Stay Open Minded It’s The Holidays

Nasdaq futures are flat-to-lower as we come into US trade. Volume and range are coming in a bit light for the globex session suggesting the holiday week might reduce participation a bit. As we come into the open the overnight low shows signs of being weak.

The economic calendar is not too busy this week. Today we have Existing Home Sales at 10am. The announcement shortly after the open may be reason to chop about early on before the market finds direction.

We are set to open right at Friday’s VPOC suggesting the market accepted these prices over the weekend. There was a bit of liquidation into Friday’s close, this can be seen as a large red candle on the volume profile chart.

The microcomposite we are trading inside has two distinct value areas with a thin pocket separating the two. If sellers manage to press below 4271.25 this pocket may come into play.

My primary expectation this morning is for an open auction inside of Friday’s range with sellers pushing down to test the MCHVN at 4277.50 then the LVN at 4271.25. I will be looking for responsive buyers around here who work toward the 4285.25.

Hypo 2 is buyers pushing off the open to go after the overnight high and test Friday’s high 4304.50 and target the MCHVN at 4307.50.

Hypo 3 is a drive lower below 4271.25 and push through the volume pocket to test its mid 4254.25 and if breached then continue through to the other end and target 4245.75.

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

This is an important week coming up. It is short and full of sweets, but if you’re nursing a heavy eggnog hangover you may not be prepared to cease the opportunity come Monday.

Fret not, dearest party goers. Raul has your back. My latest issuance of the Weekly Strategy Session has been completed. And while some of you were filling yourself with candies and libations, I was dissecting the financial markets and exposing their weaknesses.

Be ready when the opening bell rings.  Let’s ride through Christmas on our faithful steeds, to glory.

I started the day with a front seat on the mega wave we are currently experiencing. My book features many positions expiring today and I have to pay close attention to the action. That is, of course, after a nourishing breakfast.

I spent about one and a half hours ‘providing liquidity’ to the Nasdaq, you’re welcome CME, and then I just sat here and took in the view.

As I write, I am watching the final throws of some YOLOs. This is all very sporting if I may say, and is making for quite the show heading into the weekend.

You and I came to stocks for the same reason—we realize we can make money working our hands to the bones, or we can just sit around and make money.

The key is sitting through winners and not losers. The crème is rising, I must focus in now. As for my recently purchased Go Pro, I am writing a letter to Santa to right this ship. I have a good rapport with the big guy.

Nasdaq futures are trading higher. The volume and range are normal and as we approach US trade the market has given back over half of the overnight progress. Coming into today we had an expectation for a green close on the Nasdaq based upon a 30-year study of seasonality. This day has a high probability of closing in the green.

The problem when you are not the one who builds this type of study is you don’t get to dirty your hands with the data. How much is it up on average? What did the red days look like? What years were they? What were the conditions leading into them? Etc, etc.

The largest rotation of the overnight session came around midnight when a motivated buyer caused a 29.50 point unidirectional rotation.

The economic calendar is quiet on this option expiration Friday, however we do have some Fed officials speaking. At 10am Evans will be given opening remarks in Chicago, at 11am Kansas City Fed MFG activity, and at 12:30 Lacker speaks on the economy in North Carolina.

Taking to the chart and looking to the left, we are trading inside the profile from 12/11 which was the roll forward day for futures traders. If you did not convert to the March contract that day then you missed a key piece of context that sparked the entire move lower.

On 12/11 we 1-ticked the local swing high and sellers made an aggressive push lower. In their wake they left a thin LVN zone from 4270-4282.50 and this is likely to be an interesting area of trade during today’s session (baby blue box on chart). Yesterday we also left a thin-auctioned zone. It is the baby-pink box spanning from 4249 – 4259.

Primary expectation this morning is for sellers to work into the overnight inventory initially. Open auction in range breaks lower to close range gap then full gap. If no buyers show here then a run at the baby pink box to test the pocket mid 4254.25. If that breaks than sellers will target the VPOC at 4245.50.

Secondary hypo is buyers press through the thin pocket above to target the naked VPOC up at 4287.75. Then look for a run at overnight high 4299.25.

Hypo 3 is more of a drive down, aggressive selling on the open takes out the entire pink pocket, slides through the NVPOC and retest the MCVPOC at 4233. Look for signs of responsive buyers here who work back toward yesterday’s close 4266.

The levels discussed above are highlighted below on the volume profile chart:

Most of you won’t cut it trading. It sucks, and I will do my best to convert you, but most of what you do has no place in trading.

1. Gut feeling – when you can prove your ability to consistently engage the market systematically and keep a tight leash on risk, then you can start using your ‘gut’. Until then, cut it out, gross.
2. Big macro themes – these will not help you execute today. Save them for your weekend homework.
3. Cheerleading – you are building up your ego only for it to be systematically ripped to shreds by the natural forces of the market.

Moving on to a lighter note—today was all about learning how to sit. If you managed to put some longs on before the whole shithouse caught aflame then you were ahead of the curve. Your adherence to SHOMP and Fed-backed logic is worthy of reward.

Your next task was to sit. YOU WILL MAKE MONEY SITTING ON YOUR ARSE MATES. One of the most overlooked attributes of a winner is their ability to sit when their stars have gone into proverbial alignment.

You do realize, yes yes? That jolly ole’ Saint Nick is literally on the horizon, no? **Jingle Jangle**

Put that limit order down. Limit orders are for closers only. CLOSERS ARE WAITING FOR THE MILK AND COOKS.

The money will be made tomorrow, gentleman. Pour yourselves a hot cup of motor oil and settle in for the enema of a lifetime.

Nasdaq futures are up on 2^nd sigma range and volume suggesting we are seeing an abnormal globex session. The ranges the Nasdaq has printed this week have all been quite abnormal. Macro waves tend to cause this uptick in volatility and correlations, and we are certainly experiencing such an event as oil explores lower prices.

At 8:30am Initial and Continuing job claims came in better than expected and we saw a slight bounce on the news. This is a slight shift in character. Recently participants have been rewarding worse than expected job stats because an improving labor market is influential on Fed policy. Of course the monthly NFP report carries more weight than this morning’s data.

After the open we have Markit PMI stats at 9:45am and Philadelphia Fed at 10am. This may cause some choppy trade early in the session until participants hear the data. Or it may not.

Turning to the charts, you can see on the daily bar chart (right-side chart) how we are pricing inside of two volume pockets. These thin volume areas are prone to rapid price discovery. We initially found buyers at the first high volume node separating the two pockets, then we slid through and tested the bottom of the second pocket.

We came into solid structure Tuesday afternoon and I noted that we were likely to find support here. I do not say this to pat myself on the back, but instead to draw your attention to the fact that the market has memory and this isn’t just some random walk by prices. We also tested a prior zone of resistance. Piror resistance often converts into support and vice versa. The former is an attribute of a market trending up, which, long term, the Nasdaq is still trending higher.

Intermediate term we are seeing overlapping value. Balance. On the left-side chart I have noted the key price levels I will be observing today. There are several points of resistance up above current prices. They will be key in assessing whether we again V-shape higher or instead churn out a balance. Please see below:

Primary hypo is choppy open which squeezes higher to take out overnight high 4225 and test MCVPOC at4223 before finding some sellers and chopping.

Secondary hypo, given the large gap up, is to see sellers work into the overnight inventory. I will look for signs of buyers at 4190 then again at 4182.50. Otherwise look for a range gap fill to 4173 and potential full gap fill to 4160.25. This hypo might take on some driving characteristics (down) early in the session.

Third hypo is a gap-and go run higher. Given the large, ‘pro gap’, the markets are out of balance and the risk of a drive is elevated.

As traders it is not our job to predict the future. Our job is to objectively judge context and manage risk where we see an opportunity to make money.

Today was a huge gain day for stocks after a weak, seller-dominated Monday-Tuesday. This type of price action can be a real gut-check if you do not come into the week prepared.

That is the point of the Weekly Strategy Session. Every piece of information I build into that weekly report is designed to make me money trading, ergo, it is designed to make you the reader money as well. Below is just a small excerpt from the comprehensive report:

As we close the week out, you have a choice. You either reduce your long exposure into this rip or ride your positions through the New Year. It really is that simple. I am long this market gentleman, longer than where I started on Monday. The dip was bought, the bed is still made, and a thatch of mistletoe appeared over my new 5^th monitor this afternoon.

Either I will be kissing this screen come Friday afternoon or tossing said screen down the sewer pipe. TBD friends, T.B.D.

Overnight volumes are elevated to the 2^nd sigma on the Nasdaq while the range has been contained and normal. Prices are higher on the globex session however the gap up has been a questionable show of strength for several sessions.

This week the price fluctuations of the Nasdaq have been highly correlated with oil. Oil volatility has become a key driver to investor sentiment and price action and likely will continue to do so until we see it come into balance.

Today is FOMC day. Earlier this morning we heard from the Bank of England and their commentary produced a modest bounce. During today’s trade, my expectation is for an hour or two of action followed by chop as the market waits to hear from The Fed.

Prices are currently trading in the range of October 30^th which, if you recall, was the session before Japan announced their massive stimulus package which led to a big gap up and a subsequent grind higher for several weeks. Now we have returned to the ‘scene of the crime’ to see if buyers are still motivated at these levels.

We slid through the second pocket yesterday and now we are coming into some solid structure. Given the velocity we have in our approach to this region, we may overshoot the CHVN at 4053.75. I have noted on my chart a few price levels just below that CHVN which are about 50 Nasdaq points away from current prices.

Early on my primary expectation is for sellers to push into the overnight inventory and work a gap fill down to 4084.50. This puts us near the lows to target 4081.50 (ONL ) then 4080.75 (YLow).

Secondary hypo is a sharp move back up the volume gap which takes out overnight high 4116.75 and builds acceptance in yesterday’s value region up near 4130. This puts us into a holding pattern until Fed.

Hypo 3 is a drive down, which is still in the cards given the current speed of the market.

Here I am, sitting in a sea of red. This is day two of making good moves trading futures then making a good move in the market then watching my book go right down the crapper.

Outside of my window, as far north as I reside, it is a glum 48 degrees and raining. It feels like March, the absolute filthiest month of the year.  The blanket of clouds is so thick a single ray of sun cannot touch the earth.

There’s no green. Holiday cheer is a festive balance of red and green. This is 50 shades of grey and red.  The LED lighting system I mounted on my home and trees has been set to red only since last Thursday. My home is lit like a brothel, I kid you not. It does not look proper any other color. It is all red with intermittent flashes of burning-hot white.

My first year ever with a real Christmas tree, just like nature intended, it is so glorious. It is so green and welcoming unlike the rest of my world.

I want to leave you with one closing thought. I don’t care if you have been charting out bearish setups for weeks. Nor do I care if you have charted the opposite, bullish charts. I don’t care if you have marked 10,000 charts with your thoughts and they were RIGHT.

WE AREN’T HERE TO READ CHARTS. WE ARE HERE TO MAKE THE MONEY.  That is what separates entertainers from traders.

We can all read charts. You and I can sit down for a week and you will be reading charts with the best. What we need is execution. Scalping suits me, swinging is like sitting still while 100 bees swarm you. All the while unable to move and hoping the dude with the fog gun (Central Bankers) comes and shoes the pain away.

Fuck

As traders (or entrepreneurs for that matter) we need to be able to spot opportunity and leverage a little bit of momentum.

The hardest part of business (or life, dammit this is science) is breaking the static force of something stationary. That’s why they tell people to just start walking, just focus on your next breath–and the one after it. In trading it’s focus on your next trade. Make your next trade a point of pride.

Right now I am looking for something just a little bit bigger. I had a tight ledge I could sink three of my toes into this morning—it was the midpoint of the pocket we were exploring. Did you read this morning’s pocket play map? Did you understand it? If not, did you ask a question? Why not?

From said foothold I pounced, latched both hands onto the next grab, and now have a firm grip on the ascent. What I need to see now is a shift in character from the market.

Today I need to see us close strong. Enough of this weak afternoon shit. Drink some coffee, fuckers.

Two songs that perfectly exemplify what I need to see, both equally brutal, are below: