China Drops an OPEX Surprise

Today is option expiration day for many stock options, and although we live in the age of weekly expiration dated options, the original third Friday expiration carries a bit more weight. Just before 6am we received unexpected news from the East where the Chinese Central Bank cut deposit rates by 40 basis points. This news fueled a rally in the Nasdaq globex session which is currently printing a range in excess of the 1^st standard deviation of normal on volume to the same degree. In short, this is an outlier overnight session verse 68.8% of overnight sessions over the last five years.

The price action has us set to gap to new swing highs on the index suggesting the market will be out of balance come opening bell. This can lead to big moves. Leading into today was yesterday’s session which had the look of a short trap. Prices went gap lower and took out Wednesday’s low only to sharply reverse early on and squeeze shorts. The overall look of the profile suggests a short-squeeze event occurred leading into today.

Auction theory is not quite as effective at new highs, however I have listed the support levels I will be observing on the following volume profile chart:

This evening I strolled down the snow covered walks of my neighborhood and soaked it all in. The automobile artery in the distance had the glow of gridlock traffic but was just far enough for the winter blanket to silence their sound. Instead I was left to hear my own thoughts.

I used to be a member of the rush hour traffic society. A member to a devote network of Waze users colluding to outsmart the traffic jams. No matter how I obfuscated the route the duration would be no less than two hours. It was nonsense, no way for a human to live.

Now my network is hardened speculators, our task is banking coin, and the duration is of no matter because I love every brute second of it.

Let’s close this year out like a bunch of badasses.

If I can make 1-2 good trades in the Nasdaq then I get to spend the rest of my day as I please. The key is, and this is because I am still developing, shutting the machine gun down and entertaining myself elsewhere.

You will often see me giving traders a risk reminder after they experience an outsized win. That is because I have churned away enough outsized wins by getting inside my head than most people my tender age. I love referring to my age as tender. Doesn’t that make you a bit uncomfortable?

Anyhow, there was a piece of context I will trade every time it presents itself until my eyeballs burn out of my skull, it’s a slip zone. Wrap some risk, grab the wheel, execute. I am going to make a career out of these things.

I put a side bet on GOOGL YOLO whilst we ran up the zipper, to keep me entertained.  It will likely lose.

Prices moved lower in the Nasdaq overnight and as we approach US trade the market is hovering inside the lower quadrant of yesterday’s range. At 8:30am traders learned about the CPI and Jobs situation in the United States, and all numbers but one were better than expected. Initial Jobless Claims came in a bit higher than expected. After the open we have Markit PMI at 9:45am and both Existing Home Sales and Philadelphia Fed at 10am.

The futures broke loose to the downside just after 3am and since then the overnight profile has taken on a b-shape suggesting the initial wave might have been of the long liquidation variety.  It also exposes a slip-zone up to 4217.50. You can see the overnight profile below:

At our current prices, the weak low at 4207 is now in range. This is a piece of context that formed on Monday when the market printed a double bottom on this tick. That is a poor low and carries an expectation of resolution. The swing high also looks weak but is nearly out of range statistically. The net result is a neutral stance which leads me to expect choppy trade. This is unless we see a strong driver off the open like we saw the past two days. I have highlighted the key price levels I will be observing as well as the weak high/low observations on the following volume profile chart:

That is what I was thinking over and over again as I wondered if the Tuesday afternoon slash Wednesday morning Nasdaq seller would reemerge in the afternoon. He/she/it did not. Instead we grinded away on the index board while a few marquee momos had the insolence spanked out of them.

The market stopped me out of a few ideas today, two of which came from the Weekly Strategy Session. You see, these ideas are not merely printed to build wonder, they are traded, and will fail from time to time. I am really good at losing.

Sofa king good, in fact, it makes me dangerous in the field. It makes money, oddly enough, being a good loser. Sometimes you go to your rec soccer league expecting an even matchup and the Greek national team shows up. You can become frustrated. Or you can pick your spots to defend, accept your likely fate, and be a good sport.

It is really a matter of how you want to live your life.

I have no hot pick for you. My favorite two stopped me out. I will be scouring the iBankCoins, just like yous, looking to see whos hot for what and whether or not I can build some risk and profits into it.

Oh yes, and before I forget…wow this market has frustrated the masses. The ‘illusion of higher equity prices’ is the most hated bull market in my short tenure. Pick stocks, wrap risk, execute. Say it with me.

I have an exercise you can to perform this afternoon. If you are actively monitoring the markets when the FOMC minutes are released, then you should perform third reaction analysis.

