Contextual Approach To a Short Term TSLA Trade

As you may recall, I have been in and out of TSLA common stock for much of 2013 and a good portion of 2014.  My most recent common stock swing began 06/10 and is up just a bit over eight percent.  Sometimes I juice my position with some leverage, pinning on short dated call options.  I came into Friday with August 1 $230 calls and closed them early in the session with the intention of buying the calls back at the end of the day for a discount.  It turns out I was trying to be fancy, and I ended up paying a bit more for the position come 4pm.  However, I like the short term contextual read on TSLA right here, and I have presented my case below.  The yellow box is an expansion of a 15 day ATR.  My expectation is for price to achieve the upper target by the close of next week, thus allowing me 2-3 days of opportunity to smack a home run.

See below:

As an intermediate term balance ages more and more fine lines begin to show on the face of the distribution.  The more crowded the profile becomes with lines, the more likely we are to see the profile left to explore for new, youthful prices.  Such is the case with our current intermediate term profile which is becoming rather crowded with relevant prints.

Don’t assume I mark this chart up all willy-nilly with lines simply to obfuscate my own job.  These levels have proven significant both via price action and the resulting volume footprint.

We are currently priced to open just below the VPOC of our intermediate term balance.  Whether buyers respond to these prices like they are a sweet discount or hold off will telling as we close out the week.

Nasdaq futures are pricing in a gap higher overnight after a liquidation trade took hold yesterday.  With U of M Confidence data out at 9:55am and the gap higher, we may see some murky trade early in the session before finding direction.  Google is gapping higher after announcing earnings yesterday after the bell.  Today is also OPEX for monthly stock options.  Earnings are just around the bend for most stocks and we are heading into an uncertain weekend according to the news cycle.  This is a challenging environment to possess conviction, however the reward for either side is great.  With that in mind, we pay see other time frame (OTF) participants active today, jockeying for position ahead of the weekend.  That means larger intraday rotations and stronger conviction then the fickle day trader or local.

I have highlighted the key characteristics of the intermediate term balance profile, as well as the key market profile levels on the below charts.  Note yesterday’s profile is split in two.  When a catalyst (news, Fed) hits the tape and creates a change I will split the profile the better see how participants are behaving the new environment:

I have a pretty bizarre imagination, but I couldn’t make up a day where a Malaysian airplane was rocketed down on the Russian border, Israel launched a land battle in Gaza, and the White House was put on lockdown even under a peyote educed bout of psychosis.  What a day.

I earned some new rules today, trading the /NQ.  Here’s the thing, willpower is finite much like land on an island.  If I sit here, and prices are going all the hell over the place, then over time it becomes more and more difficult to restrain the urge to break discipline.  I have the tools to trade well.  I have the environment to trade well.  I have the ability to trade well.  When a person is selected to join the special forces, like the Navy Seals, we know they have the physical ability to complete the challenges they face.  However they are tested, nearly tortured, and the entire time invited to “ring the bell”.  This is a test of their mental fortitude, their will power.  Those who can maintain the will power can become Seals.  This is because often times their missions require incredible strength.  Some missions require days of reconnaissance and patience in grueling conditions before making a precision strike or insertion or extraction.

Willpower is a muscle, it can be strengthened.  However, until it is stronger one must take steps to ensure their own safety.  Two rules – 3 losing trades in a row? DONE for the day.  45 ticks to the good or more on the day?  DONE.

This will require shutting the DOM down and/or going away from the trading desk.  It is too enticing otherwise, the action.  If I want to abstain from cookies and every 20 minutes someone brings a hot batch out and puts them on the table, then I will eventually break and mangia some cookies.  I know my own weaknesses.  I will strengthen them, avoided impulse in all aspects of life.  Not just trading.  For now, I will create a physical barrier.

ONE MOAR RULE

I am frustrated with myself because I gave back good gains on the day.  Fade trades after 3pm, no, forget that.  The final hour of trade is like the wild west on a Futurama set.  Here are my daily (over) trades:

How cool would it have been to sashay onto iBankCoin and show everyone the money I made in the morning and then how I lounged for the remainder of the day, drinking Kool Aid with my homies?  Instead you see my continued struggle to make the turn.

I stopped out about half my book.  I have work to do, my performance swinging stocks this year is atrocious.  I still have some calls in TSLA and GPRN, August variety.  I am going to work on my back and biceps until they burst then re watch my performance tapes on the week.  Oh yeah.

Please don’t coddle me, or offer advice.  This was stupid what I did today and I know better and I am feeling a little sensitive about it.  That being said, if you know a good tune for a warm summer day please pass it my way.

Nasdaq futures are clawing back some of their losses this morning but are still priced to gap down at the open of US trade.  One of the bigger headlines overnight was a press release from President Obama.  This hit the wires around 5:45pm yesterday, however the real sell flow did not kick in until early this morning.  On the net we printed a 30 point range during the globex session.  On today’s economic docket we have the Philadelphia Fed at 10am and Google and IBM reporting their earnings after hours.

The interesting feature of price action coming into today is the “island” of prices left behind by this gap lower today.  We gapped up yesterday and held the gap in a rather blasé round of summer grind.  Under the surface momentum names were mixed but certainly not advancing.  By gapping lower today we have completely abandoned the prices we printed yesterday, including a fresh swing high early in the day.  The result is a day of trade with gaps on both sides, an island, a somewhat uncommon feature.

On the intermediate term timeframe, we can see trade clearly continues to be balanced.  We have a clean bell curve with a solid VPOC right near the mid.  We are currently priced to open somewhere near the upper half of value and we have some interesting price levels in play early on.  Sellers may want to press down into the other side of value to search for a quality bid, to make sure the buyers are still possess the conviction to perceive prices below our VPOC as discounted and an opportunity to make some money.  It would also flush out some weak hands.  However, if the lower boundary of value gives way, we may be in store for a full on liquidation.  I have highlighted these levels and others below:

When you zoom into the market profile, we can see prices are trading inside of Tuesday’s range, a WIDE range established during Fed Chair Janet Yellen’s semiannual Senate hearing.  This value area is fairly established, thus I consider its levels significant.  If we spent more than an hour trading inside this range, then my expectation is for us to traverse the entire value area.  Otherwise, we may reject out of it with some responsive buying back to yesterday’s range.  Either way, it is a great piece of context to monitor today.  I have highlighted the key levels I will be watching on the following market profile chart:

I had a strong feel on the market this morning, and my primary hypothesis was playing out very well.  I was able to capture several lovely trades during this time.  After lunch we formed a tight consolidation which I played very poorly.  I waffled all over the place, paying my broker and allowing the locals to make me into delicate sausage.  Then my discipline broke in the afternoon where I could be seen waffling out of a good short and then greedily expecting too much from my fade long.  This breakdown in discipline gave back half the days gain and plummeted an otherwise solid win rate I had going.  Here is a chart of the performance:

I expected more from my book of risk too, which instead received several kicks to the scrotum.  I changed nothing and will see what tomorrow brings.

The intermediate term timeframe continues to tell the story at the Nasdaq, as the developing region of balance hits its marks methodically like the German soccer club.  Yesterday’s action played right into the thesis of intermediate term balance but also added a piece of credence to the expectation for additional upside.  If you recall the intermediate term chart from yesterday, we had nearly symmetrical “tails” on either end of the Gaussian volume distribution, the bell curve.  I suggested our upper tail needed just about five points to mark pure symmetry and balance.  This mark happened to line up with a Fibonacci extension, which is not magic—I use the level to see if we are merely running stops before reversing or if the move is an authentic departure from balance.  Yesterday it was running stops before we settled out the troubling overnight gaps, beautiful.  Even more beautiful was the test of our well-established VPOC.  Price tends to overshoot VPOCs a bit, especially when we are coming in HOT like yesterday.  Nevertheless, buyers responded to the midpoint of balance with a force equivalent to the sellers and buying took hold.  Late into the session was saw initiating buyers coming in, pressing us above WHAT WAS the boundary between intermediate term value and the upper tail.  WAS, because all the volume transacted yesterday morphed value higher and created an intermediate term imbalance—an imbalance we seem to be settling premarket.  This very long paragraph settles the question, “What has the market done?”  See below:

On the economic front, PPI stats came in better than expected across the board and we are seeing a muted response from the equity indices, however gold hit new highs on the session with the news.  Fed Chair Yellen was speaking to the Senate yesterday, a semi-annual ritual where the head of USA’s central bank must withstand a barrage of questioning from a panel of Senators.  She did not flinch, and toward the end had to go to bat for big banks and they must be pleased with how well she defended against the stern spoken final two Senators.  These two tough-guys (they were actually women) were clearly saved for the end, and came in with very aggressive “bad-cop” tones, battering the likes of JPM and GS.  Yellen crushed the entire situation with poise.  Today at 10am she is back in the hot seat, this time to face the more simpleton House Committee.  We also have Industrial Production at 9:15, but the market moves more on the Fed than anything else.

Early on I will likely be selling some of the leverage I put into my book during yesterday’s dip.  Otherwise I will be keen on the price action at the following price levels to guide my trade into the second half of this week:

I had a fairly strong bias to the downside this morning when I wrote my morning piece.  The symmetry of intermediate term balance was telling me a story, as were two enticing overnight gaps below.  My poor execution started at trades 4&5.  When I took that error and missed the first big thrust, I think my focus was disrupted.  It was my first error on the week and aside from trades 8 & 10 I spent the rest of my day fading moves which is a much more mentally difficult trade for me.  By the time trade # 12 rolled through I had enough and turned my attention to stocks I could buy on the dip.  I managed 8 wrong, stopping out before I normally would, and 10 was a poor trade contextually.

Having a strong read on context is only half the battle.  When trade is as fast as today it is better wait for a slow in the pace before participating because the speed can create edginess and make me lose sight of the bigger picture.  I could have just rode trade number 1, a short a few ticks off the high of the day right down through the gaps and made a killing, but that is not how I trade.  One day perhaps, when I can advance to my scale out method.

Anyhow, here is a chart of my performance and trades:

I was a buyer of risk during much of the lunch hour, putting some calls in the book and joining the Pelicans on a few longs.  Most notable are August calls in GRPN and TSLA, two stocks Aunt Yellen may have on her kill list, thus the leash is short.

LO was smoked but GPRO found a buyer keeping my long term investments slightly green.  I like the idea of WFM very much and have it on my stalk list.

The Nasdaq is in the midst of a Ricky Bobby shake’n’bake.  Or, this is the start of something much more painful and powerful.  For now, keep an eye on this one level.  It matters because it is the low volume node that denotes the thick of intermediate term value and the potential to explore north.

Use it like your afternoon pivot, paying particularly close attention to where we close relative to the price:

This morning we have Nasdaq futures up a bit, just over 5 handles, but until we hear from the dovish Yellen at 10 am it is likely the markets just chop around.  We are currently priced to open inside yesterday’s value which suggests little-to-nothing occurred overnight to change the perceived value of the index.

The intermediate term is in near-perfect balance.  As exciting as that may sound, it means an increased risk of long liquidation exists.  We likely need another 10 points of Nasdaq progress atop our current swing high before price can escape the gravitational forces of mean revision.  See below:

Elevating the likelihood of a mean revision even more is the 11.25 point gap we printed yesterday morning.  If buyers cannot defend their initiating drive tail (pictured below) today, then we could be in store for a quick gap fill which could very well set the tone for a complete mean revision trade.  This is only one scenario, of course, as sustaining trade above the initiating drive tail could be the catalyst to launch a new value discovery phase up.  Remember, there is still a 14-year-old open gap above, an artifact from the dot com bubble.  I have highlighted this driving tail, as well as a few other price levels on the following market profile chart:

The gap higher was intriguing to bulls who decided to buy the action after watching the opening print.  From there on the intraday action was benign with drifts in both directions forming a consolidation that eventually produced the old, falsie fastie reversal which saw no follow through from the sellers into the bell.  Even with a sell side imbalance and end of day reports of rockets hitting Libyan airports the Nasdaq held up.

I managed to contain my impulses today and only take planned trades.  The action was very slow intraday however, and not much came from following momentum.  It turns out one was better served fading moves today, a scalpers environment if you will.  Anyhow here is my daily performance:

It was another day of watching on the stock portfolio.  I am waiting for some price action to really grab me.  The only transaction I made today was buying some calls in DDD.  The stock gapped higher and early in the morning it was making a slightly higher low and I pounced.  This is opex week, thus I have a moderate expectation for shenanigans, even if they are of the lull into complacency variety.

That weekly gap we printed this morning does not sit well with me.  How we cope with it this week should be interesting, especially as the week progresses.

I need more mental stimulation, thus I am off to play a sport.