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

Fake Baked

Tan-Valentino-226x300

After spending much of yesterday afternoon slashing risk out of my book, one after another exiting longs and long runners and yolos and their ilk, I spent most of today away from the markets.  The big move and reversal Tuesday rattled me mentally and after much introspective it was one position which elicited the strongest emotional response.  It was an oversized weekly option in FB.

Given the short dated duration of the position, when it swelled beyond 2% of my book only to quickly become 1% of my book a few hours later, the sheer volume of the swing occurring in such a short duration was a bit more than I could bear.

For example, I also have July DDD calls.  This position already caught a scale by Tuesday lunch, and when it faded it was a nonevent because I had time for the idea to pan out and the position was just a tad over 1% of my book after the scale.  I Midas touched this position again today, scaling another piece a few ticks off session high.

But I pressed the FB through lunch, opting instead to watch the Italians lose at soccer.  I knew I could avoid the urge to scale if I stepped back.  When it snapped back I cut.  Then I went on a killing spree with all the funky runners I had left in my book.

Bottom line: the size was too big for the short duration and sometimes I gather too many positions.  It becomes distracting.  About 12 is my limit.

After the fact: I was full on fake baked out of the FB and wow, it looks ready to rip.

May the buy flow continue rip the heads from social media bears, amen

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On Guard for False Move Ramifications

The logic behind a false move can be a bit complicated.  The market breaks out higher after a period of consolidation and spends several periods facilitating trade well in the direction of the breakout.  The auction is going well and the expected effect is for higher prices to entice new buyers into the marketplace and to continue probing higher to incentivize sellers to come in.  Once sellers have become incentivized, there is a reasonable expectation that we might see trapped shorts begin to cover on the pullback thus creating demand.  There is also a likelihood for participants who missed the move to eagerly participate on the pullback.  That was not the case yesterday which is why we use words like “might” and “likely” and “probable” and “could” avoiding absolutes and accepting that anything can and will happen in the marketplace.

Instead we reversed the entire move and price was thrown back to the scene of the breakout only a few short hours later.  This is not normal and can produce some unexpected effects.  Longs initiated during the rally are negative, some longs initiated during the consolidating building up to the rally are negative while others are flat, and shorts initiated on the way down have the confidence of a bearish candle print.  Sellers might take this opportunity to press into the vulnerability of the longs thus producing a liquidation, and there is profile context which will signal to us where this will occur.

I will only present the regular trading hour market profile for the Nasdaq this morning because I want you to actually enlarge this file and think about why and where it makes sense to expect liquidation to take hold.  These are the levels I will be observing today:

NQ_marketprofile_06252014

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It Was a Chicken

The Nasdaq started off looking like a trend day but over the lunch hour it stalled before downright spiraling lower in the afternoon.  Let me start off by stating the obvious-if you read my last post then you realize I was expecting this move to stick.

With that in mind you may also realize I hardly took any profits into this move, instead opting to add long exposure via WUBA, which I now stopped out.  I am not letting this move catch me flat footed.  I have raised my cash over 50% and sold out of BALT, RGSE, LIVE, and FB.

What I have left is all suspect, here they are largest to smallest:

TWTR, LO, TSLA, HOS, FRO and F, DDD, and ANGI calls

This was a neutral print thus a degree of expectation existed for this selloff to fade back higher.  However, the market is out of balance short term, thus the neutral type print is without clear value to pin back to.

I may be overreacting, but I can always buy back long exposure.  My broker will love me.  For now, I am panicking early.

This should make for an interesting week.  Stick to your plans and keep risk on the forefront.

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KABOOM!

sapce

The Nasdaq is exploding out of this multi day consolidation.  This is looking like a trend day although I lack a crystal ball to be sure.  However, if it looks like a duck, walks like a duck, and quacks like a duck, it’s probably not a chicken.

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Holding Balance

The Nasdaq continues to experience balanced conditions in the short term.  Early this morning we saw a wave of selling come through the market right around 4:30am when we had some speakers in London as well as UK loans for home purchases data which came in better than expected.  The selling found responsive buying just below our low of the session yesterday and we quickly snapped back to the other side of balance.  As we come into the USA cash session futures are currently up just over one point.

The economic docket for today shows Cash-Shiller home price index at 9am followed by New Home Sales and Consumer Confidence at 10.  We have some treasury auctions taking place at 11:30am and Fed speaker William Dudley at 2pm.

The overnight profile has changed form slightly, the shelf which I was keen on yesterday was disrupted overnight and as a result we now have a more balanced-looking profile.  The spill over the shelf last night carries a bit of expectation for accelerated prices to the downside.  Thus, seeing a responsive buyer eager to purchase at a perceived discount gives buyers a bit of conviction here.  There is not much need to observe the overnight profile, more important is to observe any price action if we trade below the overnight low at 3783.75.  Should we revisit this level and not see a similar response from buyers that might reveal a change in the context of buyer conviction.

Below I present the daily market profile first before then after splitting and manipulating the distributions.  Yesterday was a neutral print with a slight upside bias which suggests a decent amount of conviction on the part of the buyers, especially since their range extension was the second one and they defended the move back to the mean.  The second chart gives us clear short term levels to work with today:

NQ_marketprofile_06242014

NQ_marketprofile_06242014_b

Buyers are in a position in the intermediate term to drive higher.  If they cannot however, this entire upper distribution might be called into question by the market and a sharp rejection candle lower may be the final result.  Keep that in mind as the week progresses because sometimes we glean much insight from the market when it does not behave as we expect at certain junctures.

NQ_intterm_06242014

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One Step Ahead of Traders

A great many of the traders and investors of the world confine themselves to little boxes of conformity, for the sake of group think.  Take for example the moving average, a simply spaghetti line tracking across a price chart.  Most use the 10 day moving average. I use the 9.  Some follow the 100 day.  I use the 99.

Can it really be this simple?

Yes.  I am one step ahead of everyone and it is a razor sharp edge that lets me cut people up.

If you choose to live your life according to the norms of the masses, then I have no sympathy when your performance is grotesquely normal.  Or you can live life dangerously, and change your moving average to a 9, or if you are really a wildcard, an 8.

That is the only hot tip I have for the internet.

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Cliff Defended

Like the brave 300, the buyers defended the shelf, or cliff that exists on market profile over in the Nasdaq futures.  These very futures represent the 100 biggest and best growth names in the world.  Now buyers need to initiate the squeeze, like right now.

NQ_marketprofile_06232014_24hr_cliff

This is a good spot for buyers to push:

NQ_intterm_06232014_bbb

I added to my FB calls, bot more RGSE, and joined the OA crew on ANGI.  BALT might be cut if it does not shape up really soon.

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New Swing High Overnight

Nasdaq futures spiked Sunday evening right around the time China Manufacturing PMI came out unexpectedly strong.  The move did not stick for long however, when it came time for the France and Germany to release their net PMI data, and it was softer than expected, the Nasdaq gave up the entire spike and more.  Interestingly enough the initial spike up to 3807.25 was powerful enough to exceed all prior swing highs on the September contract.  Rarely are swing highs and lows made outside of regular trading hours, thus we have a fresh piece of bullish context to start the week.  Keep in mind, this is context, not a timing tool.  The vulnerability of our overnight high by no means states it will break today or even this week, only that a piece of contextual caveat exists to our analysis.

The Unites States is due out with the Flash PMI at 9:45am and given the market’s sensitivity to PMI during the globex session, it may make for an interesting opening trade.  We also have existing home sales on the docket at 10am and a few T-bill auctions at 11:30am.

Turning our attention to the market profile, we can see all the dynamic action taking place post The Fed rally has resulted in a most peculiar market profile print.  Note the globex market profile, which encompasses the price action aforementioned above.  There is a huge shelf at 3785.25.  We are likely to spill over this level, which may result in some liquidation.  However, if sellers cannot push us over the natural demand cliff, that would be very telling as well, see below:

NQ_marketprofile_06232014_24hr

Again viewing market profile, but this time using only the action from regular trading hours, you can see 3785.25 is one tick below Friday’s low.  Therefore, we should be keen to any price action below Friday’s low and whether it brings more selling into the marketplace.  I have noted key support levels below this zone where we can gauge sentiment:

NQ_marketprofile_06232014
The intermediate term has been grinding along in balance.  We have a volume pocket separating our current price action from the prior bracket-range, and the VPOC has shifted up to this upper distribution suggesting accepted prices.  The question becomes, have we simply sucked new money in at the highs to trap, or will we continue higher putting all of those newly initiated positions in the green?

NQ_intterm_06232014

Finally let’s refresh the weekly composite chart.  It is hard to argue against the buyers here, they have made a steady push higher after losing the very logarithmic trend higher at the end of March and then balancing.  There could still be a case made for bracket trade to continue, but sellers will need to show up soon and defend swing highs, see below:

NQ_weekly_06232014

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Opening Swings: Less Noise

I migrated to a renko chart this week.  I have been observing the renko alongside my minute chart for several weeks, seeking to locate consolidation patterns on the renko when I liked where the minute chart was.  The more I thought about it, and back tested, I noticed I could eliminate the minute chart entirely.  I have talked to several traders who scalp from minute charts, and several who are still recuperating their losses.  Unless you are a thoroughbred scalper, you may want to focus on finding 2-3 spots per session to work from.  With that in mind, the renko is great.  You need to tweak the inputs a bit and observe and backtest the size of the bars to fit the market you trade, but once you do the consolidations can be seen with less noise.

I present the opening swings this week on renko charts.  Because they are not time dependent, I have noted the globex/cash sessions.  I have noted other key observations as well.  And finally below is a snapshot of the entire week’s auction.

MONDAY:

NQ_os_06162014

TUESDAY:

NQ_os_06172014

WEDNESDAY (FED DAY):

NQ_os_06182014

THURSDAY/FRIDAY:

NQ_os_0619&202014

WEEKLY AUCTION SNAPSHOT:

NQ_weeklyRecap_06212014

 

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Buyers Hold The Line

There was enough of a bid underneath this market, despite broad weakness in momentum favorites.  Overall the price action was very constructive, and a win for the buyers who held prices above the volume pocket on the Nasdaq:

NQ_intterm_06202014_after

My stock book into the weekend, largest to smallest:

TWTR, BALT, LO, LIVE, TSLA, IFON, XON, HOS, FRO, RGSE

Options:

DDD July $55 calls, F next week $16.50 calls, $FB next week $65 calls

I lightened up some of my other positions to make some room for fresh ideas to start the new week.  I was stalking YY all day long but never pulled the trigger.  There are some interesting things going on the China internet space again.  This idea and more will require further investigation over the weekend.

Enjoy summer, if summer is your thing.  I will be catching some World Cup matches and otherwise living the water lifestyle.

Stop by over the weekend to check out my new intraday charts as we investigate auction theory and specifically how it plays out during the opening swings of the market.

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