Swing Slow

The S&P printed a troubling candle on the daily chart today, a candle which often shows up near inflection points.  The Nasdaq suggests inflection too, printing the infamous neutral day.  See below:

That print makes my ears tingle a bit, so I went to market looking for a short and came back with NFLX.  Aside from that I did very little adjusting to swing portfolio.  Instead I allowed my book of longs to effervesce as the major indices cling on to the peaks of swing high.  I recall being flabbergasted by the continued momentum downward in, ehm momentum stocks, even when the indices balanced out along the swing lows.  The environment allowed any chart to break lower as it was the path of least resistance.  That seems to be the case with longs, right now.  To press into the eyeballs of shorts, you go out and find stocks which are less extended and still seeing buying interest.

My slow swings are especially enjoyable, a bit less oversight without fear of a -12% surprise.  My current slow swings are LO, HOS, and WM.  We always need us some smokes which is why I like LO (plus their early lead in the mass marketing of eCigs), HOS is like a shipper and a driller amalgamated, and we always need to toss out trash and WM is there to play with it.

I am eying a reentry into the shipping space this week, as the group could see additional inflows even if the market comes in a bit.  Top pick remains EGLE, even though I am currently without position.  They are one of the most violent tickers in the space, so you may want to make sure that is something you are willing to accept before you participate.

The overnight trading session in the Nasdaq was quiet, trading less than an eight point range throughout the globex session.  During the session the major news flow came from the east where Japan released several economic stats including their GDP and most of the economic data points were positive.  The docket for the USA session is fairly open—we have Fed speak from Bullard at 9:10am, a few short term treasury auctions at 11:30am, and then two more random Fed members speaking at 12:45pm and 1:30pm.

Starting at a high level, we can see the composite index is buyer controlled.  Last week was their second week of controlling the tape and the progress was sufficient to press through the low end of prior swing high balance.  I present this long term picture zoomed out to show our proximity to the great dot com bubble, thus you may have to enlarge the picture and squint slightly to see how we have pierced swing-high balance.

At the same time, we should be on guard for a lower high, and the subsequent reaction that could materialize from such an event.

The intermediate term is buyer controlled and perhaps a bit extended.  We never quite know how far a swing will go in any direction, but we can say without question this current swing is 3 days old and built upon a layer of balance built upon 8 days of swinging higher.  The net is 13 days of upward-to-consolidating-to-upward prices.  I have highlighted these transitions and some key levels below:

The short term auction is buyer controlled.  I have colored the background on my regular trading hours market profile chart baby turquoise to discern it from globex.  We printed a higher distribution overnight even though prices are currently a touch lower than where we closed on Friday.  This mainly suggests the prices were accepted overnight.  There are several untested levels below on prior day profiles, but whether sellers have the conviction to test them will first start with recapturing yesterday’s value, which we are currently trading just on top of.  I have highlighted this price level as well as others on the following market profile chart:

There was plenty for the market to digest this week, and we started with paused action which eventually gave way to buying.  The week provided lots of high probability trades for the prepaired and patient morning trader, but the lunch hours and afternoon were much more challenging.  It begs one to question what there trading hours could be and reminds me of an ancient Chinese proverb:

If you must play, decide on three things at the start: the rules of the game, the stakes, and the quitting time.

Those are three point any trader should give serious thought to if they plan to take on the elite traders of the electronic markets.

Take a look at the opening swings, and see for yourself the affect they play as price walks along through time.

MONDAY:

TUESDAY:

WEDNESDAY:

THURSDAY:

FRIDAY:

The Nasdaq 100 index houses the absolute finest in growth and risk stocks.  It includes the largest domestic and international non-financial securities listen on The Nasdaq Stock Market based on market capitalization.  Some of the big dogs are AAPL, FB, AMZN, BIDU, CSCO, MSFT, CMCSA, GILD, GMCR, QCOM, INTC, and YHOO.  For the full list of symbols involved, check out the link below:

http://www.nasdaq.com/quotes/nasdaq-100-stocks.aspx?col=4&dir=D

This index has some shades of value stocks in it, but for the most part these are massive, promising, growth companies.  When money flows into the index it suggests our market participants has a taste for popular, big timer, growth.  We could expect the lazy mutual fund managers to put down their cheese platters and stop schmoozing for a few minutes to enter their fresh AUM (assets under management) into the market at the start of the month, and as traders we sit around eagerly searching for these gluttonous flows of money.  The last few months they have been sort of weak, perhaps because people are either pulling some money away from the markets or not contributing their average allotment.

However, Thursday morning a huge unknown was removed from the market.  Everyone worries about the Euro-Zone and usually we make a big story about their odd economy.  However, they are taking the path of the United States, the path of free money and it has become very normal, almost an expectation of participants.  These actions are what EVERYONE is watching, and MOST OF THE TIME they lead to higher equity prices.  The employment data on Friday was a cherry on top, by no means a necessary to persuading the money into the market.

Anyhow, that is my view of the current investment conditions.  This is speculation based upon what I hear people who I consider wise to the game focusing most intently upon.  I like to focus intently on the auction.  And without further adieu, I want to show you what a strong auction with fresh buyers coming into the marketplace looks like.  See below:

Ahead of the weekend, I booked my EGLE long and will look to revisit the EGLE or anther shipper on Monday.  I bought some UGAZ alongside chessNwine because I really like the picture across all timeframes when looking at UNG.

I took a scale on WDAY, but have a runner in place, should the chase race begin to take shape.

I am with the YOD trade in a very uniform matter, single file.

I still have upside levels on my radar in the Nasdaq, and the summer is heating up.  I will now sit in the shade of a wise tree in the tall grass like an apex predator.

Nasdaq futures are trading higher after a very balanced session gave way to buying on a positive employment numbers.  This is not quite “pro gap” territory, so the possibility of playing the overnight gap fill is still in place.  However, taking that short trade may not be an easy endeavor in this environment.

Here’s a look at the short term auction, which is in buyer control:

I prefer trading inside the thick of volume profile, but when the contracts are trading at all time highs I must rely on measured moves.  Today’s upside targets are fibornacci extensions based upon the peak-to-trough of the contract.  It yield the following upside levels.   I have some prior composite support levels (quite a bit lower) noted as well:

I try not to do too much at these levels, instead enjoying the view and managing what I already have on.  Stay patient out there today folks.

We never truly can say what the market should do, nor can we impose our will upon the market.  We can however, through the lens of market profile with a side of auction theory, gauge the likelihood of continuation.  This is why they keep me around, these guys.

I probably would have started locking in longs like many of you if I stayed at my trading terminal, the most aggrandized name for my bossed up PC.  After all, what a pungent thrust, certainly it would be prudent to raise cash.  I pulled a PTJ and headed to the gym an hour before the bell to avoid the angst.

If you have clicked my blog title with haste, insistent upon reason and logic without all the 80’s bravado and unpalatable verbiage, then look no further than the following market profile bits, which I will discuss a bit further below:

The P-shaped profile is known as a short squeeze.  This is a temporary phenomenon in some cases, and when they occur in the context of a downtrend they often mark the end of the countertrend.  The key is keeping your intermediate timeframe clear.  Is this a downtrend?

If you have ever been to a live auction then you have seen this action, or if you have been to a stingy charity event then you have seen the opposite action.  An item  is rolled out and the auctioneer begins their banter about starting bid.  If no one bites then they drop the initial bid.  Once we have interest the process begins.  At the tight-pocketed charity event, after two or three hands are raised everyone starts looking around, afraid to raise their hands.  The auctioneer starts using tons of filler noise, making it seem like the auction is still active when really it is dead.

The opposite is when higher prices actually bring NEW participants into the auction.  They have seen the activity and when it reached higher advertised prices it enticed them and they wanted to buy.  The auctioneer is saying very little filler, and the price continues climbing.

I see that rising VPOC as higher advertised prices generating buying interest.  And even through these are not quite trend day profiles, I am pressing my longs into tomorrow as these contracts trade at all time highs.

Sleep well my little butter cups 😉

I went back live this week, trading the futures, and I wish I could tell you I was 100% plan compliant.  I deviated from my trading plan a few times and it resulted in some big losses.  Overall the week built confidence in my methodology and approach.  However, as always, there is significant room for mental improvement.  I avoided some past pitfalls and this week can be built upon with some serious homework and thinking.

It could have been a huge week in the books if only I could erase 1 or 2 missteps.  Tell me, isn’t it worth it to dissect and process and formulate rules based on your outliers?  It’s the difference between mediocrity and champion performance.  I intend to come out the other side of this game a champion.

Enough jawboning, below is my performance chart for the week.  I will be trading very light tomorrow in preparation for another marvelous water filled weekend in pure Michigan.

The big economic news overnight, or rather early this morning was out of the Euro-Zone, where their central bank pushed their lending rates up a bit higher than was expected.  The initial reaction was some fast selling on the Nasdaq which found responsive buyers just one tick above the overnight low at 3740.  3740 also was Monday’s opening swing high (hmm…) and you will see a very sharp ledge has formed at this level when we observe the 24 hour profile.  The economic docket is jam-packed this morning as I type, with a Draghi presser at 8:30 along with USA Jobless claims.  In short, prices could really be on the move premarket today.

If we take a look at the 24-hour profile, you can see we broke out from intermediate term balance yesterday and as a result, we began printing a new profile.  The most notable piece of context on our current profile is the sharp ledge at 3740.  You can see how unnatural this shape is, relative to our beautiful and symmetrical bell-curves.  This tells us one of two things—it is likely to break and price spill over the ledge, BUT if it does not, buyers are unusually strong and we should heed their power.  See below:

I have marked up the regular trading hour profile to denote significant price levels.  The question I was debating with myself at the end of yesterday was whether yesterday was in fact a trend day.  This is the classic, “If it looks like a duck, quacks like a duck, and walks like a duck, then it probably isn’t a chicken” scenario.  Breadth was weak and the afternoon showed indecision, likely due to the overnight Euro-Zone news.  With that headline out of the way the markets seem more comfortable heading higher, at least early on.  We have levels which will act as warning signs, should this big upward move be faded.  I have noted these levels below on the RTH chart and also the intermediate term charts below:

Money has been rotating into shippers.  The group has seen some lovely moves, today especially.  As I mentioned earlier, I am long EGLE, the most ultraviolent of the shipping stocks.  However, many of the other charts piqued my interest, as did their performance inside The PPT as of late.

Here’s a link to the charts:

CHECK OUT THESE CHARTS

How impressive is that 3 day move in VLCCF?  That’s pure momo right there.

Top picks: EGLE (obviously), NM, HOS, BALT, SSW, and TDW