Tempered Expectations as Roll Forward Nears

News flow starts to accelerate a bit today. At 10:30am the weekly energy statistics (oil and gas inventory) will be released. At 2pm there is a monthly budget statement from the Department of the Treasury. Than ahead of the open tomorrow there is a Swiss rate decision, ECB Monthly Report, and US Advanced Retail Sales for November.

Also note that tomorrow futures trades will roll forward to the March 2015 contract. This can cause some wacky delta readings and offset order flow as positions are moved to the new front month contract.

Turning our attention to the market, Nasdaq prices are a bit lower from where they left off Tuesday afternoon and have traded in a balanced range for most of the session. Range and volume are normal and the low of the session looks a bit weaker than the high.

If you recall on Monday we discussed how once price entered the below pocket we were likely to test through to the other side down to 4242. Yesterday prices went gap down below this level and found responsive buyers. What followed was a stronger-than-expected neutral extreme day type which recovered the entire gap (recapturing the volume pocket) and more.

It was an interesting profile print because it spent nearly 2 hours building value down near 4242 before accelerating into the pocket/gap zone. This left the VPOC of the session down at 4239.25 almost 50 points away from current prices.

My primary expectation for today is to see a constructive inside day with buyers defending the upper half of yesterday’s range. Typically the day after a neutral extreme or trend day I look for continuation or exceeding the prior day high but the curious nature of yesterday’s print has tempered my expectation a bit.

I have highlighted the key levels I will be observing on the following volume profile chart:

Trading is a performance-based endeavor. Being a trader is akin to being a professional athlete and when you step into a market like the Nasdaq know that you are competing against people who commit their entire lives to the craft.

Imagine you’re in your mid 20’s, mildly athletic, and you move to Huntington Beach, California. You’re from a flyover state, landlocked by an unfortunate birthright. Yet you want to surf. You know you can surf because you’re athletic. Will you go to the pier where the risk is higher and locals are fighting for every wave?

You might want to start someplace down the road a bit, with less hazards and less competition.

Next, if you have ever seen a professional surfer or even a hardened local they make it look easy. They have muscle memory that guides them into the right position to grab the wave and they execute a few simple motions to initiate their ride.

Likewise they have a few simple cues that tell them when to hop off.

Trading is quite similar. If you are experiencing a problem, perhaps fighting the market, it is likely YOU who is getting in the way. An error occurs and the cascade of blame and judgment rushes into your head. Five-six voices, wicked mother fuckers, telling you everything that you do will fail.

Now the market is out for you, it knows where your stops are, and you you you etc. You are now part of the analysis. Instead-let market internals tell the story, focus on the story,

Finally, you can read a chart. Congratulations, we all can. You can be the best chart reader on the internet and still not make money. You need to know when you should be trading. The story tells us what the market is trying to do but your actions need to be triggered by something else.

Look for abnormal spikes in price, aka big rotations. These are your tell that the higher timeframe is becoming active. You want to trade with the higher timeframe as often as possible, especially when it conforms to your story. Now you need to put some risk behind it. You should be able to survive 100 trades with the amount of risk you give each trade. This gives you a chance to learn before you wipe out your account.

Focus on the story, trade pullbacks once abnormal price movement confirms the story, wrap risk around it, review your trades, rinse repeat.

It can be so simple, but not easy. Just like meditating.

A mix of concerns over China loans and Fed rate concerns are being cited as ‘the why’ behind this morning’s sharp selling of index markets. As we head into US trade there is little on the economic calendar.

Aiding in the movement was the volume pocket formation we fell into yesterday. When prices entered this thin region yesterday I noted that we were likely to test through to the other side, down to 4242 with perhaps a few pivot points along the way represented as low volume nodes. Sellers are not wasting much time it seems.

The definitive break of balance yesterday put the market into intermediate-term discovery mode down. Sellers took control of this timeframe. They continued to press their control overnight and we are now trading on the other edge of the volume pocket.

The market is now exploring lower in an attempt to find buyers. After overshooting the 4242 HVN my expectation is to test through down to 4227.75. This is ‘pro gap’ territory, meaning, fading the move is requires very deep pockets and the gap has a low probability of filling during today’s session.

The risk of an opening drive is also elevated given how out of balance we are.

In summary, I am expecting other time frame participants to be active in this out of balance market with a low likelihood of filling the gap. I have noted the price levels I will be observing on the following volume profile chart:

Before today began, before they rang the bell and opened the gates, before they let participants loose, before the full moon began to wane, before all of that I was bullish.

And to be fair, I am still bullish on the market, but less than I was on Sunday morning, you dig?

This oil, this unchecked aggression in oil will not stand. It is the bastard new guy who comes to work in the depths of a cold and gargles fluids into the air of your high density cubicle space. A circle of contagion develops and spreads and before you know it everyone is sick. Well, not everyone.

The alpha subspecies who hacked their genome via a spinach and vitamin C heavy diet fledged onward.

We need to find the stocks who are hacking this market.

The hack masters at FEYE [FD: long] are okay I suppose, but what about the truly resilient ones? Names like GNRC or HABT. What are they eating? They look great.