This exercise is useful for three reasons. First, the reaction to the reaction’s reaction tends to be the short term tell for the market. I have no data to back up this analysis. One day I will back test this theory with a team of interns, smoking monkeys, or robots operated by smoking interns.

Second, it forces you to slow down your thoughts as the market moves fast. That is, if the market moves fast. Third many of you, piker as it is, love inserting your p&l into your analysis. Put it away, and make an earnest attempt to identify the first, second, and third reactions to the data.

Feel free to share your observations below, it won’t upset me in the least.

Nasdaq futures traded a below normal range and volume overnight as the market heads into the halfway mark of a week featuring an economic data backload. At 8:30 am US Building Permits and Housing Starts numbers were released but show little impact on index prices. Instead it appears the market is more interested in the 2pm FOMC minutes and perhaps Thursday premarket when CPI data will be released.

My typical expectation on an FOMC day is an active open featuring 1-2 prominent rotations before the session turns into a grind ahead of the announcement. Yesterday’s strength was interesting early on because the open had a drive-like aspect to it that occasionally portends trend days. It was enough buyer conviction to keep me from putting any shorts on intra day and an interesting piece of context to carry through the session and into today. Buyers did manage to range extend higher and upon doing so discovered responsive selling. The high end of yesterday’s profile looks like absorption. The VPOC shifted to the high end of the profile and we pressed lower right into the bell.

The short term dividing point between the responsive seller and buyers is a low volume node at 4240.25. Even overnight, when prices briefly popped above this level, sellers were active. I have noted this level, all other key price levels, and an LVN slide zone on the following volume profile chart:

Tomorrow we hear what our central banking overlords were discussing only two days before Japan dropped their stimulus bomb. Viewing said commentary in hindsight ought to be rather stimulating.

Making fresh highs is not conducive to day trading. There simply is not enough intraday rotation to make a meaningful nut. This is why you need to diversify you trader skill set. When the action is fast and you sit on the sidelines waiting for the dust to settle, you jab out scalps on the futures. When the day trade market is dead you swing trade stocks.

We are building wealth. It takes patience, logic, and a quiver full of arrows.

Just as we closed I opted into a TZA hedge.   I wanted to raise more cash into tomorrow but every time I queue up one of my positions I cannot justify selling them here. They all show promise of MOAR. My only other choice was a hedge. The Russell was chosen for its inherent weak qualities relative to the other indices.

Like any good hedge, it would be most pleasant if it simply lost money and forced me to stop out. This would assuredly be served with a side of big dicked gains elsewhere [extra SCOK]. Prepare yourself for the next level. For each milestone is a ridge to rest your weary legs and enjoy the view before envisioning your next climb.

When you put all of your actions into the proverbial hat and take the net, are you a giver or a taker? People often ask vocal traders who are successful, “Why do you do it? Why do you come to the internets and toil on-and-on with the plebeian class?” You hear mixed answers, but there is one main reason—we are selfish.

We are selfish in protecting our peace of mind. I can have a shit day, week, month, but if you can avoid one pitfall through a discussion with me then I feel satisfied—satisfied that this simple endeavor, trading, was not able to trap you with one of its simple snares. It also encourages the gods to favour us.

The harder I work, the luckier I get. And you must be assured an element of luck went into the top pick from my first ever Weekly Strategy Session. Look at this excerpt:

Here’s a closer look at the chart posted. Note how price has stalled today right near this logical scale out level:

But as I said before, we can plan until our faces turn blue, execution is what makes money. A few us of #nailedit inside 12631. You can too. It wasn’t some crystal ball trick, it was knowing where risk was, seeing price action with a supportive volume profile, and putting on a proper position size into the market. Plan, execute, repeat.

I am working a low risk entry on another WSS pick as we speak. But I am very busy and must return to my work. Keep sleeping on your boy because I walk barefoot alongside the plebs.  These are my people.

The Nasdaq has come into balance. Overnight prices traded a good portion of the balance zone, testing upper and lower value, and ultimately are trading near the midpoint as we head into Tuesday’s trade. Markets started moving around 4:30am when the UK released mixed-to-worse-than-expected Consumer Price data. The biggest rotations have been to the sell side but overall the session is neutral.

Any move away from our three-day value zone is now suspect with the approaching FOMC minutes tomorrow afternoon. The market is always trying to do something, even when it waits, and according to my contextual read it is trying to trade lower. However, it is not doing a very good job. Sellers pressed on the bid for most of yesterday’s session yet prices sustained above value. There is a poor low in place now [a double low vulnerable to breakage] and value drifted lower [VPOC] verses Friday.

Trying to go lower, waiting for new information, thus not doing a very good job trading lower is the short of it.

I have highlighted these observations as well as key price levels on the following volume profile chart: