Despite breadth being in the toilet and every sector but Healthcare in the red, short sellers cannot gain any traction in the market place. Instead prices are firmly settled into balance.
The number of stocks green on the session is around 30% and NASDAQ net issues are negative 30 meaning more stocks are down then up. However we now managed to form a weak high which has me completely off the short side until this context resolves.
What is a weak high? It is a market profile occurrence where a price level is tagged twice but not exceeded, thus forming a double TPO at an extreme. Here’s a pic:
So now the likelihood of hypo three is elevated, a push up to the gap we left behind last quarter on Apple earnings. So despite my short bias lean, I am just sitting and waiting for higher prices before initiating any shorts.
NASDAQ futures printed a low volatility balance session last night that traded inside of the range set yesterday. At 8:30am Durable Goods data came out slightly better on the top line read, and slightly below expectations ex-transportation.
Today is a busy day on the economic calendar which is likely to produce some chop. We have S&P/Case-Shiller Composite-20 at 9am, the Markit Composite/Service PMI stat at 9:45am, and Consumer Confidence at 10am. However all of these economic events will likely carry less impact on NASDAQ futures than Apple earnings, set for release after market close.
Yesterday we printed a normal variation up day and an inside day, meaning, we trade within the range printed last Friday. This suggests balance and waiting.
Heading into today, my primary expectation is for more of the same. More chop, more waiting. Look for buyers to push into the overnight inventory and work higher to take out overnight high 4619.75 then make a move to probe above value around 4630 before responsive selling is found. Then balanced trade north of 4600.
Hypo 2 a bit more selling pressure, take out overnight low 4601.25 then set our sights on 4580 before responsive buying and two-way trade.
Hypo 3 buyers become initiative, perhaps after 10am, and work higher to target the gap Apple left behind last quarter up at 4668.25 before two way trade ensues.
Hypo 4 selling accelerates, down through 4580 to test 4565 before two way trade ensues.
Over the weekend I discussed some of the biggest hurdles in trading with a few of the conference attendees, and I paid particularly close attention to emotional (irrational) decision making.
Having a trading plan is great but sticking to it will make the difference between making the turn to consistent profitability verses conceding your fate to the latest indicator or guru.
It is extremely unlikely you have the resources to influence the market you are trading. There is no way you can control the collective behavior of other participants. That is why it makes no sense to worry about the why behind market behavior. Your energy can be better expended cultivating your own mind.
They are learning so much about the brain these days and tons of research and books are written on the topic. Here are a few books I have found valuable so far. These are links to Amazon and if you buy a book directly from these blue hyperlinks I will make like fifty cents:
Ubiquity: Why Catastrophes Happen – More about the omnipotent presence of extreme outlying events. Great for preventing being stubborn, especially when an indicator or signal keeps being wrong.
bird by bird – I bought this one to improve my writing but along the way my mind was expanded. Check it out.
Meditations – Random applications of stoic and Aristotelian philosophy by Marcus Aurelius aka the last great emperor or Rome. This translation is considered the cleanest and most actionable. These ancient writings are older than the Bible.
The Art of Learning – This is written by the boy genius chess player who went on to become a world champion in fucking jujitsu. Really solid stuff.
The Chimp Paradox – Get to know your inner cave man; the idiot who wants to smash computers with his fist, and how he may not be very useful in modern society. In Switch (above) they call it the elephant. Great pair of books to read together.
Bhagavad Gita – Another set of writings predating the holy Bible. This one pairs well with a small dose of LSD (I do not advocate breaking laws).
The Legend of Bagger Vance – I linked to the movie. Save time, just watch the movie it does a pretty good job as long as you can stomach a Matt Damon performance.
Gita on The Green – This is something. After you realize Bhagavad Gita is super confusing and you have watched Bagger Vance, this book ties to the two together in an epic way. Great for you golfing types.
The Psychedelic Explorers Guide – If you even remotely took my LSD recommendation serious, read this book first (and do not break any laws).
Sophies World – If philosophy is not your thing, read this lovely fiction instead. This is one of the best selling books ever and translated into 100s of languages.
The Power of Habit – Another book with lots of great case studies and research. Definitely top 3 in usefulness and application to trading. I love the part about scripting critical moments.
The Obstacle Is The Way – Ryan Holiday is probably younger then you and has accomplished incredible things. He is also a modern day stoic. This one is tough loving and more effective then coffee for waking you ass up.
Those are all the books I have worked through so far. Some I read halfway then shelved for now. Others (like Meditations) I read over-and-over. Has a book improved your trading or outlook on life? Please, share it below. I need more!
You guys ask me all the time what I think about oil and I usually lack any clarity on the commodity. I do not like oil as an instrument because it is a fundamental product. That means its action is predominantly driven by macro events. It also means anyone hip to those macro events will have an edge over me.
However, there is a technical setup going on here that I have become intimately familiar with–the old falling wedge. This pattern is a vicious bastard, one that many times severed my head until I threw out the book that stated it was a bullish pattern and looked at it as an auction.
What happens in a descending wedge?
a. price goes lower
b. volatility compresses
c. higher highs, higher lows
d. lower highs, lower lows
I will answer that one in a while, after you’ve had the chance.
Here’s what I expect oil to do over the next week or so. First, a big fast and nasty flush lower out of the descending wedge. It will likely test below $43 and maybe even $42. It is very likely to be a gut wrench. Then, over the course of several weeks a return to the wedge and blast higher up through it.
I am not providing a chart. You all have charts, yes? Pull it up. We have tested above this major consolidation and found responsive sellers. They are walking price lower. What’s next? We test the other side of this well-established consolidation.
The special kicker is it comes on the heels of a descending wedge. Hide your pets. This move will crave pets and brains.
Shares of flailing social media experiment Yelp have been up as much as 8% this morning after PC Magazine reported Amazon now includes Yelp results in Echo. Echo is the cylindrical robot-speaker-thing that Amazon is using to physically infiltrate the home.
Keep an eye on how investors treat this spike in share price ahead of Yelp earnings, set for release October 28th after market close. My primary expectation is many will use this lift as an opportunity to cash out—so expect a fade.
I still like Yelp. I used it this weekend to find coffee and food. It is indispensable for me, especially when travelling. But the stock has been a relentless murder hole.
Futures on the NASDAQ are coming into the week flat after a globex session featuring normal range and volume. Price worked lower for most of the session but managed to hold Friday’s range before turning up and into balance.
The economic calendar starts the week slow with only New Home Sales at 10am and Dallas Fed at 10:30am. As we progress through the week many more events are scheduled including an FOMC Rate Decision Wednesday afternoon.
Last week price traded sideways with a slight downward drift until opening gap up Thursday and trending higher through the day. After the bell Thursday we saw a surge to the upside fueled by earnings from Amazon, Alphabet, and Microsoft. Then Friday opened with a big gap up on news that China cut their borrowing rate by 25bps.
Friday printed a neutral day. After setting initial balance two attempts were made to explore lower prices. Each was met with strong responsive buys which eventually led to making a new session high before settling back into the mid to end the day. Price managed to briefly exceed the 7/22 high before turning lower.
Heading into today, my primary expectation is for sellers to working into the market and target the overnight low 4592.75 because the structure on the low looks weak. Look for responsive buyers at 4580 to set up balanced, two way trade. Otherwise continue lower to test 4564.50 before two way trade ensues.
Hypo 2 buyers press through the slightly short overnight inventory and close the gap up to 4611.75 then target the overnight high 4614. Buyer make a go at taking out Friday’s high 4637.50 but stall out ahead of it and two way trade ensues north of 4600.
Hypo 3 buyers are strong off early on, take out overnight high 4614 and sustain trade above 4620. From there look to take out Fridays high 4637.50 and run the gap fill up to the July 21st Apple earnings reaction up at 4668.25.
Until the conditions can improve underneath the surface of index prices, the model is going to keep generating a short bias.
This is the fourth consecutive week where the bias model is calling for the short. Unbelievable, that’s pretty much the entire month of October. The NASDAQ composite is up 6.88% over the period, it’s best run of the year, and the model is flat out on the wrong side of the tape.
It makes me have a few thoughts—the first is that we are undergoing a shift in the marketplace which is causing my spread to stay pinned to the high side. The second thought is only a few stocks are doing the lifting which is pressuring the hybrid score.
Nevertheless, I would be remiss to ignore the bias. I will be working the short side of the tape this week. I may even initiate BIS again as I eagerly await the ultimate biotech comeuppance—an event so horrific and gruesome that minces biotech investors into little cubes of meat to be served on skewers.
Thanks again to everyone who made it out to NYC this weekend. I had a blast catching up with you guys–especially the trading conversations. A sincere hat tip to you.
This is my first time in the city during the fall. Back home this is my favorite time of year, a seasonal crescendo featuring harvests and natural colors. Here in the city it means a cool clime and hopefully lots of mysterious looking goons and goblins.
I already witnessed a women on the subway with demonic eyeballs. Hopefully an effect achieved through theatric contact lense, but how can I be sure? Night comes earlier here not only because of the towering cityscape but also because it’s a few 100 miles deeper into the eastern time zone. Hopefully its arrival brings forth the real freaks.
It certainly smells better today then the thick summer air.
Overall the mood is positive. I made it to the (undisclosed location) from the Laguardia flea marketfor about $3 via bus and rail. I’m excited to see the crew and all the conference attendees tomorrow. But tonight I see the city. Shoot me at DM @imdexmodel if you’ll be around the East Villiage tonight. Something tells me I’ll end up there.
As for the markets: had I not held on to on some high risk weekly LNKD calls while flying east The market would have blown my head off because both LULU and FEYE were DECIMATED. What a cruel rally.
These are battles I will resume next week after Option Addict and the finance triumvirate meet in the war room and hash out a year end plan.
NASDAQ futures are set to open significantly higher than yesterday’s close. Just after closing bell yesterday we heard earning reports from Amazon, Google, and Microsoft. All three were better than expectations and futures soared during settlement period. Then we had a surprise 25 bps rate cut by the Chinese Central bank. The overnight range and volume are extreme. Price has managed to press up against the 08/05 session high before settling into balance ahead of the open.
We have two economic events today. The Markit Manufacturing PMI at 9:45am and the Baker Hughes Rig Count at 1pm.
Yesterday we printed a normal variation up day. The profile that formed was skewed to the upside which suggested the market was not done exploring higher prices as the session expired. You might even make the case for yesterday being a double distribution trend day.
Heading into today, the market will attempt to re-balance itself. This means the higher time frame will be active. Look for sellers to push into the overnight inventory and find responsive buying at 4605. This level comes from the template day, 08/05 and was a key resistance on that day. Look for it to transform into support and buyer to push higher to target overnight high 4628 before two way trade ensues.
Hypo 2 gap-and-go up. Take out overnight high early and sustain trade above 4633 setting up a move to target the open gap up at 4668.25 which we left behind on disappointing Apple earnings July 21st.
Hypo 3 heavy selling comes in, pushes down through 4600 and targets 4572 before two way trade ensues.
NOTE: I will not be trading today’s session because I am traveling to New York for the second annual iBankCoin Investor Conference. Last I heard there are one or two tickets left. You should come. Worst case, you can have my chair—I sit all day.
The artist formerly known as Google just reported an earnings beat, and Amazon is making profit–effectively disintegration short sellers into piles of soot.
The tech rally was saved today when Facebook negated the failed auction. This permitted best-in-breed tech to be pressed with reckless abandon.
This is the great NASDAQ rally the tea leaves inside Exodus foretold. Another devastating win for the software.
Look for more NASDAQS tomorrow. Tech is officially on FIRE.
