Pick A Spot and Get To Work

NASDAQ futures are starting the week out with a gap down. Price is down nearly 30 points which is right around pro gap territory. The overnight session featured extreme range on elevated volume during the choppy session. Globex trade started with selling and quickly exceeded Friday’s low before buyers stepped in and rallied price back up to the mid. From there we spent the early morning working back down through the range to make new lows. We have a weak/double low at 4175. At 8:30am Personal Consumption Expenditure data came out in line/slightly better than expectation and the initial reaction was buying.

The only other item on today’s economic calendar is Pending Home Sales at 10am. As the week progresses keep in mind Friday’s Nonfarm payroll data.

Last week price worked lower. There were two pro gaps down and Friday a pro gap up that was faded, along with all of Thursday’s range. Volume on the sell side was stronger than we have recently seen. However there was a slight bounce [at least in the NASDAQ] as we wrapped up the week.

Heading into today, my primary expectation is for seller to work into the overnight inventory and close the weekend gap up to 4213. From there I will look for buyers to continue higher to take out overnight high 4239. Look for buyers to stall out soon after exceeding overnight high and two way trade to ensue.

Hypo 2 buyers cannot fill overnight gap and instead sellers step back in ahead of it. Look for sellers to target the weak overnight low at 4175 then to continue lower to target 4122.25.

Hypo 3 strong buyers, push up through overnight high 4239 and pole climb up to 4265, Then some churn, before targeting 4279.

Levels:

This week, I can already tell, is going to have two Tuesdays and maybe three Thursdays. It will definitely have multiple Wednesdays. There is a ton going on here and if you’re not an organized person it can become confusing rather quickly. You do not want to be confused about your stance in these conditions. If you are, go into capital preservation mode ASAP. Cash up and go sit in the woods. Otherwise, be prepared for a serious week.

It is time to posture into the tail end of Q3. The third quarter is the serious one after spending all summer lounging by the water. I am fully aware of this and log a small note on my Switchboard to keep this social factor on my radar. The higher timeframe is definitely active here.

I have also parsed all the cycle data. This is something I do every weekend inside the Exodus Strategy Session. Keeping these high value signals organized is paramount if you expect to capitalize off them.

Third, and a tidbit I would like to share with you, the reader class, are the quotes I included in this week’s strategy session. I don’t consider them motivational. They are more, “Life is tough. No sense puckering your face about it.” See below:

“In times of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists.” – Eric Hoffer

“There is nothing bad in undergoing change—or good in emerging from it.” – Marcus Aurelius

Distinguished Exodus Members – the latest Strategy Session is out.  Find it on the navigation pane next to the anchor symbol and give it a read.

You guys can fight over the leftovers. I added some risk down at daily low and then removed some on this little push.  My work here is done and intend find some crisper, cleaner air.

Primary hypo still in play, and these open gap out of range days can be big.  Buyers may have a go at overnight high but internals sort of suck and this all could very well just evolve into a slow Friday grind.

Heading into Friday NASDAQ futures are trading pro gap up, the third such gap this week, only today the direction is up. As we close in on cash open price is essentially where we started the week. The globex session featured extreme range and volume as the night session continues to be abnormally active. At 8:30am we had some medium impact GDP data out which all read slightly better-than-expectations.

The morning is spattered with medium impact economic data. At 9:45am we shall hear the Markit Composite and Service PMI stats. At 10am the University of Michigan will issue their final read on September Confidence, and at 1pm we have the Baker Hughes Rig Count.

Yesterday we printed a neutral extreme day. The market opened pro gap down, saw an open auction outside range, then sellers worked into the tape and pushed us lower. Price closed up the Labor Day gap (09/03) down at 4194, printed an excess low, then turned higher. Late in the afternoon a short squeeze developed on decent volume and buyers pressed the overnight gap closed to the tick (4264.75) and managed to hold onto the neutral extension into the close.

My primary expectation is for sellers to work into the overnight inventory. With all the economic data this morning we are likely to see choppy conditions. Look for trade down to 4260 but buyers to step in there and target overnight high 4315.75. Then look for two-way trade to ensue.

Hypo 2 buyers gap-and-go up. We take out overnight high 4315.75 early and set our sights on 4326.75. Some churn at this level then a continuation up to 4340.

Hypo 3 sellers hold us below 4300 and then work a full gap fill down to 4247. Look for a responsive bid down at 4240 then 2-way trade.

Levels:

Man this is tricky. Fresh out of the shop, my newest algo (currently operating under codename “party pooper”) fired into this afternoon’s short squeeze. At the same time, more studied and robust algos are guiding me higher. Today NASDAQ printed a neutral extreme—the 3^rd highest directional conviction day type. And we spent most of today pressing right up against my max pain point. It was a predicament this complex a few months back that birthed Switchboard.

Switchboard is a spreadsheet that considers all signals and objectively spits out a bias. It has a short bias right now, barely. So unless we trend higher tomorrow I am inclined to book some gains into the weekend. But if we trend up tomorrow, well…

That puts some interesting stats on the table heading into October. I love a new month and October is like top 3 best weekends in the year.

Despite equities getting hammered overnight, and despite my SEE YOU IN 160 NASDAQS being wrong, I made money today. Funny how that works sometimes. It is because top tech, yesterday’s theme, was resilient today. Look for tech to continue to dominate. Why? Because if anyone was paying attention they would have seen Exodus flagging XLK oversold yesterday.

JEEZE GUYS, this isn’t rocket surgery! (I stole that one from Morgan_03)

Relatively speaking, of course.

There was one piece of context I was hoping we could clean up while we were down here—the open gap from September 4th. Do you remember that day? It was the Friday before Labor Day. Like anyone rushing out the door for a long weekend, participating NASDAQ traders left behind unfinished business. Lo and behold, we’ve revisited and cleaned it up, see below:

That’s good news. Rallying without filling this gap would put a caveat on our foundation stone. My friend, you do not want a single crack in your foundation stones, choose them wisely.

The bad news is we still have two gaps below, and they are way lower. My hope is they are far enough to leave them out of mind for now. These are the gaps we left behind when China cut their bank borrowing rate back on 8/24..deep in the hole.

If we go back down to the lows today I may stop out a few longs.  That’s all I have to say about that. Carry on.

We are headed into Thursday trade pro gap down (2^nd pro gap down this week) after an extreme session. Both range and volume pressed out beyond 3^rd sigma while price auctioned around. Yesterday evening price exceeded RTH low briefly before pressing higher. Upon testing globex high, around 4:30am, we had a failed auction and subsequently traversed the entire range and more, putting us at fresh weekly lows. At 8:30am Initial/Continuing jobless claims data came out mixed. We also had Durable Goods Orders out at 8:30 and the data was slightly better than expected. So far futures have not reacted to the data.

Also on the agenda today is New Home sales at 10am. It will be an interesting stat after seeing the big upward beat in MBA Mortgage Applications yesterday and Monday’s unexpected drop in Existing Home Sales, perhaps a resolution of the mixed message in housing if you will.

Yesterday we printed a neutral day. Price opened gap up, faded, held Tuesday’s upper quad before making range extension up. Price then went for a retest of the low, putting us neutral, then we churned into the bell.

Heading into today my primary expectation is for price to work lower. We may see buyers push into the overnight inventory but look for them to stall out ahead of 4242. Then look for sellers to continue lower to close the 9/4 open gap down at 4194. From there look for a strong responsive bid and buyers to work the gap fill all the way up to 4264.75.

Hypo 2 sellers gap-and-go lower, take out overnight low 4206 early and close the 9/4 gap down to 4194. Responsive bid is overrun setting up a liquidation down to 4164.

Hypo 3 strong buying on the open, works up through 4250 early and continues higher to close the overnight gap up to 4264.75. Then buyer set their sights on overnight high 4278.75. Look for sellers to defend 4282.

Levels:

The populous should count themselves grateful that I don’t grow tired of their insolent behavior. It is probably because I was once in their shoes and not long ago. Back then 90% of the questions I asked ‘experts’ or even people I perceived more advanced earned crickets. I assumed they were so incredibly important, so beyond the query of a blossoming lad, that to take even a moment from their Mr. Important Pants day was out of the question. Then I realized no one knows what the hell is going on and took it upon myself to map a route. Oh how this lede has digressed…

My super computers have triangulated on a rare opportunity to punch out some gains. Alls I had to do was show up and execute when everyone else was crying uncle.

Tech is your leader here, the best leader, the leader you all deserve. Go forth and procure some before it is too late. Or don’t, see if I care.

Better yet, prove me wrong, then when I am in New Your City October 24^th throw a banana creamed pie in my face.

We are coming into the midweek trade gap up after NASDAQ futures had a busy globex session. Trade began yesterday afternoon lurching lower and taking back most of the late-day rally. Price pushed down near Tuesday’s low, but was unable to push through it (ledge). As the clock turned to Wednesday buyers came in and we spent the rest of the session working higher and managed to push into Monday’s range before balancing out. The volume print overnight is elevated-but-not-quite extreme on the 23^rd sigma range. At 7am MBA Mortgage Applications came in much stronger than expected. Third reaction to the numbers is a buy.

At 9:45 am we will hear Markit Manufacturing PMI. This early data may lead to choppy opening trade.

Yesterday price opened pro gap down and after a two-way, open action sellers worked the index lower. We managed to push down and close the open gap from 09/03 which aligned with a contextual ledge. We then spent the afternoon rallying higher and by the close we formed a weak, double top at 4273.50.  The session also had the highest NAS TRIN readings I have ever seen–peaking out near 135.  This typically occurs at-or-near inflection points from my observation.

Heading into today, my primary expectation is for seller to work into the overnight inventory and close the gap down to 4266.50. Look for sellers to continue pushing to target 4250 where buyers step in. Then look for buyers to target overnight high 4292.75 with a stretch target of Monday gap fill up at 4341.25.

Hypo 2 buyers gap-and-go up, take out overnight high 4292.75 early, and set their sights on Monday gap fill up to 4341.25 with a stretch target of Fed Rate gap up at 4366.25.

Hypo 3 sellers work us down to close the gap to 4266.50, down through 4250, and continue pushing to target 4237.25. Some churn but now put the overnight low 4221.50 at risk, which is the ledge, which, if breaks look for a liquidation down to 4200.

Risk is high, if you cannot tell from these hypos. Levels:

I made the following chart where I superimposed the old ledge I’ve being going on about all day:

What this level represents, in layman’s terms, is an area that traded poorly. It was left behind but not forgotten. Today we revisited it and found buyers. However, they only reacted to the prices, and we have not seen any form of initiative buying so far.

Instead we formed balance (seen on far right of above image). Balance suggests the market is accepting these lower prices. Before we can become constructive again, we need to leave this area and then use it like a stepping stone to begin marching the auction higher.

This morning NASDAQ TRIN went absolutely insane and registered a reading around 135. I went back on 6 years of data and didn’t see another instance nearly this extreme. From my observations, when TRIN blows way out you are seeing extreme sentiment and price is at-or-near an inflection point.

Once we tested the ledge I went ahead and bought Apple calls. This fixes my risk but also levers me up.

This market has required serious intestinal fortitude all year long. The ugliest moments have been the best opportunities and the most textbook beautiful moments have been wicked bull traps.  Here’s to hoping that theme holds true.