Trading in The Fast Zone

Nasdaq futures opened to a sharp drive lower Sunday evening before finding a bid slightly below our Friday lows.  The market then drifted a bit higher for the rest of the session and we are currently priced about 10 handles below Friday close.  We have the Empire State Manufacturing Survey at 8:30 which could change prices ahead of the bell.  We also have Industrial Production at 9:15 and the Housing Market Index at 10.  Overall, the early news flow may create some early opportunities in the market.

Starting with a long term view of the Nasdaq Composite, we can see the market finding sellers after three weeks of exploring outside a well-established bracket.  The selling came in right where we might expect, up near prior swing highs.  The question this week is whether sellers become more active and begin initiating additional sales after their responsive actions.  Below is a chart where each candle represents a week of prices on the Nasdaq Composite:

On the intermediate term, we can see prices are in a state of balance.  We are trading between two well-established value zones.  The levels we currently inhabit received very little auctioning the first time around as we simply blasted through them.  The thin zone can produce fast moves in the short term, but the resolution to this intermediate-term balance will depend on who can initiate trade beyond the strong balance zones on either side of this volume pocket.  I did not want to mark too many low volume nodes to obstruct the view of the market here, but I did mark the most pertinent ones for monitoring a transition away from this zone.  Three levels are noted below—two low volume nodes near the extremes and on low volume node near the middle (pivot).  See below:

I have noted my key observations of the short term auction below:

The opening swings started to pile up this week before we ultimately broke lower.  How this break resolves will be interesting this week.  We saw a responsive buyer on Friday, but there was also a seller active.  I have highlighted the opening swings below.  Following the normal weekly opening swing analysis is a zoomed out view of the auction and then some statistics on opening swings since we began this study.

Enjoy!  And if you find this work interesting or valuable, share it with your people.

MONDAY:

TUESDAY:

WEDNESDAY:

THURSDAY:

FRIDAY:

WEEKLY AUCTION:

STATISTICS:

Late in the session, the market was hit with a nice fake news piece that the Iraqi Prime Minister was blasted out of the sky as he flew around in his chopper.  The news sullied a YOLO I was fleecing but otherwise did little to disrupt the status of my day, which ended up being a 2 bagger.

Whether someone just used their “get out of shorts free” card or not is something we can brood over in my tinfoil lined laboratory, or we can simply focus on continuing to take high quality trade setups.

I made a few adjustments to my book, nothing major.  Waste Management (ticker: WM) was acting pathetic and weak into the bell, so I scratched my position.  I am not trying to get in bed with the garbage man.  I took two new longs in its place:

BALT and KING

I am mainly attracted to the shippers due to the collective showing of their charts, so you must bear with me if the fundamentals are putrid.  I am looking for intermediate term order flow, not fundamental change of any kind.

KING has this lovely base below which formed over the month of May.  The stock never went on a run, instead it IPOed and was tossed in the toilet.

Although part of me wants to shift all my focus to trading the futures, I know the possibilities of these low float stocks during a dead market.  The market is churning its way up the roller coaster hill.  You can carefully play very precise futures positions with tons of leverage, which I am, but you can also toss a few hand grenades carelessly at crap like KING.  Both are coin making endeavors.

So while the world becomes increasingly bearish during the 24 hours of negative news (we are in a negative news cycle) , I will simply howl at the moon and toss idle funds into 2-12 day swing longs.

http://youtu.be/PDYhNn8D_bI

Nasdaq futures are trading flat overnight on a balanced session of trade.  A bit of selling came in on the PPI data at 8:30am and was soon met with responsive buying.  The net of the actions is prices trading near unchanged as we approach cash open.  We have Consumer Sentiment coming out of University of Michigan at 9:55am but an otherwise quiet economic calendar on this Friday.

Sellers grabbed the reigns yesterday and pressed the short term auction out of balance and into their control.  They were able to drive down through the thin volume structure below our upper balance before ultimately finding some responsive buying at the value area high of 06/05 trade.  To be more granular, the responsive buyers were found just below where prices initially launched from late on the morning of 06/05.  The event was a catalyst of change, which is why I had to split the 06/05 market profile in half to present a clear picture.  I have highlighted this event below, and how we found responsive buyers again at this level:

The intermediate term picture shows we are now trading out of balance and inside a thin volume zone.  Price is likely to move faster in this zone and that presents greater opportunity for intraday trades.  We have a sharp overhang of supply above, and whether buyers can push back into the supply will be a big clue going forward.  My expectation is to find responsive selling on our next probe above 3783.50, however anything is possible given the overarching uptrend on the long term.  I have highlighted this supply overhang below:

With the Nasdaq switching pace to fast, I want stocks that are slow. It is summertime, after all, and where there is smoke we are much more likely to see fire and a bear wearing a silly hat.  Said bear becomes seriously perturbed if you trash a campsite with beer bottles and carelessly leave your fires unattended.  Said bear finds you, and beats you with a shovel.

Those were my very logical, well thought out—thoughts today.  In their wake lies one change to my portfolio—I scratched EGLE and started a position in COST.

Costco is the bane of my retail existence.  Somehow, I cannot escape their efficiently lit warehouse aisles without dropping half a stack on groceries, home items, and clothes.  Given the overall tart sentiment for retail, and the slow nature by which Costco shares trade, historically, I started buying into a company I have long supported.

However, I feel my foray into the shippers is still green both in money and age.  I will continue stalking the space, and more than likely re-enter.

The move I have been waiting for in the NASDAQ futures for several days happened, and I was not prepared to capture it.  I made too many errors early in the day, was too far inside my head, and as a result the move I theorized played out with me on the sidelines.  The contract is bidding up after hours, ahead of The Fed releasing their balance sheet.  We are over 20 points off the lows.  What does it all mean?  I am not sure, but my book of stocks was green as spring all day, despite the weak NASDAQ.  Someone is not being truthful in this market of stocks.

If we return to the intermediate term balance we broke lower from, in short order, you best believe we rip clean through the other side of it.  Then we will see the ramifications of the Full Moon Friday the 13^th visited upon the cerebral lobes of bears on a global scale.  Be careful out there.

Here is my current book, one that is down for the year and olde in stature:

By size, of course, largest-to-smallest:

TWTR (so committed), LO, MNGA, COST, TSLA, WM, UGAZ, HOS (I’ve got), XON, JAZZ, FEYE, and CREE June 47.50 calls.

Volume was very low overnight on the index future instruments, particularly the Nasdaq.  This is likely a product of two pieces of context—we are in a tight short term balance and this morning active traders roll forward to the September contract.  I used to wait for more volume to occur in next quarter’s contract before moving on from the front month, but this often led to more intraday confusion then one should really manage.

There were economic numbers out of France overnight and a growing tension in the Mideast as Iraq is degrading into a troubling situation.  The USA just released Retail Sales as well as Initial Jobless Claims.  Both numbers appear weaker than expected and our initial market reaction has been a bit of selling.  The rest of the day has little on the docket—we have business inventories at 10am, a Natural Gas Report at 10:30, and at 30 year bond auction at 1pm.  The Fed is set to release their Balance Sheet after hours today.

The intermediate term is in balance.  This balance is occurring at elevated prices.  When you take the perspective of a weekly chart of the composite index itself (not the front month future contract) you see buyers are sustaining this intermediate term balance near annual highs and just below the manic phase of the dot com bubble:

The intermediate term balance stretches four sessions, and this being the Thursday before OPEX and also roll forward for futures traders, we may see resolution very soon.  I have highlighted this intermediate term balance, as well as key levels in-and-around it to keep in mind as we move forward:

Seen from a slightly different perspective, below I have built a profile of the last four trading days using the 24-hour trade of globex.  As you can see, a bit of back-and-fill could take place to further build the structure of this balance.  The move from this well established balance is likely to be a quality one:

Turning our attention to regular trading hours market profile, we can see the Nasdaq coiled tight like a spring.  We have printed the following series of profiles: Neutral-Inside-Neutral.  The market has been local-to-local mostly, with OTF waiting near the extremes of the price action.  We have key levels below to explore, however yesterday’s auction cleared up the poor highs that were in place from the prior sessions and shows a nice, clean taper at the highs.  This suggests a sturdy high, however up may still be the path of less resistance because value continues migrating higher.  I will be keen on the next big value shift, but for now I have highlighted the short term, balanced context below:

This week has been pure churn inside the Nasdaq futures, ahead of what may be a very interesting closing trade to the week.  We printed a second neutral day for the week (Monday being the first) after making a new contract high.  The move from the high was fast and if you were still in an AM long, it took you out of that long.

They key was not being overly shaken by the move, recognizing the neutral print, and preparing yourself for a return to the mean.  Neutral context is very tricky, but vital to understand as many are often perplexed by the “rigged” market when they flip bias from long-to-short, then see their shorts torn clean from their derriere by a high pressure water geyser (buy flow).

This grind house is taking place ahead of tomorrow, which is the Thursday before OPEX.  Remember, how we imprinted this ultraviolent day on our brain computers?  Expect the unexpected and sheer unorthodox, especially ahead of FRIDAY THE THIRTEENTH, which is also a full moon.  This calendar/lunar spectacle will not occur again for 40-some years.  You may want to hide your wife, hide your kids, and curl in the corner of your office with a shot gun pointed at any entry points.  Or, you may want to channel your inner wolf, and find yourself a feast.  Be aware, that wolves much bigger than you are always a possibility, and if you see one then it’s fight, flight, or freeze.  Those are your primal choices.

I closed out my WDAY call runner.  It never materialized as I expected, and it may over the next 7 trading days, but I wanted to keep my focus elsewhere.  EGLE is fluttering its wings, whetting its beak with river juice, and considering a carnivorous bear dinner.

I also initiated a mangina long, MNGA.  I know the good stuff is what is moving, but then I also know I have shares in TSLA which wound up like a fresh baseball, just waiting for some juiced up freak to whack it out of the park—either way.

Sellers went to work early this morning in the Nasdaq futures.  Their initiative appears to be derived from several economic data points released in the UK.  Their overall employment change was a positive beat while average earnings were worse than expected.  We are seeing some responsive buying come in just below the gap we left open last Friday morning.  There is not much news flow expected from the USA today.  There is a petroleum status report at 10:30am which may affect the energy traders.

We have been observing a poor low on the 06/06 market profile for a few days.  This poor low is likely to be settled during today’s session.  We already exceeded the 3781.25 handle during globex, but we are currently trading just above it as we approach cash open.  Taking out the poor low creates an opportunity to target a gap trade down to 3776.50 and if we are down there the naked VPOC at 3775 would be a tasty target for the short sellers.  I have highlighted these levels below on the market profile:

It is important to remember that order flow ultimately dictates the direction of price in the short term, thus we may reveal a large buyer on the open.  In that case we might want to shift our focus to the overnight gap and the poor highs above.  Keeping an open mind and having a few plans (scenarios) in mind is key to trading the intraday action in futures well.

Zooming out a bit to the intermediate term, we can see three sessions of balance and we are about to open on the low end of it.  Markets spend more time in balance then they do in vertical exploration.  However, early in the year we saw aggressive selling which vanquished intermediate term balance theory.  This is something to keep in mind.  However, we have logical price levels to observe.  If we trade down into last Thursday’s prices, then we should be keen on the composite low volume node at 3773.75 and more importantly raise our guard if trade is sustained below 3769.75.  Price might start moving fast if we trade below that level as the structure is very thin.  I have highlighted these levels with price levels, however the volume profile pictured only encompasses the three days of balance:

We can learn much from observing the apex predators of the world.  Harnessing the information you obtain from studying their behavior is a matter of becoming mindful and searching yourself for the animal within.  I trade stocks best when I hunt like a bird of prey, the hawk, the pelican, the eagle.

The eagle utilizes its incredible vision and finesse during the afternoon when the sun is high an enhances his view.  The rest of the time he rests, nurtures his family, and does other patriotic activities like watching CSPAN.

Thus it is with great pleasure that I spotted EGLE from my sky view this afternoon.  I am back in Eagle Bulk Shipping as it, and other shipping stocks, take shape into the hot summer months.

I bought stock in Tesla too because Elon will eventually provide the masses with electric space vehicles and then be like, “now what?”  No excuses, this is a slow swing in a company I want long term positioning with.

I covered my Netflix short too.  They caught an upgrade today, and it is not my place to overstay my welcome sitting upon boiling geysers.

My only other thought on this lazy Tuesday afternoon is whether I should add to the very well-behaved JAZZ Pharm.  I may because robots are suggesting it might be a decent idea.

Nasdaq futures drifted lower overnight and prices are currently trading just below yesterday’s value area low yet inside prior day range.  There is not much economic news scheduled for our regular trading hours, but we do have JOLTs Job Openings at 10am.

Price on the intermediate term came into balance with Friday’s session, and the key now is to examine whether prices sustain balance on the intermediate timeframe, continue a 1-timeframe higher path, or instead start a new swing down.  I have noted my key composite levels, but the actual volume profile pictured only encompasses the intermediate term balance of the last two sessions:

Yesterday may have felt weak in the market, especially if you tuned in during the mid afternoon when we traded below initial balance.  However, prices traded higher long enough for volume to migrate a touch higher verse Friday.  The sellers will need to press a bit harder to gain control of the short term auction, or even to put us into balance.  For now, the short term is buyer controlled with a likelihood of prices coming into balance.  Keep in mind, anything is possible: