Looking To The Left

Nasdaq futures were down over 40 points early this morning but are paring back some of their losses after a weaker than expected jobs report which seems to be easing the expectation of a rise in interest rates sooner by The Fed.  As we approach cash open Nasdaq futures are trading down about 20 points but are moving fast.

We have the final July read on manufacturing from data firm Markit at 9:45 a.m. and the final July read on consumer sentiment from the Thomson Reuters/University of Michigan Surveys of Consumers at 9:55 and we are expecting a rise to 82 from 81.3.  Most sensitive of the economic news comes at 10:00 a.m. when the Institute for Supply Management’s read on July manufacturing is due and is seen rising slightly, while June construction spending is seen rising 0.5 percent.

The market also is digesting a default from Argentina after they did so 12 years ago.  This country is not fiscally responsible, to say the least.  There are also rising tensions in the Gaza Strip, and Russia is in a tiff with Europe and the USA.

This is also the first of the month, typically today and the following three trading sessions have a bullish skew for equities.  It is also Friday meaning new longs would have to sit through the weekend which may create some hesitance.

The intermediate term profile is in many ways out of balance and very active.  Yesterday’s gap-and-go trend day down is seeing some continuation today.  The speed will be telling, and I have highlighted two low volume nodes below yesterday’s close which will be the tell for me.  I do not want to see the market rush to test these levels (3870.50 & 3865.25).  If we are testing these levels before lunchtime, that in and of itself says the velocity in the market has changed.  Remember, bears can take back a month of gains in one week.  I will be most keen on these intermediate term prices to dictate my actions today:

However, should pace shift and back to slow, I will be watching the following market profile levels intraday:

My four long term ideas have stood up decently though earnings, and I am coming out the other end of the great uncertainty net positive, for once.  Every position aside from LO, TWTR, TSLA, and GPRO is a trade subject to liquidation prior to earnings.

This evening I will be listening to the Elon Musk speak on his company while I press iron at the local pump station.  His earnings calls are the best, don’t be late because he goes directly into Q&A, none of that monotone reading of financial results bullshit you hear everywhere else.  The man is busy making all of our lives better and knows the idiots on Wall Street have lots of stupid questions to ask so he respects everyone’s time and curiosity and gets right to it.

GPRO is off after hours because they reported fantastic numbers, their product is viral, and everyone who owns their camera is a HERO.  I couldn’t care less about this short term blip, I love how user generated content IS their marketing, pimping the Youtube platform like it’s their own.  How’s that for marketing?  When your child or nephew asks for a Go Pro this X-mas, do everyone a favor and buy the Go Pro.  No one wants to return the god damned knock off you buy instead.  We are very busy, you see?

To pin a rose on this earning season’s nose, I was bestowed a fine gift from the Option Addict via X.  What a pleasure it was today, watching this stock continue to catch a bid while everything around it crumbled. Talk about a confidence boost.

Said confidence was deployed into WFM September calls this morning.  I have wanted to buy back into this grocer for many quarters, they are a winner, and I consider the post-earnings impulse sale a deal for the ages.  The calls I purchased were up well over 100% at one point today.  Something tells me I caught the tiger by the tail on this one.

Finally, I was net down on the day, as some of my internet ridiculousness and China stocks retraced their initial gains.  I agree that tomorrow, the first of the month, is important.  I suspect many mutual funds with be tasked with the boring duty of allocating new funds to equities.  They would rather be enjoying their August in Europe and the Hamptons, yes?  Why not just throw it all in Tomorrow and Monday and spend the rest of the month on a golf course or boat?  Think about it and take your mind out of the news flow and away from the charts for a cotton picking minute.  These industrious folk need vacations, not “work”.  Friday being the start of the new month is very odd.  Nevertheless, I put on a Texas hedge and BAWT some TNA this afternoon.  I cannot say I am thrilled with how it closed, right down at LOD on VOLUME, but I will see it through until tomorrow at least.

Eat well, make love to your wife, for tomorrow we do battle with sloshing liquidity.

I started a long position in WFM this morning, giving myself time via the September $40 calls.  Deals…

Also, looking for the Jen S. higher low bottom to hold on TNA:

pic.twitter.com/u3hYE29rKG

— Jen Selter (@JenSelter) July 31, 2014

Index futures are down quite a bit across the board as we approach the final day of US trade in the month of July.  The major news overnight came from Argentina, who in a few hour may default, an event which would “plunge the country into turmoil.”  Worsening tensions with Russia seem to be weighing in on the eurozone where some are speculating the external shock may be enough to push them into a deflation trap.  We are off the overnight lows a bit but saw a fresh wave of selling roll in after the 8:30am US Continuing Claims and Initial Jobless Claims.  We have Chicago Purchasing Manager at 9:45am, a Natural Gas Storage report at 10:30am, and Chinese Manufacturing PMI out after hours today at 9pm.  We are also in the thick of earnings season which has been mixed but positive for social media, a hot spot of discussion after being singled out by Fed Chair Yellen.

We can rack our minds with all of this macro economic news, or we can focus our energy and attention on the auction taking place, and use our objective eye to perceive who is participating in this market, what they are trying to do, how good of a job they are doing, and what they are likely to do from here.

It is the end of the month, equity inflows typically take place at the start of a new month, and we are wrapping up the first month of Q3. The first half of the year was a challenge for growth performance, especially after many of the marquee high beta stocks were cut in half.  Thus starting the second half of the year strong was important to many participants.  With that in mind, we know the intermediate term is very likely to be active in this environment.

On the month, we formed a rather balanced profile until launching higher.  The final footprint left a big volume pocket which we have slid through overnight.  There was a second volume pocket up higher, but we filled it in this week.  Now it appears we are backing and filling this region.  See below:

If I bring our eyes in a bit closer we can see the key price levels on the intermediate term, the levels we are likely to see respected during today’s trade:

I will also be keying off the following market profile levels to start the morning:

I have been working the kinks out of my futures trading game for a month now, trading the old 1 lot.  I never achieved the win rate I desire, but something curious is peeking out from the stats.  Over 70% of my trades achieve a 3 point MFE.  Today was even more pronounced, where my trades were earnings over 20 ticks in MFE.  The problem lies in the hypothesis.  I can read auction action better than the average bear but I am still learning.  I expected more from my trades today and when they flew back on me super duper fast (the mark of OTF activity, the very activity I have been tracking) I was forced to take scratches or worse small losses on otherwise quality trades.  With a bit of trade management via scaling profits, these were winning trades.

The overtrading dilemma of weeks past too—thinking like a 1 lot chump.  I have been coming into consolidations with a position, closing it out, and then chopping myself to bits trying to time an entry inside the consolidation.  What if instead I could take my scale and then watch the consolidation already in the money.  Much better.

Thus the conclusion—I am close to feeling prepared to increase to a two lot.  According to my stats I should be able to capture a scale which would then allow me to manage the other piece.  This is the only logical progression I see after cultivating the patience to only take high quality entries.

I am not so trigger happy anymore because I have seen how much it infuriated me and ruined otherwise normal days in the life of Raul.  I am generally a happy guy, but not when I start thinking, “this looks like a good spot for a try” without any preplanned hypothesis.  The hypothesis is the answer to overtrading.  I am prepared to be wrong on a hypo trade.  This gives me tons of information about the auction which then helps me direct my stock swing trades.  The entire process is very informative and makes me be better overall trader.  I like this.

A commenter once opined that they could not watch this car wreck any longer, this endeavor to day trade index futures.  They said they tried the same thing, clearing one hurtle only to find the next and the next.  I am not singling you out like you are a jerk, it was an honest and appreciated comment.  However this process is the way you achieve something, how we perceive the obstacle.  The obstacle is the way and I am fully prepared to be wrong.  Anyhow, here’s today’s trades, some beauties if only for some scaling:

In other news, TWTR traded a bit aloof today but found a bid.  I watched X with steel in my heart, and I am anticipating some follow through tomorrow.  My only trade today was closing out some UNXL and buying some FEYE calls.  It felt like the FEYE calls had some SPLK move priced into them, is that possible?  I would appreciate any thoughts from the more seasoned options guys.

GRPN is still dead money and I am still in some August calls, SINA worked from the rip yesterday but sitting in these China calls is a bit sketchy, especially with WUBA in tote too (from lower).  I have some DDD calls I expected to be out of ahead of earnings but are nearly worthless thus will roll through, and an AMZN yolo.  In short, I am leveraged to the hilt amidst a tumultuous Nasdaq tape.

Nasdaq futures extended their overnight gains this morning when US GDP came in better than expected for the second quarter.  The price action took us just above yesterday’s high on the session before finding some responsive selling.  As we roll into US trade keep in mind the FOMC Meeting Announcement at 2pm today.

The intermediate term auction is just a mess, and as we close out the first month of Q3 it is apparent the OTF is jockeying for position and performance.  What this means is moves possess more conviction, go further than you might expect, and will often times ignore “day-timeframe” or local price levels.  This is a huge concept to understand, and one that causes many system traders to struggle.  The conditions changed around 07/22 and have become even more pronounced as of 07/25.  With that in mind, these intermediate term price levels are more pertinent to our decision making process then our market profile levels:

However, just as we shifted to an intermediate term climate, we could just as easily shift back into a local controlled chop.  This is the essence of market profile analysis, to answer a few questions:

Who is likely participating in the market?

What are they attempting to do?

How good of a job are they doing?

What are they likely to do from here?

The interesting piece of market profile context from yesterday-to-today is derived from the day type we printed yesterday–a Neutral Extreme.  The Neutral Extreme day type is characterized as such for having range extension on both sides of the initial balance AND a close near one of the daily extremes.  This type of close has a strong directional conviction in the direction of the close, which was down.  Meaning, participants were VERY confident they would be waking up to lower prices this morning.  Thus today’s big gap up is likely to produce a squeeze if the sellers cannot hammer the tape early on.

Therefore, I have highlighted the short term levels I will be observing early on to gauge market conditions using the below market profile chart:

Twitter is up after hours on solid top line numbers, an EPS beat, and a 24% gain in users year over year to 271 million.  I just want to nuzzle Twitter’s little nose.

I like the way we opened for trade this morning in the Nasdaq, as of this writing (past results are not indicative of future returns, etc.) buyers have rejected away from yesterday’s range and held prices up near the highs.  I shuffled my book about a bit, selling my TSLA weeklies, and buying some AMZN weeklies, some SINA next weeklies, and I small earning’s gambol in X.

The current HOD in /NQ_F is so poor it has grocery bags for shoes.

LEVERAGE-D and preparing some meat trays for tonight’s earnings announcements.

The discovery process is ongoing in the Nasdaq futures, where contracts are currently trading a bit higher verse the close of Monday trade.  The lack of consensus can be seen on the 24 hour market profile which is not coming into balance.  The imbalance can also be seen on the intermediate term volume composite, where our current action resembles the toothy peaks and valleys of a ridged mountain range.  As we approach the open of US cash trade there is only the Case-Shiller Home Price index to anticipate.  After the open at 10am is the Consumer Confidence report.  Twitter is set to report earnings after the bell.

With three trading days left in the month of July, let us take a look at the monthly volume profile print:

We can see the longer term trend being controlled by buyers who, after slugging it out for the first five months of the year, have pressed prices higher.  Bringing our attention in closer, we observe the intermediate term trend.  This is where the real battle has been taking place for the past 5-6 days.  The local, or day trader/dealer, is not the only participant in our current conditions.  Instead we are seeing day-timeframe levels ignored and instead the intermediate term levels being honored.  This behavior can shift any moment, but for now the price levels on the intermediate term timeframe are the most relevant, see below:

Finally, we can observe the following market profile levels, and how we interact with them, to determine if we re-enter a local-to-local chop-like environment.  If we see these short term levels as well as today’s developing value area honored and disputed, then we can assume longer timeframe participants have backed off until they again are motivated into action.  See below:

Midway through the morning session I was taken out of the action when one of my PCs went haywire.  Funny how a touch screen monitor reacts to a calculator being thrown at it, but I digress.  There is something very exciting about the market of stocks right now, something almost intoxicating.  The intermediate term participants are jockeying for position and creating a great degree of uncertainty.  From uncertainty opportunity is born.  The obstacle is aversion and keeping yourself away from its deep dark corridors.

I am down two monitors on the day, from four, as a result my screen real estate has become twice as valuable and I have to simplify my operations.  This is an excellent opportunity to carefully clear some clutter off my screens.

We are approaching a key turning point in the market place—earnings season is time to gird your loins.  If your price action swing trade never bared fruit, you must dig up said tree and bury it.  If you have a long term commitment to a stock, you must prepare for failure and ineptitude which is completely out of your company’s control.  It is the whimsical nature of the market participants who will ultimately determine your short-term fate.  Do not fight it, simply embrace the uncertainty and make sure you are in bed with your vision.

I have long term commitments to four companies—I am a bit of a polygamist.  LO executed the most impressive land grab I have ever seen with regard to eCigarettes.  Their Blu™ device swarmed party stores and gas stations like the early German Blitzkriegs of World War II.  I put my long term faith in a company that executes and disrupts with that much speed and tenacity.  Disruption is always at the core of my long term investments, thus my other three investments should come as no surprise.

Tesla Motors is coming up the flank, and will devastate old TBTF auto industries and their gasoline infrastructure.  Their counter offensives have been impractical and unaccepted by the people who matter.  Elon Musk is a visionary and one of the greatest leaders of our generation.

Go Pro is the camera on everyone’s wish list.  It is durable, simple, and high definition.

Twitter is the ultimate disruptor of the most powerful force on our plant, media.  The pen has conquered and build nations for 100s of years.  He who controls the media controls the minds of the masses.  Twitter is a way of turning the control over to the user, the consumer.  It is a scary thought, but a generational disruption nonetheless.  Every day someone debates making a stupid, fuck you money, offer for this company.  What is it truly worth?  What is the collective, real time conscience of the world worth?

All of my other positions are tactical and short term.  WUBA is bringing the doom hammer down on China doubters.  Next shorts to die are VNET.  BIDU doubters are dead.  The beatings are scheduled to continue on a daily basis as we approach the coming of the Great One, ALI-BA-BA!!!!!! (extra Indiana Jones caveman)

I will have 4 screens in a few weeks, but until then I may reduce down to my core holdings.  TBD.

Doomsday approaches for WUBA shorts