Day Trader Environment

The NASDAQ futures are higher overnight, drifting quietly through the globex session after buyers put together a decent bounce yesterday afternoon.  As the USA comes online, prices are currently trading just above the afternoon swing high.

The long term auction taking place in the NASDAQ composite has become an interesting picture.  On one hand, the weekly chart is very much still in buyer control.  The series of higher highs and lows is still intact.  Yet the weekly chart offers us a bit of contex that we continue to watch develop. Three weeks back it printed an outside candle and this week has the potential to confirm it to the downside.  Of course, this is very early speculation since we have only seen one trading day, but something to keep in mind nonetheless.  The daily chart suggests buyers are still in control but with a more confident seller pressing down below recent support.  We have not seen a swing low support broken since late January.  In that instance the market quickly V-shape recovered, should one expect the same outcome again?

The intermediate term auction is seller controlled.  This can be seen as a series of lower highs and lower lows.  The sellers also pressed us out of the intermediate term balanced volume profile.  There now exists a large void in volume where the lower end of balance once existed.  It would not surprise me if price were to traverse this area several times the next time we come to it before the market ultimately decides which side of the cave it wants to trade on.  I have highlighted this volume cave and some other interesting observations on the following volume profile chart:

The short term auction is buyer controlled.  We saw responsive buying yesterday afternoon which resulted in some tail prints which demonstrate strong demand.  When the NASDAQ came into the bell while forming balance and that profile print has a long tail on it also.  There exists a stronger potential for an opening drive this morning for two reasons.  First, the market is currently trading only a few points below the volume cave highlighted above (intermediate term).  Second the market profile prints are single prints like a zipper, and prices tend to run right up these.  Thus, any aggressive attempts to fade early strength are at an elevated risk of a drive.  Otherwise,  we have a solid profile structure to trade against below us.  The play would be to short into any early overbought positions and target an overnight gap fill.  If price trades inside of the prior value for an hour, find another entry onto the short side to trade through value to the VPOC and then the VAL.  I have highlighted this trade as well as a few other observations on the following market profile chart:

Watching a balance develop is like raising a child.  You clean it up regularly, you measure it, you encourage it at the lows and you temper it at the highs.

That may be why it is so hard to believe you have to set it free.  We have left intermediate term balance.  The sellers won the battle and we are currently heading lower.   At first, I was a buyer this morning.  I even covered my QID because it was making me chump change.  It would have made me a bit more walking around money had I kept a “runner” piece but I am not caring so much.  I needed to put like 25% of my risk capital into this lunk to get a proper feel for it.

No thanks.

I am making preparations to go back live into the trading battle of /NQ_F futures.  You didn’t think all of this analysis was some fantastic excerise in mental masturbation, did you?  It is preparation for WAR with robots (extra terminator).

I was a buyer, then I was a seller, then finally I was a buyer again…of LO.  This is a nice slow name I can build into without wondering if it is digging a cold dagger into my back while I focus on the intricate ticks of the NASDAQ futures.

I have a trade setup based of the opening swing.  It had me shorting the NQ_F literally at the HOD.  I will hone this craft, makes the monies early and often, then go about town in Velcro shoes and white linen pants ordering screwdrivers.

HERE’S ‘MA BOOK, because it got jostled about quite a bit this morning:

By size, of course, largest to smallest:

CASH 25%

RVLT 15%

LO 10%

GOGO 9%

TWTR 9%

CREE 8%

IMGN 4%

OESX 4%

LEDS 4%

TSLA 3%

HEMP 2%

GRNH 1.5%

SODA WEEKLY CALLS (lol) risking about 0.5% of my book

That may not equal 100% I realize.  I am eyeballing the percentages.  Listen, Fly is dropping F-bombs, ChessNwine is crushing the short side inside 12631, and Alf is back.  I am making moves over here.  You should too.

I am negative on the year, woot woot

Futures are slightly up through the globex session despite my twittersphere erupting with hubris over the China PMI data that came out last night.  I never view the futures after the market closes because I do not trade during these hours and usually someone else will talk about them sufficiently.  To me, the equity index futures really only make sense when the underlying instruments they track are also trading, especially in our current environment, the “market of stocks”.

Taking to the NASDAQ, the long term picture is interesting as we can still see buyers in control of the auction.  The weekly chart printed an outside candle two weeks back which is a candlestick pattern which tends to develop near inflection points.  It is important to wait for confirmation of this type of candle before adding credence to it.

The long term auction as viewed on a daily chart of the NASDAQ composite is in buyer control.  Sellers can shift the long term into balance by sustaining trade below the lows printed two Fridays ago, March 14^th.  If they are able to complete this feat, it would put the long term auction into balance.  Until then, we are still in buyer control on the long term.

The intermediate term is balanced with an edge to the sellers.  The potential exists for another revision trade back to the midpoint of the maturing intermediate term balance we have been watching which dates back to February 13^th.  The VPOC of our balance still sits well above the midpoint which suggests the market has not yet accepted the lower end of intermediate term balance as fair.  Sellers gain the slight edge because of the speed with which we have seen the market trade.  This fast environment creates anxiety which can result in liquidation.  If we are to stay in balance, then the market needs to not spend too much time below 3645.75 today.  I have highlighted the key levels pertaining to the intermediate term on the following volume profile chart:

The short term auction is balanced.  After the afternoon selling Friday the market came into balance and the action carried through into the overnight session last night.  We are currently priced to open inside of Friday’s range in a thin volume area.  This may result in some fast action early on.  I have highlighted the price levels I find most interesting, as well as envisioned a few scenarios on the following market profile chart:

Opening swing is an ongoing series where we review the opening swing for each day of trade in the NASDAQ futures and observe and discuss tradable opportunities.

The opening swing is a high and low that is set by the initial auction right after the market opens.  It is independent of time and is not the same as the opening range or initial balance.  The opening swing is the high of the first push up and the low of the first push down or vice versa.  It measures how far the Market On Open (MOO) orders take the auction right after the open.

This week is an interesting week to observe because we saw some big intraday moves as we grinded into option expiration.  One of the interesting characteristics of Monday and Tuesday was the inability or impatience of the market during the opening swing.  It seemed as if no MOO sell orders existed and the auctions were unable to set opening swing lows.  Instead price would set an opening swing high and then continue driving higher.  These were opening drives and without proper understanding of them a day trader can go bust rather quickly trying to fade them.

Wednesday presented the trade idea I have been envisioning, and it even came on the short side which was a bias I had for intraday trades this week.  Soon after the opening swing high was printed, too soon after, the market attempted to trade above opening swing and was quickly rejected.  It turned out to be the high of the day and if properly executed then all a trader had to do for the rest of the day was scale profits at logical price levels (like opening swing low, market profile levels we discuss in the mornings, etc.)  The influence of the opening swing levels was very clear Wednesday and was all the information you needed to properly trade the inaugural discussion from Janet Yellen.

Toward the end of the week, it was interesting to see how prior O/S levels affected trade.  I have already gotten too wordy.  Check out this week in the NASDAQ from the view of the opening swing.  If you are as eager as I am to trade this auction action, be sure to compare each day’s opening swing to my morning market profile report for a comprehensive view of live auction theory application.

MONDAY:

TUESDAY:

WEDNESDAY:

THURSDAY:

FRIDAY:

If you have been following the morning analysis of NASDAQ market profile and the intermediate term balance, then you may be sick of seeing that same intermediate term chart of volume profile.  Well here’s the current picture of it, a bit more zoomed out.  We are teetering on the bottom of the profile.

Who is feeling cozy in their heavy book of longs into the weekend?

When the action gets fast, I put Elroi in charge.  At least, that is the plan.  He’s already 2 for 2 on the short side and the action is starting to get loose.

You best protect your necks folks, algos love a fast market.

UPDATE: Elroi’s Friday afternoon trades:

The NASDAQ drifted higher overnight and price is currently trading outside of yesterday’s range.  In terms of potential for a wide range/volatile day, this is as elevated a condition as the market can offer.  Today is also option expiration which can really result in some unique auction activity.  However it is ultimately order flow that dictates the direction of the market inside the day timeframe and we should be keen in our observance of it.

The long term auction continues to show buyer control.  We tested recent lows last Friday and gapped when we came back to market Monday morning.  We have held that gap higher all week.  We need to keep this gap in mind because often these gaps get filled, settling unfinished business if you will, before the market continues elsewhere.  Overall though, the market continues to find a bid on the long term timeframe and continues to auction higher.

The intermediate timeframe is balancing.  Tuesday buyers were able to quell the price action which up unto Tuesday suggested sellers were in control of the intermediate term auction.  After we trended higher Tuesday, we saw the late-afternoon selloff Wednesday (Yellen) which was met almost immediately with a strong buying response.   This can be seen as long tails on the candles suggesting dynamic responsive buying.  Since then we have consolidated and coiled right in the middle of intermediate term balance.  The market is building energy for its next move with a very clean auction into value.  I have highlighted our current balance and a few other observations on the following volume profile composite:

The short term auction is buyer controlled.  This can be seen as value drifting higher over the last few market profile distributions.  The overnight action in particular shows buyer control as it presses value up into the top of Tuesday’s action which marked the high point thus far on the week.  The key for buyers is to press above 3711 and gain acceptance above the level.  That could be the progress needed to invigorate initiating buys in the afternoon.  Otherwise we may see more backing and filling as intermediate term players continue to slug it out.  I have highlighted a few key price levels and observations on the following market profile chart:

I have somewhat made my bed over here in the old port.  I thought about adding to QID today, then I wondered what the point of it even was?  We would need some horrendous dislocation from intermediate term value to even budge my balance sheet using this slug.

So I started doing research into some option products and did not like anything I saw.

Then I figured, to hell with it and bought more GOGO.

I am still reeling from selling all (NO SCALES THIS TIME BUSTER) my FSLR call options at 10am yesterday.  The potent ones, the March $60s, all gone in one foul swoop, like a clown baby.  So I am staying out of the way a bit until I feel the urge to go bananas again.

I need this intermediate term balance to resolve and provide directional guidance.

Off to press metal and ponder the markets.

http://youtu.be/Bpzxf_flm8M

Yesterday we saw the effects of overhead supply and how sometimes the weight of said supply becomes too great and liquidation ensues.  Many a market commenter will cite the Fed meeting as the reason for the move, but an understanding of the auction and balancing process yields the potential directional bias of the market.  An event such as the Fed simply accelerates the process of price discovery.

The long term auction continues being controlled by the buyer.  This can be seen clearly on a weekly chart of the NASDAQ Composite index which shows a pattern of higher highs and higher lows dating back to October 2011.  The daily chart suggests a similar buyer control with prices continuing to hold their recent low around 4200.

The intermediate term auction is in balance.  When we sold off yesterday afternoon, the market was able to find a higher low.  Responsive buying down inside Monday’s range was forceful enough to reverse the directional liquidation occurring.  Price eventually settled near where we hypothesized value to be yesterday morning, 3678.25.  I have highlighted the inflection points which resulted in the market coming into balance, as well as a few key action price points on the following volume profile composite:

The short term auction is in balance.  I have traced the movement of value since Monday and you can see it drifting and consolidating much like a sine wave with increasing frequency.  Sticking with Monday, 3/17, we left behind a naked VPOC at 3644.50.  This level may be targeted by sellers today should we see any follow through by them.  Overall my expectation is for the market to chop about and settle a bit early on before deciding on a direction.  I have highlighted a few levels I will be watching today as well as a few scenarios on the following market profile chart:

If this business solely relied upon solid market calls, I would already have made my first million.  However, I have not.  Thus I continue to toil away, live on the interwebs, aggressively sharpening my axe in preparation for the day I thrust it into the spinal cord of these electronic markets.

My grasp of the price action on the NASDAQ futures is reaching new levels of competence every day.  This progress is what keeps me going.  I am stronger, more dangerous then I was last week or even yesterday.  I haven’t come to a plateau in months.

The issue I need to improve upon is weapon of choice.  I played my most recent NASDAQ call using it’s distant relative QID.  QID is a big, expensive method of playing action.  I have about 10% of my risk capital tied up in this slug.  The move I wanted to see happen HAPPENED today, and I was like, cool now I can afford an Xbox One.

I DON’T WANT AN XBOX ONE.  I want infinity pools and sprawling gardens.

I am slowly building a methodology for playing these intermediate term calls.  I got a taste of real leverage using options.  I liked it, but they get “expensive” and I don’t completely understand when they are in fact expensive.  I need something more pure, more uncut.  In short, I need futures.

I have called epic turning points perhaps 5 times this year, executed entry into a vehicle, and then lambasted said vehicles while they trudge along and the market goes WOOSH.

No sir, I don’t like it.

Elroi loves a bloody afternoon.  He hasn’t been in the market once this week, until today.  Today he insisted on shorts, MUCH SHORTS.

I do not particularly care what this Yellen character had to say.  Everything I needed to know about the price action was revealed to me by auction theory.  It can be revealed to you too.  Simply become my understudy via the morning contextual report and the weekend opening swing analysis.

I sold FSLR calls way too early today.  The me of January would have pressed those called deep into the bears throat until all he could taste is my fist.  The 10x burned Raul cashed out when FSLR was +10% on the day.  All of them, no scaling like a proper gent.

Coward, I spit upon the Raul of 10am.

It was this short setup I was watching develop, real time, that had me spooked.  My calls came back from the dead and even earned a 70% return. I left another few hundred percent on the table and it’s only Wednesday.  This is losing while winning.

In summary, I will be taking Elroi live soon, trading the NASDAQ live, like a hot wire.  I wanted to run testing through March.  I love what I am seeing.  I sold FSLR too soon.  I still like RVLT and it is nearly 15% of my book.  I want infinity pools not toys and leveraged ETFs are a waste of resources.