iBankCoin
I turn dials and fiddle with knobs to hone in on harmonic rotations
Joined Oct 26, 2011
4,121 Blog Posts

Exiting Balance

One of the primary jobs we have as traders is determining what type of environment we are trading in.  What are the conditions?  Are prices moving fast or are we chopping around?  Our behavior can be adjusted accordingly.  This means stepping back and examining the price and volume action from a less granular level—instead observing a multiple day auction.

On my latest volume profile chart we can see multiple conditions all in one place.  At a glance we can see the long term volume composite, the balance occurring on a shorter more intermediate term timeframe, and also see the daily auction.  What jumps off the screen when I look at this chart is the balance formed during the last eight sessions.  These eight sessions are significant because they are the auction as we wrapped up July and began August.  A significant build of volume took place, we compressed on Friday before thrusting higher, and the thrust continued into Monday.  We are now trading up at the edge of balance and that high volume core is acting like gravity.  Between us and mean revision lower is a low volume node at 3901.25.  The behavior around this price will be my early tell on whether we go back and fill the gap that started the week.  Furthermore, how we behave around the high volume VPOC at 3885, a price vehemently defended by sellers last week, might indicate whether we have shifted into discovery mode, see below:

08122014_IntTerm_NQ

The overnight auction was quiet thus far, taking place inside yesterday’s range on low volume.  The biggest rotation occurred around 7:15am, it was a downward rotation of 14 points.  We have a Monthly Budget statement being released at 2pm and an otherwise quiet economic calendar until afterhours when Japan GPD data is set for release just before 8pm.

I have highlighted the short term levels I will be observing on the following market profile chart:

marketprofile_08122014

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Do You See What Happens When You Force A Sell at The Mid?

Context is king when trading.  Everyone builds context their own way.  Mine is a cocktail of watching the best looking stock charts, interpreting the auction behavior with market profile on the Nasdaq and sometimes the ES, order flow or the speed and size of rotations, talking to other traders, and PPT data.

This afternoon I was suggesting we key off the “mid” or the midpoint of trade for today’s /NASDAQ session. It is a simple reference point, one rarely discussed and often overlooked. USE IT on all of your intraday assessments and thank me later.

All context matters but you have to make sure you can separate the “I feel” and “It feels like” from your assessment.  Objective observation is best done through journaling measurable data like opening swing, initial balance, PPT score, etc.  The sentiment is more like a caveat, and REALLY depends on who is saying it.

Then there is news.  I have a love/hate relationship with news. It can blow me out of a position or it can propel me higher.  The nature of news is beyond my control and rarely actionable.  Ideally we know when it is released like economic data or a scheduled press conferences.  For breaking news I sometimes use a squawk, but I find it very stressful and distracting so I turned it off a few weeks ago.

As we roll through the final hour of trade, we found a bid and money is rotating into some risk elements like YELP.  In our current position, time favors the longs.  The longer we hold last week’s sellers under water, the more heat they will feel.  A dull market, you know?

Stay sharp, this also might be some sort of complacency lull before the hammer is dropped.

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My Friend, We Have Unfinished Business

Last week is looking like it might have been a good entrance into longs before the market goes back to work settling some unfinished business up above.  We never truly know these things until price action plays out which is why we manage risk, focus on quality entries, and then milk winners for everything they’ve got.  Back in April 2000, whilst a younger Raul attended high school, market participants were greeted with a spine tingling gap down to start the month.  Said gap came on the heels of the greatest run up in Nasdaq history.  What followed was one of the fastest market drops of our lifetime, the tech bubble had burst.

Amidst the carnage, you guys forgot to go back up and close the gap.  Not all gaps must be filled.  In fact, some don’t.  However, when we approach a void the physics of price action start to change.  The suction becomes a target for testing, are these prices still repulsive?  Or do we need to give them a more proper exploration?

There are several different analogies being discussed about how our current bull tops out.  For me, I am holding off until we test this 14-year-old gap in the Nasdaq Composite index.  After all, what is leading us higher?  I have highlighted the old gap on this weekly chart of the Composite, see below:

08112014_Weekly_NQ

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“I think it’s very unwise to be shorting Tesla”

elon-musk_meme

It sure is hard to put fresh money to work buying shares of Tesla up here, just a stone’s throw away from all time highs.  Most of the fundamental folks could not stomach “how expensive” the company is.

How must is the biggest disruptor worth?

Deutsche Bank thinks it’s worth about 38.7 billion, today.

My investing philosophy is simple, invest in the best jockey riding the most disruptive horse.  Of course I would find it hard to buy TSLA today, up here, because I chomp charts like an addict.  However, while we all wait for another pullback to get on the bus or add, this stock is about to break out.

And if market participants are willing to risk their capital with Tesla, ridiculous valuation and all, that might be a pretty good indication of RISK ON.

FD: long Tesla common, long term

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Holding Shorts Underwater

Last week’s work is paying off today.  When you put aside the headlines and focus on interpreting the auction you will find yourself much more able to execute.  Traders often struggle with their trading during the summer months for a variety of reasons.  In many ways, summer trade is like the off season and such a break is much deserved and needed.  However, if you push too hard, forcing trades, you might be frustrated when the thin action plays out.

The Nasdaq has been leading thus far this morning, where price gapped up and chopped a tight range before breaking higher.  Although I do not expect a ton a conviction from buyers today, I would still caution shorts with this initiative-type buying occurring.  I highlighted the 3907 price level this morning as a key composite LVN to monitor during today’s trade.  Watch how the market treats this level today as your intraday pivot.  Should we continue sustaining trade above it, then the discovery process is likely to continue higher.

08112014_IntTerm_NQ_midmorn

On the day my only action was scaling off a piece of my TNA long.

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Monday Morning Context Read

Quiet morning on the economic front, with our biggest scheduled event being premarket earnings announced by PCLN whose shares are currently trading over 2% lower on a weaker-than-expected Q3 forecast.  The calendar is relatively quiet until Wednesday, however we continue to be in an elevated headline risk environment associated with both Mid East and Russian tensions.

As we head into USA trade, the price of the Nasdaq is set to gap higher.

Turning our attention to the auction, long term participants are bullish to neutral.  Intermediate term players have been neutral-to-bearish since the end of July.  Last Monday we traded back up above 3900 and were unable to find sustained buyers.  Then several times last week, a responsive seller was found just above MCVPOC at 3886.  We are set to open above the 3886 responsive seller near 3900.   The intermediate term timeframe is in balance over 30 sessions after pulling back off the highs.  You can see the intermediate term commentary on the following composite profile:

08112014_IntTerm_NQ

Risk of a drive higher is elevated today give the gap up and away from a 4 day range.  The drive force becomes even more likely if we sustain trade above 3907, the nearest composite LVN to current prices.

On the contrary, if we open for trade and the market goes on SALE, with a large rejection seller who starts fading the gap, we are returning to a very ugly auction from Friday.  Caution if we sustain trade below 3882 it opens the door to an overnight gap fill down to 3873.75 which puts us on the mouth of a slide zone down to 3867 and Friday’s session had a poor low which too would be vulnerable.  It is context to keep in mind today, this poor structure, especially if we see an aggressive fade.

I have noted the short term levels I will be observing on the following market profile chart:
marketprofile_08112014

 

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One Ugly Auction

Friday’s Nasdaq auction took on an odd formation which in part was news driven.  The profile itself does not provide much short term signal, but it does provide many juicy opportunities if we auction through it early next week.

First off, both price extremes, the high and low, were poorly formed.  Thus if we open for trade inside this range Monday and price action begins pushing toward one the extremes, it is likely to break.  Second, when news of the Russians withdrawing troops they had postured along the Ukrainian border hit the wires price lurched higher leaving a series of single prints on the tape.  This thin area received no auction.  If you look to the left you can see we already spent a significant amount of time deliberating these prices, thus we may not need to auction them again.  However, if price pushes into this slider range from above or below, we are likely to sweep right through it fast.  Finally, all of the action took place inside of Thursday’s range, an inside day.

An inside day is often used to signal indecision because neither the buyers nor the sellers are able to push the price beyond the prior day range.  It may suggest the recent index weakness is coming to an end.

Be sure to tune in Monday morning, when we have more updated prices to template against this profile.

marketprofile_08102014

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Closing Comments from a 90% Long Book

Nothing has happened in this market but a solid week of ruthless grind.  For every rally there is a seller who perceives opportunity, for each liquidation a buyer.  Three neutral prints in five days, oh my.

My bias flipped to medium bear on Wednesday morning after being neutral Monday and Tuesday.  Starting the day Thursday my bias was even lower, the lowest it had been in weeks.  However the market performed a thorough exploration of lower prices, the cycle showed signs of completion, and we seem to be starting the corrective pattern up to close out the week.

I know it is difficult to stay long into the weekend, what with the holidays you want to enjoy, wars on the horizon, and hurricanes threatening our distant territories, but now is not the time to be meek.  The bear is on his heels again, in this battle for market dominance, and they will be put to the test.  All of the labor and sweat must now be channeled into brazen courage if you want to grab the golden key.

A big gap up Monday, to start the week, how frustrating does that sound?  A month worth of indecision, melted away, by a hot market gap, oh the humanity.

I’m staying, finishing my hot coffee (no iced), because good citizens fought so I could enjoy this little slice of freedom.

Drop by over the weekend, won’t you?  Let’s discuss theory.

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A Fresh Look at Multiple Timeframe Volume Profile

Nasdaq futures were very illiquid last night and with only slightly above average volume we managed to print over 40 points of range.  It started yesterday evening when a wave of sell flow pushed the market lower.  The timing of the selling loosely correlated with US President Obama approving the use of strategic air strike in Iraq.  There were also so big moves occurring across the Forex complex including the Aussie dollar.  Around 4:30am prices reversed course and quickly auctioned higher and the push managed to take prices up above yesterday’s midpoint.  As we approach US trade we are set to gap a bit higher however prices are on the move, and where we are in a half hour could materially change.

One of the questions we constantly ask ourselves as speculators is, “who is participating in this tape?”  There are day-timeframe and other short term participants or “locals”, intermediate term investors, and long term players, and believe it or not, longer term participants.  Think of locals like car dealers—they only hold inventory for a very short time with the intention of facilitating trade between the long term seller (the auto manufacturer) and the long term buyer (the consumer).  Locals do not have strong drive or commitment to prices, and do not drive directional moves.  Intermediate term participants may extend prices a bit with their position entry because they have a longer term horizon and do not observe short term price levels.  The long term participant will drive through many price levels, moved to act perhaps by a geopolitical event or macroeconomic theory.  When they act, our job as smaller players is to stay out of their way or join their order flow.

This is the essence of timeframe analysis.  The challenge is keeping it all straight in the heat of the trading day which is why I create these morning reports.  However there is always a possibility of a better looking glass or tool for observing the action.  I have been building this new volume profile chart for a few weeks, have a look.  You will notice three sets of volume profiles.  The black outline is the long term composite, the red and blue on the far right is the past six days of trade (the stalemate between a big buyer and a big seller), and finally each daily volume profile.  I have noted the key prices which likely determine the victor of this intermediate term battle, as well as other interesting short term levels:

08082014_IntTerm_NQ
I have noted short term observations and levels on the following market profile chart:

0808.2014_marketprofile_NQ

 

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The Curious Case of Rising Value

Some very specific price levels were mentioned earlier, price levels which without doubt “brought the action” if you will.  This tells you the methodology is effective.  Initially, I though losing such levels would be a reasonable indication that my longs should be reduced, and perhaps they should have.

But there were a few observations which kept me in-

  1.  We printed an excess low on the /NQ_F. Excess is a tail, it is price going too far and snapping back in the other direction, it is touching your hand to the lid of a charcoal grill because you are drunk.  A strong reaction occurs.
  2.  Although SPY and QQQ made new lows on the week, Russell diverged
  3. Momentum stocks, creatures of wonder as they are, were way off their lows all over the place
  4. Our VPOC is above yesterday’s, see below:

08072014_marketprofile_NQ_afterhours

When faced with these observations, there was little choice but to stick with the course I have plotted.  My TNA long sits unchanged, how bad is it out there, really?

The negative news cycle is as pronounced as we have seen in months, maybe years.  I remember a wave of selling hitting the tape at any mention of Euro Zone weakness, how soon it was all forgotten?  Now we lose 9 Nasdaq points on a Russia/Ukraine piece, any piece, yet a bid remains in growth.  Observe, and mind you perceptions.

How many of you, with your own eyes, have observed the Russian troops amassed on the Ukrainian border?  With your own eyes, not stock frottage from CNN of fucking tanks driving around.  Imagine a big group of Russian men, tenting out in the wilderness with combat gear and vodka, being Russian.  Who are they even threatening besides themselves and the local wildlife?

We have a seller.  The seller has conviction and shows up every time we press over our composite VPOC.  If this seller is put on their heels it would be a massive amount of fuel for upside.  If they drive lower, they can take profits and reload on the next rip.  They have not had much of an opportunity to book gains yet, just as the bulls haven’t.  The two forces are very much clashing until we have a victor.

Until the market goes decidedly red, dragging bull carcasses around the ring while a mariachi band plays, there is a bid in this market.

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