In short, I want more winners because I stopped out on a bunch of losers today. SUNE is coming back on me because the energy market is a cesspool of death and disease. CLR fainted and fell down 10 flights of stairs. I had no choice but to cut it.

The only good move on the day was grabbing a piece of the downside in the /NQ.

P died too.

Will you stocks survive? Have they made the list? ‘He’ will be checking it twice, and he knows where your stops live.

Macro currents have put a damper of the price of the Nadaq as we head into the week. The most notable event was a warning out of Europe regarding their economic prospects. For full details from Reuters, you can click here.

In regards to seasonality trends in December, the second week of the month is its weakest. However the month is overall a bull one seasonality-wise. Therefore it makes sense to look for strong charts which pull-back and consolidate as opportunities into year-end.

The overnight profile on the Nasdaq formed a slide zone which can be seen as a series of single prints. This piece of context might result in a fast trade upward at some point today. It also has been lingering down on session lows leading me to expect a retest of the low early on.

The structures forming on the 24-hour profiles [which encompass both regular trading hours and globex after hours] show two ‘pinch points’ or low volume nodes which seem to define the current short-term balance structure. Please see the below chart for key short-term context:

Keep these levels in mind as we progress through the week. A breach of 4292 opens the path to a slide through the Nasdaq volume pocket which spans down to 4242. There are several low volume node reference points between those two levels, however the major traverse would be all the way down to 4242. I have noted this pocket and the relevant potential turning point LVNs on the following volume profile chart:

I spent much of the weekend repenting via a lean diet, vigorous exercise, and psychopath-like cleaning. Along the way I laid out my best thoughts and trade ideas on the Weekly Strategy Session, a resource developed with the trader in mind.

If you are feeling out of sync with the market, pour up a cup of your favorite stimulant and catch up via this week’s strategy build out.

Subs, you humble me, enjoy.

When you stop treating trading like an activity to amuse you and start thinking about it like a business it forces you to assess your two most important assets—time and money.

Picking stocks and swinging them takes time. If you’re managing risk properly then you are probably here all session, babysitting a bunch of degenerate misfits ready to send the misfits back to timeout with the other 2000+ misbehaving punks.

You nourish and encourage the productive ones expending precious resources to ensure their success. But what if you could just have one or two?

This is just an open ended question headed into the weekend. Something to let effervesce until we meet again on the other side of a much needed break.

Feel free to drop me any question you might have about this sort of approach. Otherwise I look forward to producing another Weekly Strategy Session to prepare us to bank some wins next week.

The market is experiencing little reaction to the 8:30am data which featured a significantly stronger-than-expected NFP number and an inline unemployment rate. Just before the news was released there were short headlines out of Europe concerning a one trillion dollar bond buying program in the multi-country zone. The news sent the thinly traded Euro dollar reeling lower. The busy morning on the net however has produced a normal overnight range on normal volume as we head into Friday’s trade.

There has been a buyer in the Nasdaq defending around 4310 for the last 26 hours. What I am interested most is the low volume node formed just below this level, right at 4307.50

Since the sharp move lower on Monday prices has drifted higher on the index, and part of yesterday’s neutral print was a sharp excess high. The first reaction to the NFP data was a sell that took us right to the low of the globex session but did not breach it.

This structure leaded me to hypothesize we see sellers at the open who push into the overnight inventory and take out the overnight low 4310.75 to test the 4307.50. I will look for signs of responsive buyers at that level otherwise the MCVPOC at 4298 becomes an area of attraction for sellers to target. Below there the structure starts to get loose, especially below 4286.75.

If buyers defend the LVN at 4307.50 then I am looking for a run toward prior swing high formed last Friday.

I have noted the price levels mentioned above on the following volume profile chart:

Your bias can no longer be adjusted. Most of your positions are sealed up. You can juggle futures outside of the market hours but I implore you to abstain unless you are elbow deep into a well-crafted cover-all-basis plan.

Tomorrow morning everything changes.

Tomorrow morning the churn resolves.

Eat a hearty dinner, make love to your wife, for Friday we battle.

I am going in long of many, some of which show promise, others (Pee), not so much.

Let it ride.

Till the wheels fall off.

Top picks into the hedonistic holiday: GNRC, LULU, AMZN.

Santa speed folks, Santo speed

Nasdaq futures are on the move as we head into US trade as speculators digest the ongoing ECB commentary from Mario Draghi. Third reaction analysis of the news driven move showed sellers as the most active participant, however it will be interesting to see how we auction once the markets open for trade.

Shanghi composite surged over 4% overnight on fresh speculation of stimulus. During the Draghi comments we are seeing some big swings in the Euro and the DAX. The DAX covered 250 points of range on this move, first up nearly 100 then sharply reversing.   So overall these are very volatile market conditions as we head into the open.

Yesterday the Nasadq came down and touched the micro composite VPOC at 4290 and saw a sharp reaction higher. The action that followed managed to push the VPOC a bit higher to 4298 after price churned in this region for much of the session before ultimately moving higher.

Prices are set to open inside of yesterday’s range at the open, however prices are on the move as the markets continue to adjust in these volatile conditions.

I have noted the key price levels I will be observing on the following volume profile chart: