Build Yourself Some Greatness

One of the core reasons to build a market model is having objective data to analyze when it generates similar readings.

Coming into this week the score was extremely high into the territory where I call for the short bias. Until a few hours ago that bias treated me well. But there was another hint in the data—at extreme readings the market tends to drift sideways.

Therefore I came into the week expecting very little price discovery. Think about how useful that is. It tells me the good trades are on the outside of the market, to fade extremes back to the mean. That is valuable information for a NASDAQ trader lads.

The conclusion I drew from the objective evidence was as follows:

Market model has short bias, but an extremely high reading. The prior two instances of extreme numbers lead to range compression and upward drift.

My model is not the best, but it is the best for me and my trading style. I encourage you to build one that suits your approach. The reward is well worth the effort. A word of caution—garbage in, garbage out is true. That’s why I only feed my model a lean diet of Exodus Market Intelligence and raw (organic) IQ Feed.

I look forward to watching my model grow and mature. Next Sunday will be its 49^th sample. My baby was born just after last year’s iBC Investor Conference, remember?

Join us Saturday. It’s not too late. #iBCNYC will put you in a position to win.  This is not a silly festival. It is a rare gathering of incredible minds. Don’t be shy. Behind closed doors more Wall Street elites are quietly joining our ranks. You should too.

NASDAQ futures are higher overnight after a session featuring normal range and volume. Price managed to hold Wednesday’s low before working up into yesterday’s midpoint which also aligns with a key MCLVN at 4424.50. At 8:30am Initial/Continuing claims data was slightly better than expectations. The initial reaction is buying.

We have a few more economic events scheduled. Today is the busiest day this week with House Price Index at 9am, Existing Home Sales and Leading Indicators at 10am, and Natural Gas Storage at 10:30am.

Yesterday we printed a normal variation down—the second consecutive day where initiative sellers stepped in. However, much like Tuesday, the market did a good job of finding responsive bids on its probes lower. Sellers did manage however to close the day near session low. Before turning lower we had a failed auction. Price closed the tiny gap left behind Monday at 4454.50 and made new swing high before sharply reversing lower.

Occasionally a mega balance forms on the market profile. Despite my best efforts to split the profile into smaller pieces, it doesn’t make sense. Therefore we have a large distribution covering several days. That is exactly what we have now (see colorful chart below).

Heading into today, my primary expectation is for buyers to gap and go up. The market likes the 4433 levels and we may spend some time here before working up and testing the VAH at 4446. Then two way trade ensues.

Hypo 2 sellers work into the overnight inventory and close the gap down to 4399. This sets up a move below overnight low 4398 and puts the market in a slippery spot to break ‘mega balance’ and cause liquidation. If this occurs look to target 4374 before looking for signs of responsive buying.

Hypo 3 strong buying takes us up through VAH 4446 setting up a secondary leg to target 4467.50.

Hypo 4 sellers push down into overnight inventory but stall out north of 4402 before two way trade ensues in and around overnight high 4424.50.

Levels:

My book is undergoing a blitzkrieg this morning after my largest investment, Twitter, was downgraded by Morgan Stanley. Issuing the decree was a man by the name of Brian Nowak who sees fit to single handedly take on Steve Ballmer and Prince Alwaleed in the high stakes game of valuing a social media company.

Nowak spouted off big words about mobile advertising. He obfuscated the matter with acronyms. He sounded, for all intents and purposes, really fancy and better than us.

With Twitter scheduled to report earnings October 27^th it won’t be long until we can see if he is right.

Twitter has been a problem child all year. There were management issues, for a while they had no CEO, and the platform is criticized for being too esoteric for the common plebeian to use. I know, eventually, it will see adoption, but then again I am optimist who thinks highly of his fellow citizen.

I am still watching Facebook today. If that stock starts moving fast to the downside my concern levels will elevate rather quickly. In the meantime I got back into BISe early on for the #TeamHillary trade.

Final note, I think Brian is the most reprehensible name in the English catalog.  It looks like brain and I’d like to punch it with my fist like a cave man.

NASDAQ futures are heading into Wednesday priced for a gap up. The overnight session featured an elevated range on normal volume. Price managed to hold inside of Tuesday’s range while experiencing big rotations in both directions. At 7am MBA Mortgage Applications came in way above expectations.

The only other economic events scheduled for today is the Crude/Gas inventory data which may see more attention than usually as the OPEC meeting is also taking place in Vienna today.

Yesterday we printed a normal variation down day. Before heading lower price spent time consolidating near the high. All the time spent up at those prices meant lots of volume was transacted at the high, and as a result, we formed a blunt, deformed-looking profile. This is often referred to as a weak high and one that we are likely to revisit.

Heading into today, my primary expectation is for buyers to push up through the weak high to target 4471.75. From there look for responsive sellers and two way trade to ensue. Look for buyers to defend north of the key 4444 level during the balance.

Hypo 2 sellers work down into the overnight inventory but struggle to close the gap down to 4424.75. Instead buyers show up and work up back up above overnight high and target 4467.75 before two way trade ensues.

Hypo 3 full gap fill to 4424.75 then a move to target overnight low 4415. Look for sellers to continue lower to test below Monday’s low 4411. Look for responsive buyers around 4408.

Hypo 4 strong gap-and-go, buyers take out 4470 early and sustain trade above setting up a secondary, initiative leg up to 4488.25.

Levels:

I had a nice stat to work going into today. It’s the probability of the NASDAQ going RE down after 3 consecutive up days. It’s around 90%

I also came into the week with a short bias, via the Rose Colored Sunglasses (RCS) model.

This is one of those esoteric posts I only write for the hard core trader/stat nerds. You are my ilk, no more a citizen then the average reader, but likely a better trader, thinker, and manager of the goblins.

Whenever I can line up a bunch of statistical advantages I do. This is my edge, just like the triple intraday confluence and other abnormal happenings I have my team of robots managing.

The short bias is working this week, indexwise, I have been working the right side of the tape so far. This is great, because the prior two weeks were an exercise in futility Monday-Wednesday, trying to short, and RCS was being called into question.

My only misstep was not reentering BIS today. I was distracted—getting my mullet trimmed off before the iBankCoin investor conference.  I had a tier-one hipster mullet, a perfect styling for trailblazing the Warrior-like streets of Detroit, but it had no place inside the Yale Club.

Sellers won today. They might win this week after two consecutive losses. Or, and more likely, we drift. Drift is good. It causes weak hands to waffle out, leaving real men to capitalize on the backs of an appreciating stocked market.

The entire fate of our tech rally lies in the hands of Facebook.  Do you think I am fucking with you?

I have seen this chart pattern do horrible things in my short tenure as a trader.  It’s still early, but we have the makings of a failed auction in the FB market.

A failed auction takes place when price exceeds a prior swing, briefly, then has a fast reversal in the opposite direction.  To be a true failed auction you need to see fast confirmation away from the area.

That is what I will be on the lookout for tomorrow.

In the meantime, and in the spirit of calling the market bluff’s bluff, I bought some LNKD calls.

These will only last as long as Facebook stock negates these early failed auction signs.  If not, I will cut LNKD and MOAR as I feel this wet blanket action could be a fire retardant to the entire tech sector.

Let’s not even mention the drubbing at Tesla.  Ah, I just did, drats!

Nothing moves a stock quite like a rumor, especially a believable one.

The reason an Apple for GoPro rumor is so compelling is because it makes sense. Apple has more dollars (doll hairs) on their books then most developing nations combined. They also recently bought Beats by Dre—another piece of ‘wearable’ technology.

The valuation Apple gave Beats was the basis of my successful GoPro swing trade when it IPO’d. Simple napkin math puts the value of GPRO stock at $72. I think GoPro investors (bag holders) would be happy with a $59.95 buyout at this point. I would too.

GPRO is the lagging anchor on an otherwise dominant GARP portfolio since the June adjustment. It can propel the passive growth portfolio to greatness. TBD.

The NASDAQ printed a normal and balanced globex session, where price managed to hold the upper half of yesterday’s range on normal volume. Price also exceeded yesterday’s high, albeit briefly, and as we approach cash open buyers are working back toward this high mark. At 8:30am Housing Starts data came out way above expectations while Building Permits were well below expectations.

There are no other economic events on the calendar today.

Yesterday we started the week with a gap down which buyers quickly ate up. They continued their buying through much of the morning and lunch before responsive sellers stepped in, about 6 handles above overnight high. Sellers made a push just beyond the mid but could not push the profile neutral. Instead they found responsive buyers (responsive relative to the mid, initiative relative to the open) who then worked price back up to the high by closing bell.

Heading into today, my primary expectation is for buyers to work into the overnight inventory and close the gap up to 4454.50. From there look for a run at overnight high 4456. Look for buyers to stall out at 4467.75 and price to traverse the whole range and take out overnight low 4438.25 before two-way trade ensues.

Hypo 2 sellers push down off the open and take out overnight low 4438.25. Some time is spent at 4433 before another leg of selling washes in and pushers us down to 4408. Look for responsive buyers here and two way trade.

Hypo 3 ferocious buying. Take out overnight high 4456 early and overtake and sustain trade above 4470. Look for a leg up to target 4488.50.

Levels:

Even with a short bias, I can still make money on an up day like this. I just have to be patient and have low expectations.

That’s the play as index behavior slows down. I worked within the confines of this morning’s primary hypothesis:

Heading into today my primary expectation is for buyers to push into the overnight inventory and close the weekend gap up to 4434.25, from there look for buyers to continue higher to target the overnight high 4444. This is where it becomes interesting because there is no real resistance until 4467.50. However, my primary expectation is for buyers to stall out just beyond overnight high and two-way trade ensues.

I took one futures trade today, a short, and reluctantly, but well within the confines of my hypothesis. The lines you see on the top of my chart appeared out of nowhere. Apparently they were left behind by a past market rout. So abandoned they were, that they were lost in the clouds of time. Have a look:

The only thing I need to consider is if the market is truly changing character. And if it is, and if I can continue to keep my emotions in check, then I ought to increase my position size to compensate me for the decrease in volatility.

I’ve stumbled at this juncture before, increasing the number of contracts I trade, and if it is my fate to stumble again so be it. I will reformulate my plan and make another attempt at crossing this river.

My day otherwise consisted of watching finance porn aka my positions fluctuate.

Oprah doesn’t care if you think Weight Watches stock is overreacting to hear beaming endorsement. Oprah can squash your entire account with her thumb and index finger.

If you think, for one minute, the marketing opportunities of the ‘O’ are not delicious, intoxicating, and viral, then you obviously aren’t an avid Oxygen Media watcher.

Step up, plebeian bear shitter, and let Oprah decimate your portfolio. Fall to the siege of Oprah like the millions who came before you.