunciations occur, but I digress.

Summary: This is OPEX and its January, everyone is out there performing like it’s the god damned Super Bowl. Their careers are on the line. Expect drama, just don’t succumb to it, mates.

#Neutralized

Nasdaq futures are trading higher on the globex session. The buyers stepped in around 3am after defending the value area low of Monday’s cash session. Range overall on the globex session is on the high end of normal [1^st sig] as is volume. Oil is trading up into the open and we saw a positive earnings reaction from KB home this morning.

At 10am we have JOLTS, a low impact event. 2pm Monthly budget statement, and 5pm we have Fed speak from Kocherlakota. Tomorrow premarket we have WFC & JPM earnings and also Advance Retail sales, Fed’s Plosser, and MBA Mortgage applications.

The main feature of yesterday’s action that had me constructive was the b-shape of the market profile. This suggested a short term phenomenon known as a long liquidation. An early entrant pressured the market lower which forced longs into liquidating. Once that business was complete the market balanced and showed decent signs of excess(tails). You cannot see the tails as clearly, but the b-shape is quite evident on an old school MP:

Primary hypo is a 2-way open auction with big chop where sellers push into overnight inventory and test down to 4180 area. If no buyers than test down to 4176 area before we work higher to test Monday session high 4218.50

Hypo 2 is for buyers to thrust early and run us up the zipper and test Monday’s HOD 4218.50. Just above around 4224.25 I will look for signs of responsive sellers.

Hypo 3 responsive sellers reject the overnight move and sustain trade back inside the b-shape, below 4176. Then we test through to 4160 area and continue probing lower.

These levels are highlighted on the following volume profile chart:

You have to adjust to the present if you want to stand a chance trading. Constantly learning and performing is the only way you will sustain yourself in this hyper-competitive field.

In four days a whole plethora of leverage [options] will expire worthless. This rewards the sellers of premium who took on the infinite risk associated with selling premium.   This is January OPEX, and traders want to hit the new year right, especially if they faltered in the year prior.

In short, the stakes are elevated contextually.

There are so many marquee stocks setting up highly visible short trades. A few weeks back many were enticing a similar looking long trade. Do you know what happened to the breakout chasers? Zeroed out—do you know what I am betting will happen to the breakdown chasers?

Yep.

Maybe you don’t like this trade because you follow trends and you buy stuff that’s going up and you sell stuff that’s going down and that is just fine. You’ll make money doing that in most conditions.

Not these.

I am a buyer of the ugliest looking daily bar charts until I am wholly corrected of my ways. You can stick your anatomy in those shorts all you want.

You know the tickers.

So far we have seen interesting globex action to start the week off. The Nasdaq traded inside of Friday’s wide range and held the low end of value before seeing a strong rotation higher. The move merited splitting the profile in half to see a clearer picture of the auction.

Before thrusting higher the market spent a considerable amount of time linger on those lows and from price action alone it looks like a weak low. However, from the profile view the volume distribution is decent. The globex high however seems a bit weaker.

The early battle ground is right near the 4200 century market. It will likely serve as an early pivot for the session. I have noted this zone on the following market profile chart:

We have Fed’s Lockhart speaking on US Economic Outlook at 12:40pm down in Atlanta. He is a voting member of the FOMC and may shake this market up a bit. This week is also monthly option expiration so we may see some big intraday waves, something to keep in mind.

Primary hypo for today is open auction in range, sellers work to close the overnight gap to 4201.50 and we see if this level attracts responsive buyers who then work toward overnight high 4227.50, then target MCHVN 4233.25 and potentially probe the upper pocket at 4240.50.

Hypo 2 is sellers capture the 4200 pivot then look to take out overnight low 4195 and test the LVN at 4193. Losing this level opens us up to retest Friday low 4181 which puts us in gap territory. Range gap fill is 4163.25 full gap fill is 4152.

Hypo 3 is drive higher, take out poor-looking overnight high and work up to test Friday session high 4248.50 and then test up to 4260 area.

These price levels are all highlighted on the following volume profile chart:

Over the weekend I managed to develop a charting package for observing the action in oil. For week’s I worked away at this goal and kept hitting roadblocks. Then, during a fierce set of 40 kilo kettle bell swings I had a creative epiphany.

And voila, I can see:

Also, I have gone back to some old favorites, old school market profiles. They almost feel like training wheels, is that bad thing? Not sure, but they really whisper to me. Stay tuned for live reads of stuff like this:

Subs: The Weekly Strategy Session is live.

As a trader, these are my favorite conditions. Look at the structure and the story the S&P 500 elegantly tells: