NO More #LEDEMPIRE

I sold out of both $CREE and $RVLT, ahead of tomorrow’s CREE earnings after market close.  This may be the one time CREE actually rips since the last three quarters it has sucked a wind bag.

I am still with OESX, for now

As we enter the thick of earning’s season, it becomes more important than ever to not lose sight of both the big picture and the intricate short term picture which develops before us.  Overnight we saw an upward move Sunday evening which gave way to balanced, two-way trade overnight and into the morning.  As the USA comes online, we are seeing sellers creep onto the tape.

The long term auction is very interesting this week as we can see a notable change taking place.  For quite some time, it appeared the long term auction was buyer controlled where it now appears balance has taken hold.  Research shows the markets spend more than half their time in balance thus one must expect such an environment to return often.  The question is whether buyers can build upon last week’s responsive buying.  To me, it is not so important that these recent lows hold, but instead that we see equal force being applied on the market by both buyers and sellers.  Here’s the current long term auction:

On the intermediate timeframe, we can see volume totally dried up when we made new annual lows last week.  Speculators often look for explosive, high volume type action to confirm a swing high or low when really the exact opposite occurs at these levels.  What happens movement in the direction of the trend stops bringing new participation in.  In this case, sellers were not motivated to act by the new lows.  Instead we saw a buy response which was equally as strong as the selling move down.  Thus began an intermediate term swing higher:

I am using my EMAs as well as the very low volume node just a tick above the very round 3500 price level as my intermediate term pivot this week.

The short term shows buyer control.  Value is migrating higher without much overlap and the profiles are showing healthy auction activity on both sides.  Whether this clean auction continues through an important week of earnings will be telling for the weeks to come.  See below:

We continue to observe the Nasdaq opening swing over here.  As always, your thoughts are appreciated because the more we discuss, the more we learn.  Thank you Zen for writing an anecdote of sorts last week.

Some notes, less noise.  Have a look:

MONDAY

TUESDAY:

WEDNESDAY:

THURSDAY:

For the past four weeks I have been focusing on the very early moments (minutes, rarely hours) of the marketplace and using it as my “tell” for the day.  The efforts have added a layer of auction understanding which aids in my intraday confidence.

However as I re optimize my algos I am noticing my strategy prefers to trade on a very lazy schedule.  The algo almost appears to be a slacker of sorts—coming in late and leaving early –all the while respected and left alone since he steady banks coin.  More later…

I am clawing back some gains in this marketplace, with the bulk of the progress spearheaded by the action surrounding Weibo.  I did not take a position in Weibo but my plan of attack on SINA began to fruit and I took a nice trade in Twitter.  My book is now down a mere 11% year to date.

The question now is whether I should be raising cash.  This is my third month of seeing many options vanish from my portfolio and good riddance to the lot of them.  My book is clean now and I intend to sell more of it.  But for now it stands as follows:

Largest-to-smallest: LO, TWTR, AMBA, SINA, CREE, RVLT, DDD, YGE, FCEL, OESX, TSLA, and GRNH

I plan to peak out at 12 positions but may go as far as 15 if I simply cannot close a position.  I am questioning some of my favorite plays for their merit.

Futures trading went well, my algo traded well too.  This was day two of all systems running in harmony and my system showing me tons of confidence.  I will continue testing however into the more aromatic sessions as the month progresses and “Sell in May” becomes a discussion.

I am in no rush.  I can tell you this, with confidence, if I had some sort of urgency for keeping a roof on my head and food in my belly, then I would certainly fail.  One must wear a few hats to properly pursue their dreams, IMHO.

Have a great Easter holiday and enjoy a working day with the market closed.  These working days always blow my mind, the amount of work I am able to complete with the market closed.

Nasdaq futures were set to drift lower overnight after some mixed afterhours trade in Google and IBM added a layer of uncertainty into the trading environment.  Drift lower they did until about 7am when a low volume ramp higher occurred.  Since then we had jobless claims which was received initially with a push higher.  We are currently trading inside balance and inside range from yesterday which suggests a lower risk/reward environment.

The intermediate term auction is interesting.  Sellers came in where I expected yesterday, which was a patch of low volume nodes on the composite profile.  Their response was perhaps exaggerated a bit by the afterhours earnings which kicked off the selling.  Sellers still retain control on the intermediate term, but the most recent swing bounce has been the sharpest yet which leads me to wonder if the velocity will be enough to get us higher.  Above yesterday’s high we begin to enter a zone of fast trade.  First let’s observe the intermediate term trend:

Now we can increase the magnification and observe the short term auctions.  Tax day, 04/15, we printed an outside day where price exceeded both the high and low of the prior day.  In this case, it was actually the prior two days.  Yesterday confirmed the outside day by migrating value higher.  These two bits of context tell me buyers control the short term auction.  Volumes are lower given the holiday climate, but you can still see a clear distribution formed yesterday.  One subtle footprint however is a spike of volume near the highs.  Normally we would expect to see volume thin out at the extremes—if we are in balance.  This suggests increasing prices facilitated more trade and that an imbalance may exists.  I have highlighted this occurrence a few other observations on the following market profile chart:

My tech heavy portfolio is earning back some unrealized losses but I expect the ride will not continue to be smooth sailing for very long.  After the bell we had soft earnings from big new tech Google and big old tech IBM.  Both are lower afterhours.  You can read all about these announcements elsewhere, I’m sure, but I want to talk about Alibaba.

If you are in the trades then you have utilized this site.  There really is no way around it and without it our world would seem so much bigger than it actually is.  I use alibaba to generate 20 offers on a product in minutes.  This type of quotation capability is like old school stock market and I personally consider it one of the most interesting tools in my arsenal.

I like LED lighting.  So does everyone else in China apparently.  I am getting reports from my foot soldiers that there are about 3,385,749 LED vendors at the Guangzhou Canton Fair this year.  In market talk, this means there is an overwhelming number of intermediate term sellers in the market.  So many, that we are very likely to begin seeing serious incentives offered by these inventory heavy middlemen.  The key is to wait for these weak short term hands to become desperate and then begin accumulating an inventory below fair value to then flip onto the eager masses.  These supply constraints are pressuring many domestic LED companies who hold aging inventory.  Aggravating the situation more is Haitz’s Law which forecasts the steady improvement of LEDs much like Moore’s Law of computing power.

We could write off the entire industry and their stocks based on this fundamental information, or we can take the thought a bit further and consider who is likely to benefit.  Foremost, this does not jeopardize Cree.  Cree is a driver of innovation, researching and developing on the forefront of the technological edge in LED lighting.  They will prosper over the next ten years.  But will RVLT?

Revolution lighting is currently a hodgepodge of LED technology concentrated under one Nasdaq umbrella ticker symbol.  They offer everything from fabric LED strips for inside your cabinets to municipal grid systems with integrated software and controllers.  The problem is the model.  They have thousands of products and an untrained distribution force who struggles to properly communicate the benefit of LED lighting.  That and their prices are too high.

Hell, all LED lighting prices are too high.  This is a big fail for the industry, they need to get the prices down.  And whether they like it or not, market forces are hard at work behind the scene massaging price down with their omnipotent invisible hand.

This price drop will drive many business models into a negative cash flow environment, much like a scalper in the futures has seen their edge diminish as algos outperform them.  From disruption comes opportunity for leaner organizations to fill the demand void left behind.  This is all occurring as we speak.

In summary, Alibaba is making a fortune via shrinking international trade down to a few mouse clicks.  LED lighting is one of the most heavily peddled products on their site and it is moving by the container load as prices drop.  There is an LED inventory glut and it is nearly obsolete.  This is a unique opportunity for a lean organization to swoop up discounted product.  Businesses and individual consumers will have the opportunity to update their lighting to energy efficient LED at much better prices soon.

Finally an actionable stock, AIXG.  This chart reminds me of FSLR before they released their FY15 guidance and a massive rip ensued.  They are German which says precision to me.  I have viewed their strategy and what I like most is the clear expectations and measurable goals they have set.  They have also made a heavy drive into strengthening their corporate culture.  I have seen this type of strategy play out and it can be very potent.  I have no position in this stock, but it ranks high on my want list.

In completely unrelated news, my algos are performing well, as am I, in the testing grounds.  We will see how the numbers look by month end, but great strides are being made in the race to develop a consistently profitable futures trading hybrid strategy.

And just slightly aside, I cannot believe jackass NY attorney general subpoenaed a number of HFT firms. Prepare to be on the receiving end of a wave of angry algo robots throttled to full speed.

NASDAQ futures worked higher overnight building upon the afternoon strength buyers were able to muster.  The responsive buying ignited soon after price took out the year-to-dates lows on the /NQ contract.  Instead of the new lows bringing more sellers into the marketplace, we saw volume dry up at the levels and then a sharp response from buyers.  The bounce that materialized has the potent look of a durable swing low for the next few trading days.

The long term auction has been disrupted after being controlled by the buyer for over a year.  Today the picture of the NASDAQ composite has changed a bit.  I perceive the long term auction as in balance which dates back to November 11^th, or 11/11/13.  I do not choose these dates at random but instead observe the past market activity and how it relates to our newly revealed information.  My largest moving average (99EMA) is starting to turn lower on the daily chart but we do not have clear alignment of the moving averages which would add to a case for seller control.

I have built the intermediate composite volume profile to span from 11/11 to today so we can observe the volume taking place inside the auction.  It is hard to see, but 3515.25 is the volume point of control or the largest tip on the profile.  These are prices that both buyers and sellers consider fair and we conduct large amounts of trade at.  My goal currently is to sell some of my swing long exposure above this level.  Intraday, if I see price building acceptance above this level then I will look to trade a long beyond it.  I have highlighted this level was well as my swing trade targets on the following intermediate term profile:

The short term auction shows buyers with a strong response.  They need to build on it and yesterday they accomplished a response with the potential to be build upon with some initiating buying.  However, should they be overwhelmed with supply price could reject back down into three days of overlapping value.  Standing between sellers goals is a very interesting low volume node at 3485.50 which is also in confluence with several value area highs.  This level is my key pivot intraday between long and short bias, until a level more influential materializes.  Buyers show us gaining acceptance into the upper profile which has prices up to around 3545:

We have jobless claims at 8:30am which could have a material effect on the picture we see coming into the open.  We also have Philadelphia Fed announcement around 10am to be aware of.

The NASDAQ and equities in general treated my tattered tech portfolio to a bit of respite while I toiled away at various campaigns of industry and trading methodology.  My trading plan and its autonomous counterparts continue being built and optimized into a plan I intend to take live.  There is no amount of planning I consider excessive by this point in my trading experience because I have seen what this market can do to a person, intraday, without the rights set of tools and planning.  One must exude a high amount of discipline and execution to have even a chance at success in the futures markets.  The same rules apply to stock trading too.

The blood moon crests over our heads at night and its presence brings the parts of our life that we may be reluctant to address to the forefront.  The big white moon acts like a giant mirror and shows us where our shortcomings exist and then paints them blood red.  It can be a very unpleasant experience but it can also end well if we take the time to digest the introspective and use our stronger abilities to foster and settle our weaknesses.

My weakness is an excess of hope and opportunism.  I will run 100 miles per hour into a wall by over committing to all the opportunities I see.  This is how I end up with 20-25 positions.  This is also why the long term sellers of equity introducing MORE opportunity into the marketplace via IPOs troubles me.  If I don’t get a wrangle on my desire to peruse all the business opportunities out there I will end up in a sanatorium.

In summary, I plan to tighten up my book into 2-3 intermediate term trades lasting anywhere from 1-12 days, and 3-5 multi-quarter investments.  That way I can give proper focus to order flow trading in the futures market and my other enterprises—which I will not be expanding upon.

Sometimes I get lucky and I can trade around an investment like I am doing to Twitter right now.  Twitter is one of my top three stock positions and I took some YOLO options for a spin this afternoon with precision.  The harder I work, the luckier I get.  This trade was entered minutes before news hit the wires that Twitter headhunted some big time Google Maps fella.  I already have taken scales because I couldn’t care less about making a huge win on this trade.  Instead I am managing risk and putting a winner in the book.  Blood moon knows I need it after this string of April losers:

YELP, KNDI, WUBA, GOGO

I suppose one of those goof balls may still toss a hail marry to my egregious strike prices, but I am not expending too much hopium on that happening in the next two days.

Other action today was stopping out IMGN at nearly a -30% and ENPH for about a -15% if I recall correctly.

Less, more succinct trades and going easy after a win is how I am going to improve from here.  This applies to all timeframes of trade.

+1.3% on the day, -13% on the year, Elroi the algo still in testing (grr)

http://youtu.be/6AIdXisPqHc

It has been a busy morning in the futures market as premarket participants digest CPI data as Janet Yellen prepares to speak.  The reaction thus far to a slight uptick in CPI was a pop and fade.

The intermediate term auction continues to appear seller controlled with swing trades showing a series of lower highs and lows.  The question now is whether market supply will continue driving prices down on the intermediate term, or if instead price will stabilize and revert to the mean.   There is data supporting the latter outcome and that my expectation.  However, I respect the trend playing out on the intermediate term and must be willing to shift my stance should my expectation not occur.  I would not change this vision of a bracketed trading range developing if we took out our recent swing lows, but it would be a progressive step.

On the day timeframe auction, little changed between Friday and Monday.  We printed an inside day where our daily range was within the range of Friday and we also printed a neutral day with range extension to both sides of the initial balance.  Both of these characteristics suggest indecision on the part of buyers and sellers.  We printed an excess low yesterday which suggests we may see some follow through by swing buyers today.  I have highlighted this excess low as well as a few other observations on the following regular trading hours NASDAQ market profile: