Obey

My swing trading is so very out of whack.  I have shrunk my position sizes for a bit, and gone back to some of my favorite trades.  In the meantime, I am satisfying my intraday desires in the futures.

I took but only a few actions today, buying some QQQ along with the illustrious Senor Tropicana and taking down a ½ position in DDD.  I traded DDD well up unto the point I made a callous decision to stop out my trade a few weeks back.  My own mind shook me out of the stock.  Therefore when rumors of a buyout swirled around this morning I simply bought back in.  I like this base forming and will be using it to define my risk.

I power stalked the QQQ Powershares and earned a cost basis on a 2/3 size long at $86.89.  For those keeping score is way below the midpoint of the day, nestled in the bottom quartile of the day.  This pleases me.  The later afternoon rally pressed value on the index higher which suggests we may see some higher prices into early next week.

I am interested in my old favorite CREE next week as the 30 minute is coiled tight and short interest is high enough to merit my attention.  Aside from that, I will do very little, instead readying my systems for some next level futures trading.

Check in this weekend for a complete look at some very effective Nasdaq opening swings and the opportunities to trade them.

We are coming into Friday with the NASDAQ basically flat on the week after a strong gap-and-go higher Monday.  The overnight session was balanced and our profile print left an interesting shelf up above at 3567.25.  This type of incomplete profile gives us a big clue early on.  The market will most likely spill over the shelf which could take price to some interesting levels early on.  Of course, if the shelf holds, that odd behavior would tell us the market is in the firm grip of seller control on the short term.  See below:

The intermediate term continues to hang on the balance despite a valiant attempt to escape from buyers.  There was a thin market profile print yesterday, a zipper, which price slid right down through.  However, the intermediate term remains balanced.  I have noted only the lowest of low volume nodes to keep the noise level low on this chart.  See below:

Sellers took control on the short term during regular trading hours, despite our shelf action mentioned above.  On the short term, sellers successfully dictated price lower and value followed, pressing and closing the weekly gap we printed Monday and stopping precisely at last Friday’s value area high.  I expected this fat, well established profile to be revisited as these types of profiles exude a strong gravitational pull in times of mean revision.  The key today is whether we can hold yesterday’s low which coincides with the value area high from Friday.  If not, we are likely to trade through the value area.  On the upside, the market can zip right up the thin profile just like it zipped down it yesterday.  The action is thin from 3572 – 3586.  The a break of the shelf mentioned above may take price into this thin region.  I have highlighted these two interesting contextual pieces below on the market profile:

I have become pretty frustrated over the last few days, fighting the tape I suppose, by attempting long trades in the wildly unpopular high growth sectors.  One after another I am stopped out, and that is even more the case because I am playing tighter stops than I normally use.

It is time I shorten my timeframe and play some high quality intraday action.  Not the low quality stuff, not the boredom trades (guaranteed death), but only the finest setups back tested over 10 years of intraday data and refined and traded 1000s of times until the actions become nearly mechanical.

I am going back to my trusty old setup, the one that took me from piker to competent, the thrust-pullback-thrust.  Very potent, very simple, I will be exercising it on the broad Nasdaq because individual stocks keep cutting me up.  Over the course of the summer I will plan and rebuild some core intermediate term longs, but for now I need to regain my confidence in trading.  Trading, the single endeavor I enjoy more than almost anything in the world.

First thing first, an OCD clean and reassessment of my desk.  Second, some simulation for the duration of this month, and finally a plan of operating hours, intention, and how I will share my results with the fine people of the interweb.

It’s about to go down.  Insanity is doing the same thing and expecting different results.  I am right on the brink, as always.  Godspeed out there folks.

http://youtu.be/4wrfQMAyjeI

Nasdaq futures are a touch lower overnight in a quiet session of trade.  The overnight profile shows a slight selling wick above after a wave of selling came through around 3:30am.  Today is a busy day on the economic calendar and we are currently priced to open inside range and outside of value presenting only a slightly elevated risk environment.

The intermediate term auction is still in balance and buyers responded to the late afternoon selling yesterday.  As frustrated as I was at yesterday’s close with many of my swing positions, conditions favor the longs.  If buyers can hold yesterday’s lows we may be looking at a buy-the-dip opportunity.  Below you can see what I am referring to:

When I zoom in on the short term auction you can see the downside risk.  There is a very thin profile structure below current prices and we could easily slash through these levels.  On the contrary, the profile print yesterday has the potential to show a bias to the buyers.  Value never migrated lower, instead hanging on right at Tuesday’s LVN at 3606.75.  Value also overlapped Tuesday action which suggests we were coming into balance.  The late afternoon selling may have been a shakeout because a responsive buyer came in.  The key to validating the responsive buying tail is two TPO prints which hold the line.  Otherwise, we can slide right down into Monday’s lows and potentially fill the weekly gap we printed Monday morning.  See below:

I cannot say with any solid reasoning why I continue to attempt swing trades in the current environment.  I like swing trades because by their very nature they take time to play out allowing me to go about my day and perform other professional duties.  For some reason, my swing is off.  I feel like Rannulph Junuh over here, each time I step up to the tee.

There comes a time in your life where you have to take a hard look at your weaknesses and build blockades to protect yourself.  I need to stop buying momentum stocks based on my longer timeframe ideas because the longer timeframe is in balance.  That means churn and noise will stop me out of most of my positions, which is exactly what is happening.  Today I stopped out of Facebook, Google, Webio, and First Solar.  They took out my stops and the Nasdaq slid into a price zone I have no desire to lean against.  Here were are, the week nearly wrapped up and I am again on the wrong end of the p&l.

It is time to strategize elsewhere.  I am taking my business to the futures starting next month.  Until then, I will be in simulation and managing what swing positions and “investments” I have left.

Current book, which will undoubtedly sit idle if the market trades up and knife lower if the market trades flat-to-downward:

Cash 70%

TWTR 10%

LO 10%

AIXG 5%

CREE June $47.50 calls

GRNH small side bet

Dead May calls in ANGI and RGLD

I can manage the CREE position fairly easily as the 30 minute consolidates to a point.  If recent lows give way, I am out.  TWTR will likely knife lower and I will add to it.  LO is starting to worry me, especially after yesterday’s little flash crash.  I may cut it too.  AIXG needs to hold fourteen and a quarter or boot.

I am clearing my mind to start swinging at the futures.  I have fortified the action, knowledge, and devotion needed to take my futures trading back to live.  A bit more testing of all the moving parts in a simulated environment and then I will set forth on my quest to find my authentic methodology.

If I did not love this process so much, then I would pack up my bags and go back to busting concrete. It is time for the market to start paying me back.  Slowly, then all at once…just how I like it.

Nasdaq futures are currently priced to gap lower about 10 points after a wave of selling took out Tuesday’s opening swing low at 3606.50 around 6am.  The selling accelerated at 8:30 when the PPI numbers were released.  As price currently stands, we are set to open out of value and out of range suggesting the short term is out of balance and the risk environment is high.

Risk of an opening drive is elevated today, especially given the big gap left open from Monday’s open.  The stakes are high because not only are we inside of option expiration week, but we also have prices on the Nasdaq which are attempting to escape intermediate term balance.  Paramount to achieving this is printing a higher low on the intermediate term.  I have roughly chosen 3595 as the price where I want to see signs of responsive buying.  If they do not show up, we could be in for a fast liquidation trade because mean revision will set in and the short term profile structure below us is thin.  Here is a picture of the intermediate term balance with relevant price levels noted:

In the short term auction, yesterday was a neutral print with range extension on both sides of the profile.  These prints tend to occur at or near inflection points.  The profile shows responsive selling coming in soon after we range extended higher and taking out the lows.  The rest of the action was spent printing volume in the bottom half of the profile which made for a saggy look.  My expectation was for price to balance out this profile by trading down to 3595.  I did not however expect to be waking up to these prices.  Buyers continued migrating value higher yesterday which tells me the short term auction was still buyer controlled as of yesterday’s close.  I have annotated the market profile below:

Scenario 1: market tests lower, finds responsive buying between 3595 – 3593.75 and begins rotating back to VAL 3606.50

Scenario 2: market tests lower, takes out 3593.75 and accelerates lower- opening drive down

Scenario 3: market tests higher finds responsive selling at 3606.50, balances out above Monday VPOC 3597.50 and then goes for overnight gap fill to 3608.75 then VAH 3614.75

I may have bought back in too early, but yesterday I felt too late and this morning I was busy canvassing the city.  When I returned to my trading dock I was impressed with how the Nasdaq was holding on to the upper extreme of price.  If you recall this morning’s discussion however, you know the big red candle could be lurking just around the corner.

Today sets up tomorrow being a big red candle, thus it would have been more prudent to wait and see tomorrow’s action before initiating some risk into the tape.  Yet I did not, instead I pressed some chips into Google, Webio, and First Solar.

Should tomorrow open weak, I have a plan.  Today’s profile was sort of saggy, suggesting there may be some downside action below.  However, I am not taking a hot spoon of hope and letting another knife drive through my torso, but instead picking a line in the sand.  That line, which is always grey, resides at 3595.  This level is multipronged important to the bull case and if it holds I will drop the hammer, again, for better or worse.  Here are some illustrations highlighting the importance of this level:

Now is not time to be a coward.  There is a perfect right shoulder forming, do you know what that means?  It means NOTHING! …until it does, but for now it is just a layer of expectation for the chart chomping class.  Know your risk.

It seems as if each time we see a few progressive up days in the Nasdaq we soon see a session of heavy selling which unwinds all the progress made.  This behavior has conditioned astute swing trades to fade the rips.  The question now is whether we see more of the same or instead the market begins climbing a wall of worry.  You can see a few recent examples of what I am referring to on the following daily Composite chart:

With the long term in balance and a bit of skepticism about joining strength, we have to question intermediate term balance.  I have expanded my intermediate term profile to encompass 26 sessions of trade because price was escaping the shorter 18 session balance.    As you can see below, we are trading up into the thin upper tail of our balance.  This zone is where action can become rather interesting as the pull of mean revision is strong but with enough propulsion (buy flow) we can escape balance and swing higher.  We left a big gap in the chart yesterday which suggests strong buying but also leaves a sloppy chart behind.  I have marked the key levels below which buyers need to defend to keep us on a swing higher ascent:

The short term is buyer controlled.  Although the larger timeframes show balance, on the short term we are out of balance and exploring higher.  Price action and volume were dynamic enough yesterday to press our entire value area above the prior (Friday’s) day’s session.  One cannot predict whether such upward progress will continue, however we can monitor the continuation via some key price levels.  Between the price levels highlighted above, and the ones below, we can determine if buyers are coming in today and initiating into strength by defending these key levels:

There may be a gigantic head and shoulder pattern forming on the Nasdaq composite, but in the meantime there is nothing wrong with being a champion on the long side.  We need to keep an objective perspective here.  Yes, there has been damage done to the my favorite hot money momentum stocks.  Indeed, I was on the receiving end of a correction one loser at a time.  But as Mr. Cain Thailer so eloquently stated, now is not the time to be cowering in the corner.  No, now is the time for the market to start paying interest on the money it took.

I have no reason to contemplate taking a short sale, yet here I was considering exactly this choice.  I watched a few of my favorite issues today, notably WB, and simply sat on my hands as lovely buy flow propelled them higher.  My largest position last week, three D, looks ready to pull the D’s out, if you know what I mean.  I am without my shares.  Should I cry about covering my DDD?  Or should I have been a buyer today with conviction?  The setup is still live.

Although I am relegated to my smallest long exposure of the year into what is shaping up to be a strong week, I can quickly steer my small boat into the riptide and ride out into glory.  I am picking my battles, very slowly.  A commenter suggested I may be overtrading.  I couldn’t agree more.  Therefore, I am taking a chill pill and watching this lovely intermediate term balance play out.

So far, buyers are holding the line.  Should they defend the next (if it even comes) wave of selling, longs could get very interesting fast.

Today felt like 2013.

I have not taken any trades to start the week, instead opting to wait for a more clear intent from either the buyers or the sellers.  My positions are up today, led by Twitter which is being led around the on a leash through the news pump.  Upgrades and such, they type of news that benefits few but occurs on the regular.

Today would be a tough day to trade intraday unless your only move was to buy the open and hold on.  The gap-and-go scenario played out well this morning and up to this point we have printed a subtle trend day.  The biggest challenge for me is resisting the urge to short.  I feel like, as a down and out bull, I will rush too quickly into a short and then lose exponential confidence and precious capital when the market goes on a rip.

I am eyeballing NFLX for weakness but otherwise sitting put.  I am up a little over 1% on the day.

We are hanging out on top of my intermediate term balance.  No sign of sellers yet.