Model Engaged: Stays Bullish Through Month-End, into FOMC Rate Decision

A full month of bullishness is set to reach a crescendo of sorts, come Wednesday, when we embark on the second month of trade under our new political regime.

It also comes with a Fed rate decision.  Consensus down at the Chicago Mercantile Exchange is for no change in rates (96% probability).  However, and with the stroke of her pen, the venerable Janet Yellen, backroom leader of the free world, could send a chill down the collective spine of investors by unexpectedly raising rates.

This would be bad because, for more than a year now the Fed has been boringly predictable.  That’s a good thing, in case you’re wondering.  It would be a shame to destroy all the goodwill they have built.  According to the “Dot Plot” chart, we only need to nudge a touch higher from our current benchmark rate to be in the happy blue zone:

The NASDAQ, according to ticker symbol $QQQ is up about 6% in the month of January.  How does that compare to other January performances?  Best since 2012.

Remember 2012?  2012 was really bullish, man.

So let the common man scuffle in the streets, complaining about this or that, wasting their time in a feeble attempt to share their two-cents on the current state of affairs.  Your time and money can be better used foxing around, capitalizing on all the otherwise neglected opportunity.

This week’s model scores support remaining in the bullish labor camp.  Laboring away, with dollars allocated to three and four letter acronyms.

Exodus members: the 116th Edition of Strategy Session is live.  Go check it out for more details on what we expect from the upcoming week.

NASDAQ future are heading into Friday trade gap up after an overnight session feauting normal range and volume.  Price chopped around overnight, briefly trading below the Thursday cash low before traversing the entire range early this morning—mostly after 6am.  At 8:30am GDP and Durable Goods orders data were both below expectations.

Also on the economic docket we have the final January reading of U of Michigan Confidence at 10am and the rig count at 1pm.

Yesterday we printed a normal variation down.  Price chopped sideways, mostly, after extending all-time highs.  At the end of the day sellers spiked onto the tape.

Heading into Friday my primary expectation is for sellers to work into the overnight inventory and close the gap down to 5146.75.  Buyers defend around these prices and we work higher, up through overnight high 5160.75 and probe above the Thursday high 5163.25 before two way trade ensues.

Hypo 2 gap and go, take out overnight high 5160.75 early on and sustain trade above Thursday high 5163.25 setting up a week-ending rally.

Hypo 3 sellers close gap down to 5146.75 then take out overnight low 5139.25 setting up a move to target 5131.75 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

Ford Motors reported earnings Thursday morning and they were so uninspiring that the stock opened up lower—shares in Fords (sic) are down more than -3% in early Thursday trade [ticker $F].

They beat analyst expectation on the top line:

Ford Reports Q4 Rev. $38.7B vs. Est. $35.2B

Digging through the obfuscated accounting, and using a bit of elbow grease, the company reported bottom-line earnings in line with analyst expectations:

Fourth-quarter net loss attributable to Ford was $783 million or $0.20 per share, compared to net income of $1.87 billion or $0.47 per share in the prior-year period.

The latest quarter’s results were impacted by special items totaling $0.50 per share, including year-end pension  and OPEB remeasurement loss.

Ford had said earlier in January that it expects to record a pre-tax remeasurement loss of about $3.0 billion in the  year ended December 31, 2016 related to pension plans and other post-retirement employee benefits or OPEB plans.

Excluding items, adjusted earnings for the quarter were $0.30 per share, compared to $0.58 per share in the same  period last year.

On average, 18 analysts polled by Thomson Reuters expected the company to report earnings of $0.31 per share for the quarter. Analysts’ estimates typically exclude special items.

Being invested in the once great FoMoCo has been a dead-money endeavor for the last three years, aside from a tiny dividend:

Despite being well-shoed heading into the Great Recession, and potentially being in a position to benefit from the insolvency of their two biggest competitors (Government Motors and Chrysler), they were boned by the ‘too-big-to-fail’ mentality.

So despite doing everything right, equity holders have been bag holders through this whole kerfuffle.  It does not seem to be a trend that’s changing anytime soon.

OVERALL–Neutral, better investments exist in the auto industry

NASDAQ futures are coming into Thursday gap up after an overnight session featuring normal range and volume.  Price worked more than 20 points beyond Wednesday’s high before sellers stepped in and neutralized the market.  A spatter of data was released at 8:30am including Advance Goods Trade Balance, Wholesale Inventories, and Initial/Continuing jobless claims.

Also on the economic docket today are several low-impact economic releases including Markit Composit/Services PMI at 9:45am, and both New Home Sales and Leading Indicators at 10am.  There is also a 7-year Treasury Note auction at 1pm.

Yesterday we printed a stretched normal variation up.  Price opened gap up, out of balance, at all-time highs and after an open auction buyers stepped in and initiated risk.  They continued doing so throughout the session resulting in a slow ascent into closing bell.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 5146.25.  From here sellers continue lower, down through overnight low 5144.25 setting up a move down to 5131.75 before two way trade ensues.

Hypo 2 buyers defend an attempt back into Wednesday high 5148.50.  Buyers then work higher to target overnight high 5168.50 and probe above it before two way trade ensures.

Hypo 3 choppy, two-way trade along the Wednesday high 5148.50.

Levels:

Volume profiles, gaps, and measured moves:

Touted as a legitimate competitor to Tesla Motors by some, recognized as a glorified golf cart assembler by many, the Kandi Car Company [that name, SMH, ticker $KNDI] is allegedly being ordered to halt production and suspend sales of eight, I said eight, of their branded cars.  This rumor is being spread by the newsletter pumpers at GeoInvesting [link not found] that somehow made its way onto the news wires.

The Chinese government is bearing down on Kandi cars ahead of the New Year, in hopes of cleansing their republic of this bedraggled excuse of a car company.

Shares of KNDI are down more than -40% over the last year.  Let this be a lesson to all of you—you don’t dabble in electric wheels and come out alive.  Elon (all Praise and Glory to The Leader) will work incessantly, and he will destroy you.

Aside–a great man (Henry Ford) once said, “You can have the Model T in any color you want, as long as it’s black.”  The moral is clear—keep your product line simple and mass produce it.  How has Kandi amassed 8 different models?  They’re like the Alibaba of cars.

As for this rumor, and the short-sellers behind it, take it with a grain of salt.

Overall–BEARISH

NASDAQ futures are coming into Wednesday gap up after an overnight session featuring normal range and volume.  Price worked higher all night long, working beyond the Tuesday high by 8pm and continually drifting higher throughout the Globex session.  At 7am MBA Mortgage Applications data came out better than last week.

Also on the economic docket today we have House Price Index at 9am, crude oil inventory at 10:30am, a 2-year floating rate note auction at 11:30am, and a 5-year note auction at 1pm.

Yesterday we printed a double distribution trend day.  The day began with a gap up and early rally attempt that was rejected by responsive sellers (a common feature going back the prior 5 trading days).  Then, after filling the overnight gap to the tick [5063.25] price began to rise.  The rally accelerated through lunch—pressing to new all-time highs and continuing to rally for the rest of the day.

Heading into today my primary expectation is for sellers to work into the overnight inventory and work a half-gap down to 5109 before buyers step in and work up through overnight high 5124.75.  No stretch targets available, open air.

Hypo 2 test down to Tuesday high 5104, buyers reject a move back into the range and we continue working higher.

Hypo 3 sellers recapture Tuesday high 5104 then press a gap fill down to 5096.  They press down through overnight low 5095.75.  Look for buyers down at 5092.25 and two way trade to ensue.

Hypo 4 strong sellers sustain trade below 5092.25 triggering a liquidation down to 5069.50.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Tuesday gap up after an overnight session featuring normal range on abnormally low volume.  Price worked higher overnight, slowly, taking out the Monday high just before cash open.

The economic calendar has a few low/medium impact events to be aware of today.  At 9:45am Markit will announce the Manufacturing PMI number, at 10am Existing Home Sales, at 11:30am there’s a 4-week T-bill auction, and at 1pm a 2-year Note auction.

Yesterday we printed a normal variation down.  Price started the week gap down.  Sellers quickly pressed higher, closing the gap (and then some) before a responsive seller stepped in and reversed prices lower—down through last Wednesday’s low before a responsive bid stepped in.  We then formed a sharp excess low and buyers spent the rest of the day reclaiming much of the morning sell off.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 5063.25.  This sets up a move to take out overnight low 5060.  Look for buyers down at 5053 and two way trade to ensue.

Hypo 2, fifth consecutive day to start with a sharp spike higher early on, up through overnight high 5072.25 and a test above swing high 5083 before reversing the entire move and trading down to 5053..

Hypo 3 buyers work higher, up through swing high 5083 and sustain trade in this region, setting up a rally.  Stretch target is 5095.75 then 5100.

Hypo 4 strong sellers press down through 5053 and sustain trade below it setting up a move to 5041.

Levels:

Volume profiles, gaps, and measured moves:

I want a designer baby, 6’1” with a Nordic look and impressive IQ.

Problem is I’m a hairy daygo, one generation removed from utter savagery, and tall ladies are few and far between in the ruinous neighborhoods of Detroit.

As such, and without further adieu, I have initiated a new long-term position in Sangamo Therapeutics [ticker $SGMO].

This is my first high-spec stock position since late-2015.  I prefer quality names with huge market caps.  However, my lead scientist says these fellers are on to something.

If you follow me into this position you will end up beaten, broken, and a living experiment in the name of science!

NASDAQ futures are coming into the Monday after the U.S. Presidential inauguration and the week before Chinese New Year with a slight gap down after an overnight session featuring normal range and volume.  Price worked down near the low from last Thursday before buyers stepped in and two way trade ensued.

The economic docket is light today.  The only events on the calendar are a 3- and 6-month 11:30am.  There are no major economic events scheduled this week.  We do have earnings from Google [MUH Alphabet] Thursday after-market-close.

Last week the NASDAQ drifted higher, the Russell was weak, and the Dow and S&P marked time.  The performance of each major index is shown below:

On Friday the NASDAQ printed a double distribution trend down.  After opening gap up and spiking to a new high, responsive sellers stepped in and worked price lower.  They became initiative in the afternoon but could not penetrate the lower quadrant from Thursday before two way trade ensued.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 5058.75.  From here buyers continue higher, up through overnight high 5059.75.  Look for sellers up at 5065 and two way trade to ensue.

Hypo 2 sellers work down through overnight low 5037.25 triggering a quick liquidation down to 5021.50 before two way trade ensues.

Hypo 3 choppy range trade from 5055 to 5040.

Levels:

Volume profiles, gaps, and measured moves:

Since we are running free trials this weekend of Exodus, the entire 115th Edition of Strategy Session is publicly presented below.  This report is designed to build context and bias for 5 trading days—nothing more.  It gets through the week.

It has become an indispensable part of my own trading, and I’m grateful to share it with you guys.  It can come off as esoteric, but I have eliminated as much chaff as possible to focus only on what has shown value in predicting 5 trading days.  Regardless, if you have any questions, ask away.

Also, if you want to dig into the retail space (like I did below in Sections II and III) you can take a free trial of the software until midnight by clicking here.

Heading into Chinese New Year, this is my forecast:

I. Executive Summary

Raul’s bias score 3.20, Neutral*. Expect the low-volatility environment to continue this upcoming week, with index prices drifting along, perhaps with a slight upward bias.

Focus on retail and whether we rotate into the industry-group as investors transition away from Healthcare and Financials.

*Extreme Rose Colored Sunglasses e(RCS) bullish bias triggered, see Section IV.

II. RECAP OF THE ACTION

Week three of 2017, NASDAQ drifts higher, the Russell lower, Dow and S&P mark time.

For the week, the performance of each major index can be seen below:

Rotational Report:

Rotations start to trend toward more cautious sectors.  The Financials take a hit after many weeks of outperformance following the November election results.  Healthcare hit hard.

Slightly Bearish

For the week, the performance of each sector can be seen below:

Concentrated Money Flows:

Exodus [PPT 2.0] streamlines how we can research the individual behavior of each industry and how it pertains to overall market sentiment.

Using the Industries screen, we can filter for the Median Return [1 week] of each industry.  I have established an arbitrary -/+ 3% cutoff for qualifying industries of interest.

Buying one or two retail stocks was on the agenda last week.  I chose Dick’s Sporting goods [TICKER: $DKS].  This was based off a study shared by Jeff Macke on Twitter.

Other names of interest in retail are: TJX, CVS, ROST, GNC, SHW, and COST

Concentrated money flows were slightly bearish.  More industries populated the negative side of the ledger than the positive.

Slightly bearish

Here are this week’s results:

III. Exodus ACADEMY

Fundamentals to back up a long term position.  When looking for long-term holdings, I want to see a track record of excellence.  This means consistent growth of both the top (revenues) and bottom line (earnings).

When I scoured the retail landscape, only a few (of the 100s) of companies were doing a good job of growing their business.  Dicks was one of the best, see below:

Compare those two charts to some of the other names out there, like Target (flat, stagnated growth) or Bed Bath and Beyond (top line growth, earnings trending lower), or Abercrombie and Fitch (fucked all around).

Note: The next two sections are auction theory.

What is The Market Trying To Do?

Week ended searching for sellers.

IV. THE WEEK AHEAD

What is The Market Likely To Do from Here?

Bias Book:

The following biases were formed using basic price action and volume profile analysis. By objectively observing these actual attributes of the market we gain a sense of the overall market context. To quantify the effectiveness of this approach, each of the 4 equity indexes (/ES, /NQ, /YM, and /TF) has been assigned a fixed long/short target using a standard 14-period ATR. Each week there will be an outcome of win, loss, or timed stop on all four indexes. The first bracket level hit is deemed the winner in the event that both sides are tagged. This will be tracked and included in the Exodus Strategy Session.

Here are the bias trades and price levels for this week:

[Note: All levels are as quoted on the front month future contract (currently March 2017) by the IQFeed Data Servers. Prices may differ slightly from your data provider. If you do not have a platform which provides real-time futures quotes, please click here for a free (but limited) alternative.]

Here are last week’s bias trade results:

Bias Book Performance [11/17/2014-Present]:

Compression Watch: Transports continue discovery up, Semiconductors too

Markets fluctuate between two states—balance and discovery.  Discovery is an explosive directional move and can last for months.  In theory, the longer the compression leading up to a break, the more order flow energy to push the discovery phase.

We are monitoring two instruments, the Nasdaq Transportation Index and the PHLX Semiconductor Index.

Transports made a big gap up off of the former resistance level we have been monitoring, leading me to wonder if the discovery mode up will continue.

See below:

Semiconductors just keep chugging higher.  The chart is ugly, and stretched, but still in an upward ascent.

See below:

Bias Model: Extreme Rose Colored Sunglasses

Third consecutive week of extreme RCS, meaning, expectation for a calm drift with slight upward bias.  But, it is barely e(RCS), a few basis points lower and we would have a bearish signal.

The signal keeps me cautiously expecting upward drift, but it would not surprise me if volatility creeps in next week.

Here is the current spread:

V. QUOTE OF THE WEEK:

“At a certain point, if you chase two rabbits, you lose them both.” – Taylor Swift

Trade simple, one trade at a time, the one in front of you now