A Slight Chance for Balance

NASDAQ futures are lower overnight after trending all day yesterday.  The sooner one can recognize a trend day the better, for any position taken with the trend is considered a “risk free” entry into the following day, meaning the low of the trend day is likely to be revisited at the least.  That has not always been the case with some of the V-shape bounces of the past, however the sellers did accomplish more downward progress yesterday then we have seen since late January.

The long term timeframe is still buyer controlled.  We are in the process of testing the current swing low right now on the daily chart at 4200 on the COMPQ.  The weekly chart shows a good picture of indecision, but still an auction firmly in the hands of the buyers.  Prices are still trading above last week’s low.  The sellers want to see a weekly close below last week’s low to confirm the outside bar reversal candle.

The intermediate term is seller controlled with a slight potential for balance.  The market formed a tighter balance area spanning March 3^rd –to-present which was disrupted by the sellers.  Sellers can be seen printing a series of lower highs and lower lows which yesterday broke through the balance low.  However, if we go back to our longer dated balance spanning back to February 19^th one could make the case for balance.  However, this balance is reliant upon holding yesterday’s low on a retest and is thus vulnerable.   I have highlighted this balance on the following volume profile of the intermediate composite:

The short term auction is seller controlled.  This can be seen by the lack of overlapping by value area and value migrating lower.  The overnight auction which was a continuation of yesterday afternoon’s late stabilization is fairly balanced.

Risk of an opening drive is low because we are set to open inside range, and inside value.  Thus I expect some chop.  I have highlighted this current profile and made some observations below:

It was a wonderfully cold winter in the Great North, but like all good things it must come to an end.  Funny, I used to despise winter but now I welcome its cold embrace.

The Thursday before opex has officially been tattooed onto my trader brain as a potential turning point on the monthly calendar.  The invisible hand of the market must have caught scent of dirty money like mine clogging up the books of market makers and it was time to flush the funds back to their rightful owners—robots.

I cleaned up my books, stopped out on many positions and shamelessly capitulating into the sell flow.  I am a tad red on the year.  Fortunately I only have 19 positions to manage now.

When did I become this stark raving mad about owning stocks?  I used to cap my book at 5, then 10, and eventually 12.  Now I look at my port and it is 30 positions deep.  Too much confusion, too many moving pieces for a fast market I tell you.

The market snapped out of intermediate term balance.  We will observe this occurrence in the morning, should you feel like reading along.  I am 33% cash after today and strategizing my next move.  I want to slowly own less names for longer amounts of time.  I want a less active book but I want to make more money, you see?

The analysis I do every morning has been solid and in these faster markets I can make a solid nut during the first 40 minutes of trade with the proper execution.  Imagine that, trading the first hour of the day (with an hour preparation) then going about the rest of your day free from the trading terminal-sounds exotic.  Can it be done?  I say yes.

I have been building my algos and context kits for quite some time now, waiting for the moment to bring them live.  The moment is nearly here.  If you are interested in trading the market open, let me know and I will delve into the topic a bit deeper.  Otherwise, I may delve deeper into regardless because it interests me.

BACK TO STOCKS: I bought GOGO about 10 minutes into trade because damn, you people are mad.  The company and their crazy toothed bandit of a leader are kings of airborne internet.  That’s like having exclusive rights to sell crack rock at all DMX concerts, it can’t lose.  I have more buying power ready and waiting to deploy into strength or weakness in this name.

I sold all sorts of losers, so I will update my current book for your viewing pleasure instead of discussing each closed position.  Here is my current book, largest to smallest, stocks to options:

RVLT, CREE, LO, CUDA, IMGN, GOGO, TWTR, LEDS, OESX, TSLA, RGSE, GRNH, HEMP, TPX, FSLR…now the practically worthless option positions…BBRY, ANGI, Z, VJET, and a TWTR weekly.

We will not talk about the bizarre relative strength in illuminating products, for we shall not sully it.

The headlines always talk about high frequency trading algos and their demonic effects to the marketplace, they give no love to the medium frequency algos.

My algo, codename Elroi, is a medium frequency algo that currently trades the NASDAQ futures.  This is occurring in beta, something I began building the last time volatility perked up.  I wanted this algo in fighting form for a year I imagine will be fast.

My algo is built for speed.  In fact, it needs ultra violence to perform properly.

Check out this week’s (on a 1 contract basis) performance:

The speed of the NASDAQ market has picked up, but given the uncertainty of trading at these highs as we approach the end of the quarter it makes sense.  They key is a thorough analysis of exactly where we are in the context of time and auction.  The first quarter is nearly over, with many traders already rolling forward to the June contract in index futures.

I will be watching both contracts today to see which has more volume before changing my analysis over.  For today, the prices mentioned are in reference to the March contract.

The long term auction continues to be controlled by the buyers.  They managed to snap their four day losing streak in a session yesterday that had buyers starting from behind.  However when the day was complete and the daily candle printed, a higher low was put in place.  We now have an excellent reference point going forward.  The COMPQ also managed to recapture the 9 period exponential moving average, giving them an even more firm grip of the long term auction.

On the intermediate term, we are still in balance.  This balance dates back to February 24^th and is still filled with plenty of actionable caves and low volume nodes.  There is no clear victor in this balance, although we are now trading above the midpoint which should be considered more of a selling opportunity then a buying opportunity on the intermediate term.  We are currently trading at 3712.25 which is just above the mouth of a volume cave down to 3708.  A complete gap fill would be trade down to 3706 and that should be an easy task for the sellers given the cave.  I have highlighted the intermediate term balance on the following volume profile chart:

The short term swung back into buyer control.  This is a result of a strong responsive buy occurring off an NVPOC dating back to 03/03.  Interestingly enough, if you understand splitting relevant distributions, there is another naked VPOC which is likely to eventually be tested from the morning of 03/03.  However, this is a discussion for another day.  Buyers pressed value higher yesterday and built on the strength overnight.  Given the overnight inventory is long, it would make sense to press into that inventory with sell flow and see if it cracks, especially with the volume cave (gap trade) intermediate term context.

However, it never is quite as simple as just selling the opening print and waiting for a gap fill because it may not happen until the afternoon or it may not happen at all.  The current distribution has a slight upside imbalance that may hash out before we attempt the gap trade down.  I have highlighted this short term imbalance on the following market profile chart:

You see many new traders who are gun shy.  They here the loud noises, they see deranged men extracting thousands of dollars from the market, and they freeze up when their well-thought plan comes to fruition.  I remember that feeling, it is a dangerous one.  You should enter any deal (trade, contract, relationship) from a position of confidence.  If you cannot, then the first dose of adversity will scare you out of your idea.

I suffered from a different type of emotional state last week and I am paying the price today—overconfidence.  At times I feel invincible.  Like when I erase over 10% in losses in a few short weeks.  It is not that I feel the need to make more gains, but instead that I “know” I have the Midas touch and everything I procure will immediately conform and take flight higher.  To be honest, most do.  Then they stall, then they fall, then they spelunk.

Resident internet trader psychologist Brett Steenbarger had a great exercise for nipping either of the above symptoms in the bud.  He advises traders to keep an emotional thermometer.  Like a regular thermometer it has a scale, only this scale reads frigid cold coward to burning hot madman.  You measure yourself regularly to temper the emotion and also perhaps put a restriction in place.

In short, these last two days have reclaimed about 3% of my gains.

Moving on.  Jib at futures trading all you want, but today I literally called the bottom to the tick using market profile.  Going forward I intend to use straight futures to play the ultraviolent markets else end up stuck in a fag box like I was today.  Yes, I called the bottom to the tick and yes I went out and executed some buys.  I bought AAPL weekly calls, the strike is irrelevant.  The problem is AAPL made a modest move and then did NOTHING for what felt like many moons.  I am over here, taking conference calls and whatnot, constantly afflicted with a need to babysit the Apple chart intraday.  I would rather be duct taped to the ceiling then watch an entire day of Apple trading.  It was a tremendous waste of a solid market call.

Insistent upon making a winner out of this warm apple lemonade, I help the position overnight.  Here’s to hoping Tim Cook doesn’t do anything stupid overnight ::drinks said drink and smashes glass on desk::

The key to executing proper decision making during market hours is through observance of the overall context each morning.  Some get their context from the newspaper and colleagues.  I apply auction theory to the NASDAQ and check out what has my favorite traders’ attentions early on.

The long term auction is still in buyer control.  This can be seen on the daily chart which continues to make a series of higher highs and lows.  This most recent pullback, four days old, is yet to breach prior lows.  It appears however the marketplace does want to back-and-fill the gap dating back to March 3^rd.  Seeing the futures lower in the AM hour, I suspect we may get a gap fill.  If not, a bit of context would be revealed about the overall demand for equities.  Also of notice is the weekly chart which printed an outside candle last week.  This is a cautionary candle which can signal an inflection point especially if it sees follow through this week.

The intermediate term is in a balanced state dating back to February 24^th.  For some time, I thought this intermediate balance dated back to February 13^th, but as the balance developed it became much more clear it started on February 24^th.  We blew through the intermediate term VPOC at 3695 yesterday afternoon, and with velocity like that you can expect a whip to test the lower end of intermediate term balance.  I have highlighted this intermediate term balance on the following volume profile chart, from which you can draw your own relevant levels (like low volume nodes).  I left it bare to make the visual of balance easier to see:

The short term auction is seller controlled.  This can be seen by observing the value areas which are migrating lower so rapidly they do not overlap.  Sellers like speed and volatility and they have it.  I suspect we will begin to see the NASDAQ balance out a bit, especially above 3661.25.  This is a naked VPOC dating back to March 3^rd aka the day we left behind when we gapped higher.  These long abandoned VPOCs tend to exhibit unique support abilities.  If not, there is another volume cave below for sellers to push into (see intermediate term chart above).  I have highlighted a few scenarios on the following market profile chart which would signal balancing:

Yes, it felt like the NASDAQ buyers were eviscerated today and yes my concoction of a long book gyrated almost 6% peak-to-trough—but I don’t feel surprised.  We opened for trade in the middle of a volume cave way the hell out of balance.  Price gapped higher, filled lower, found buyers at the base of the cave, quickly auctioned in the opposite direction (we’ve discussed the nature of this type of move) back through the cave and higher.

This is where the surprise hits…

Overhead supply begins selling into the up move, we slash through the opening swing like butter, down through the cave and over the hill to grandmother’s home.  The action was so dynamic it set a lower high and a lower low.

I was the fighting the tape for a bit, but not as egregious as when the market corrected me in January.  However, I was all over the place today, I had 14 orders.  My broker banked today, without question.

While I did all of this tail chasing to raise some cash and rotate into other names simultaneously, Elroi was robot trading the crap out of /NQ_F going 4-for-5 with all intraday shorts.  Elroi never thought once about going long today.  Eventually he got my attention considering he now talks and blinks like a proper robit!

He’s still in the shop until I completely understand his quirks.

Above I have described my natural auction mind and mechanical robot mind.  Now my brain:

Like in the real world, the complete degenerates win.  My pot stocks are winning and LEDs ripping.  I am hunting more deals in every corner of the world.  At my pinnacle, I post my TOP THREE HOLDINGS at literally the moment Twitter, ehm…BREAKS, and I have put a solid jinx on the market.  Meanwhile,  Citron kills fuel cells and every other green tech with the delicious and powerful lemonade.

The game is rigged and I killed Twitter.

Anyhow, I must move on to more pressing matters.  Good day to you.

My top three holdings at this critical market juncture are RVLT, TWTR, and CREE in that order.

I sized up my TWTR position today because Twitter is cool, like smoking the vape pipe in nonsmoking restaurants.

The most ultraviolent of the stocks are my friends in these turbulent times.  I never turn my back on them, even when they go red with anger like RGSE.  RGSE knows to act right else get tossed aside for a fresh spring piece from KORS.

Then who’s going to get all the Tory Burch?  Exactly.

The market may go risk off short term if we make new lows on the SPX before the close.  Short term…so stay cool don’t PANIC.

The NASDAQ Composite was quiet overnight and printed a narrow range which essentially marked time.  The resulting profile is very much of the bell curve variety with a slight imbalance to the downside.

Yesterday we traded in a very balanced manner, only very briefly could we see signs of responsive buyers on the tape.  They left footprints in the form of buying tails.  This action occurred when price briefly broke last Friday’s low.  It was at this moment we saw responsive buying overwhelm the sell flow and a new auction ensued.  The short term timeframe is thus balanced with a slight edge given to the seller.

This is interesting, because early on Monday it appeared the sellers were putting together a win. They were able to range extend lower in the morning which made me hesitant to buy any new longs until I saw the responsive buying.  Overall the intermediate term is balanced however, and we are set to open inside the “PTD” volume cave we broke down through on Friday.  Thus today’s treatment of this low volume slip zone could set the tone for the rest of the week.  Do sellers reject us out of this low volume zone?  Do we fill the cave with volume, further aging intermediate term balance?  Or do sellers launch us up and through?  I will be assessing these three scenarios all day.

The long term auction is still firmly in the hands of the buyers.  This can be seen as a series of higher highs and lows on the daily and weekly charts of the COMPQ.  I have highlighted the volume cave we are set to open inside and also today’s market profile on the following two charts:

My patience has worn a bit thin today.  Not because my largest position is a three dollar LED stock which got faded, but because Mother Nature has decided to turn against me.  My fragile northern physiology relies heavily on the death like state of arctic temperatures.  A few days over 40 and my head feels like a block of Elmer’s glue.  Before I begin to digress let us discuss short selling ghetto stocks—dumb.

I have three four stocks in my book up over 10% today.  Each one is exacting some kind of horrendous if only temporary pain on the people intelligent enough to sniff out a short sale opportunity.  Who is it that spends inordinate amounts of resources investigating and developing short theses on these names?  It seems too academic for me, and dangerous.

Of course there is a solar stock ripping (RGSE, FD: Long) today.  Solar is hot.  Tim Cook is getting hot too.  I think he has been hitting the iron pipes.  I took a weekly speculative position in Apple just in case.  Tim decided Apple will invest in green technology even if it doesn’t provide the stupid investor base profitable ROI.  While I commend his hippy-like affection for our planet, I wonder if he has been given the proper pitch for LED lighting.  You see, the right LED system with modern controllers and sensors can save a company up to 90% on their light-energy use.  With those kind of savings, this green investment pays for itself in under two years.  Then the lights continue their humble illumination for 28 more years. Tim Cook would be on his death yacht, sipping Shirley Temples before his bulbs would burn out.  And he would appease his investors.  Not bad.

This type of corporate governance from America’s best tech hardware company should trigger something in the slow brains of Wall Street income statement readers.  They should put down their actuary charts and financial calculators and just use their brain for a moment to think about the future.  It’s illuminated using LEDs, everywhere, as ubiquitous as electricity itself.

I have little more to say.  I took down some April calls in BZH.  It’s spring, jackasses, go buy that three bedroom bungalow and get it over with so can can mod up to something more appropriate in 3-7 years.  You do not need to love you home if you think of it the same way as you do a few thousand shares in FB.

Keep trading…