The Nasdaq is about to gap up into the week. Conditions are consolidating and bracketed on the intermediate timeframe and a break away from this zone will require some volume and conviction. We can see two high volume nodes on the balance with price trading between the two and plenty of unresolved levels inside the toothy profile. How this resolves will be very telling, although the long term suggests the sellers have a slight edge. Below you can see the key levels within the intermediate term balance, as well as the bracket extremes:
The short term shows the formation of balance Friday, however we are set to open outside of balance, outside of range which suggests we are opening out of balance. In this environment the risk of an opening drive in either direction is high. The gap below should be respected and signs of weakness may suggest the gap fill trade will take hold. This is even more likely given the fat, high quality distribution below, which we are likely to revisit. See below:
As I continue to study the opening swings and the behavior that occurs in-and-around the levels what becomes clear is how important the narrative of the tape is to successfully positioning yourself intraday. The early action in the market is very telling of how the morning is likely to progress. Also, how we go into New York lunch hour and how we leave the lunch hour are vital to trading the afternoon well.
The key is objectivity in your analysis and that comes from keeping a clear and calm mind. Shifting my swing portfolio to less hands on positions like ETFs and dividend stocks is also key, because even on a quiet day of chop in the Nasdaq, having a position down 12% is a distraction.
There were some very interesting opening swings and tight congestion points this week. The daily action makes sense given our intermediate term balance. Below you will see a picture of the intermediate term balance followed by annotated daily auctions. Enjoy!
Another week in the books, and another week where I feel like gyro meat in the marketplace—slowly being shaven by a hairy armed Greek. Many of you know 95% of my positioning this year has been in explosive growth stocks. You should also know by now that these very stocks have fallen victim to rotation free knife drops, relentless in every way possible. I very rarely sell into weakness, instead waiting for a bounce to cut my losses. Well, I would not be so fortunate this time around.
My losses stand at -20.13% year-to-date and 28.9% off of my high water mark which seems so very distant from here. That’s how downward price actions works, six months of gains can be wiped out in one short week. Never one to dwell in the past, my sights are set on my next meal. My next opportunity continues to ripen but if I do not act soon it may spoil. I must begin taking my trades in the Nasdaq futures.
I have done extensive research into this product and feel I understand its behavior more than any financial instrument traded. I like the large daily ranges of late and see them as a tremendous opportunity to day trade. I also like how the long term auction has come into balance. Take a look at the following monthly chart of the E-MINI NASDAQ 100:
Some people find intraday chop to be maddening because they are constantly seeking swing trades. They seesaw nature of balancing nauseates participants until they puke out and exit the market. But if one is aware of the conditions they can either choose to sit them out or stick to one side of the tape and carefully pick where they want to do business. I was aware the Nasdaq would potentially enter these conditions in 2014, however I had no idea all of my momentum stocks would plummet. Thus here I am, very red on the year and still in simulation on my day trade strategy.
Alas, I must move my strategy live. My algos have been optimized and walked forward over 10 years of data and have performed well on live data. They are effective at determining action points, even if they result in a stop out which can be equally as telling as the original entry. The final barrier is taking the leap into live trading. This should never be taken lightly as the leverage used is greater in futures than any other instrument I trade. You need to plan every step of your method until your muscle memory is fortified like steel.
My book is about 70% cash. I have long term positions in TWTR and LO and intermediate term positions in FB and AIXG. I have a small side bet in GRNH and some dying options in RGLD and ANGI. I looked at about 500 charts last night and could not find one I wanted to buy. Thus here I am, needing a new dance to find my way back on top, back to internet glory. Get it while it’s here, boy.
See you over the weekend with more Nasdaq charts, cheers!
Fri May 9, 2014 8:33am ESTComments Off on Planning an Intraday Short Sale
Although we spend most of our time seeking the early stages of trends in either direction, trends we can ride for profit, we must accept that more than half the time the markets simply balance inside of bracketed ranges. Right now is one of these times in the Nasdaq, where price has come into balance on the long term timeframe.
Making the picture even more interesting today is how our intermediate term is also in balance. See below:
The best strategy until this balance resolves is to ride out any current positions, and sit on your hands unless you have an enticing setup you simply cannot resist. If you do enter a position, it is best to stick to one side of the trade (long or short) and use the bracket extremes to gauge the correctness of your trade. Thus, risk skews in your favor if you can enter a long position below the midpoint of balance or above the mid for a short.
The short term timeframe is nuanced. Buyers pressed value higher yesterday, but the afternoon fade had a sharp velocity and certainly punished almost any new long positions initiated intraday. The buyers controlled yesterday on the net by range extending higher, printing a buying tail, and pressing value higher. However much like a movie, we tend to remember the ending the most, which in the markets case was weak.
Since we have printed more than three TPOs (time price opportunities, the blocks that form market profile) inside of Wednesday’s range, my goal is to find a clean short entry intraday to ride a rotation through Wednesday’s value while targeting scales at the curious low volume node at 3520.50 and the value area low at 3507.50. Since I know my targets, all I need to find is an entry intraday with risk less then ½ or 1/3 my desired profit. This is risk management. I have highlighted these observations and more on the following market profile charts:
UPDATE: The trade played out mostly as anticipated, here’s the look:
Yes yes, I know, Twitter is absurdly overvalued. The insiders are nerdy scumbags (the worst kind of scumbag) and are liquidating in droves as they no longer here the music. The whole business is plum toxic, what with the easily replicated service and all. I heard they even stopped offering free Cliff bars in the break room. Here comes a glasshouse revolt!
These jackoffs can’t even make money. Pathetic.
Traders who took the obvious position of shorting into lockup expiration were rewarded handsomely this week after shares of TWTR plunged. Mom and pop saw the headline and trampled one another the following day to liquidate the ticker away from their person.
Now the questions start because we all know Twitter is some kind of media phenomenon. After all, it was only two Super Bowls ago that ads never featured the hash tag. Celebrities have accepted the product one-by-one, and most breaking news originates on Twitter. CEOs use the service to promote and defend their companies. Politicians drum up support and test slogans. Robots follow hundreds of thousands of humans and then tell odd jokes. This service is broadly used, useful for reaching likeminded conversations, and essential for branding.
Therefore I consider the company a going concern. I have been long Twitter since IPO, at times larger than others and I have sold some shares along the way. My position was full size going into this downturn, so you could consider me biased. However, I will ride Twitter to zero. That being said, I see this weakness as an opportunity to buy more shares.
Am I buying the current weakness? Absolutely not.
What we are seeing is a news driven reaction in the market. There is no telling how far this move can go. We will only know it is complete when prices have gone much higher. However, being a news driven move, it is very likely to be retested. And when we retest these lows, either in weeks or months, I will be keen on buying more shares. Until then, I brood.
If you really want to scare the last strong hands out of momentum, then blow the bird hole to smithereens. The scene in most momentum stocks currently resembles Alfred Hitchcock horror. Thousands of angry algos are intent on fleecing you of your favorite shares. This was a very public dismantling and it is very effective in returning shares to their proper owners—banksters.
The market has been kind enough to reward even the most simple of short trades, like shorting Twitter into lockup expiration. With this in mind, we should respect the head-and-shoulders pattern forming on the NASDAQ composite over the duration of 2014. First thing first, sellers need to gain control of the intermediate term. Right now we are in balance. See below:
Here is the same volume profile (15 sessions) without bars overlaid. I have highlighted the key price levels inside our current balance:
The short term auction is seller controlled. We can see value migrate down after 4-6 days of overlapping. The sellers struck first. Yesterday however suggests the action may have been temporary. Early in the day the profile resembled a lowercase letter-b. This is long liquidation. However, the sellers did not demonstrate their usual follow through. Instead responsive buyers came in and auctioned price up for the rest of the day.
Key today is whether buyers continue responding to these lower prices, or whether sellers begin initiating more selling into the weakness. I have highlighted these observations, a few scenarios, and important levels on the following market profile charts:
The opening swings this week were choppy and indecisive, but from them emerged several clean auctions. As the week progressed more and more opening swings piled up before we ultimately came into balance ahead of the weekend. Below you can see how the daily auctions played out relative to the opening swings and also an update to the intermediate term auction:
Whist the waves lap the shoreline, creating a symphony of sound and the fog of salt, I sip upon cheap coffee and let the rising sun kiss my face. Meanwhile, I am taking this peaceful solstice to survey the field and assess my ongoing intermediate term thesis.
Perhaps it’s the optimism of a Northman escaped to better places, but I feel like I am in a unique position to catch the momentum tiger by the tail in some of the biggest and most marquee stocks of them all.
Take DDD for instance, the dizzle, hotter than the sizzle on cast iron skillet. It has washed out the masses, even gone out of its way to further eviscerate the knife catching class. Yet here I am, down a mere 1.2% on a theoretical basis (the joy of scaling in and out, fiddler on the roof style) on a stock that has the potential energy to do 30% up in a few short weeks. These last two days of price action resemble a favorite trade of our passed friend Madison Montana (RIP, sweet lady) “the pincher” where overzealous shorts pile into the hole expecting continued breakdown only to be faced with the cold reality of a sharp reversal. The market collects speculative money into a tight, cone-like corridor and then forces said money to trample one another like overcrowded humans behave in primal moments. In essence, someone is calling the markets bluff, fading the prevailing trend. Now they must follow through to assert their dominance. The key is not to be aggressive, but only to assert your dominance over this simple collective beast. If buyers succeed today with some follow through, there is little to impede them from taking back lost ground. Even without making a new high, there is plenty of meat to the upside.
In short, after a long swim, I may towel off and buy another allotment of DDD. Facebook too my friends. If you like trading from a base, something rudimentary to manage from either the long or short side, look no further than the price action in April relative to the overall context of the FB chart. Easy to manage. I am long from slightly higher, nut by no means with the size I intend to have in such a prominent feature of the social internets. I have not given up hope as many of you have, but instead have chosen to hone it into the finest elements of technology and the future.
I added to TSLA from my iPhone on Tuesday while barreling down the highway in torrential rains. As degenerate as it sounds, I could see the chart in my brain, and knew I would regret not buying another piece right here if my Nasdaq bounce thesis ensued. It has not ensued yet, but that is a topic for another discussion.
I still like tier one momentum, even if my money is aggressively being routed away from such hotness. You cannot shake a coconut off the ground.
Favorite current positions: TSLA, DDD, FB, and TWTR
I desire more shares of DDD, FB, and TWTR. But I am in no rush, let us see how this short term balance resolves.
P.S. – I am not sure what LO is putting in those vape pens, but it is working. I am up nearly 20% in my only old man pick. It earned a nice dividend payment too.
P.P.S. – Look at how they shook me out of Zillow. These stocks aren’t investable with such ultraviolent manners, unless you are prepared to assert your dominance without being aggressive. Be cool through the chop and let your wave set up.
I was on the road today and only checked in on the markets once or twice via truck stop news feeds, cable news channels. I could have queued the action up on my 4g Apple devices or even setup a mobile command unit, but I opted to instead enjoy the rolling road and the insightful thoughts that ensued.
They made good sure to kill my ANGI calls, perhaps the last foray in hot money options, sending it to momentum hell with the rest of the mobile app comment board space. This was a very small earnings gamble which I did not cash out 10 seconds into the pop. More flotsam for the premium sales people I suppose.
I have one other option, RGLD, a chart as tight as they get. Aside from that I have a few stocks and cash over 50% and no immediate desire to allocate it.
In short, I have escaped the north and broken the cold line. I will be sparse this week until I establish my work station and even then I will be taking a very Pareto 80-20 approach to grasp conditions. Even one working day away from the glow of my screens has my brain swirling with potential trades.
Hey bottom line is I side stepped LED lighting. I was over 30% into CREE and RVLT at one point this year. I am down but still in a prime position to extract pesos from the financial system.
The sellers sat back and waited for higher prices this week. Once they had prices they deemed unfair to the upside, they came into the market in droves. Thursday and Friday successfully unwind steady bull progress. However, there is still potential for buyers to turn the market around according to my intermediate timeframe analysis. For now, here are the weekly opening swings and also a week of market profiles. Enjoy:
