Stocks Are Going Up Ahead of The Fed

Price action has been front running the Fed all week as investors nudge back into equity positions. The upward drift suggests a delay in the widely anticipated interest rate liftoff. Data out this morning from the Philadelphia Fed supported this idea, and put an early bid in stocks. Action is slow, but under the surface some names are already showing decent gains.

Breadth has a subtle whiff of strength, starting the day around 60% according to Exodus super computers. Leading the way are small caps. A key context piece to watch today is the Nasdaq transportation index. I put a note in last Sunday’s Exodus Strategy Session regarding this index, see below:

Transports have an interesting look. Price has compressed into an ascending wedge over the last 10 days and pushed back into its range. My primary expectation is for price to make a fast push up and out of the wedge pattern to test the top of range again.

We are seeing this play out and as we head into an important macro event this afternoon the index is pushing up into the well defined upper bracket. Keep an eye on transports this afternoon for an objective take on how the market is reacting to the rate decision:

Nasdaq futures are trading down as we head into Thursday. The overnight session traded a tight range on abnormally low volume. This volume may be skewed as some people are still trading the September contract. Price exceeded yesterday’s high by 3 ticks before falling back into range and working through Wednesday’s upper quadrant for the duration of the session. At 8:30am Housing Starts, Building Permits, and Initial/Continuing Jobless claims data came out slightly better than expectations. The initial reaction is somewhat muted.

Also on the docket today we have the Philadelphia Fed at 10am and the FOMC Rate Decision at 2pm.

Yesterday we opened flat and had a classic open auction in range. Sellers pushed about 1/3 into Tuesday’s range before the market found responsive buyers. From there we spent the rest of the morning working higher. Sellers worked price back to the mid early in the afternoon before buyers worked price back to the high to end the day.

Heading into today, my primary expectation is for sellers to work into the tape. Look for a push down to 4362.50. Then look for buyers here and two way trade to ensue ahead of the FOMC rate decision.

Hypo 2 the market stays firm and works higher to take out overnight high 4383 and continue exploring higher. Look for sellers to show up around 4415.50.

Hypo 3 sellers push a bit deeper, down though 4362.50 and 4359 setting up a move to target 4352.

Levels:

Yes, it turns out these hallowed halls have become boolish ahead of the FOMC rate decision. Bias may seem a bit one sided if you don’t venture beyond our walls. But as a scout my task is to ride across the landscape quietly listening to townsfolk.  I can confidently report to you most are hunkered away in their straw houses, cowered in fear.  There are whispers of a headless horseman.  Such a pity, their belief in mysticism.

iBankCoin was built on ancient foundation stones which predate Stonehenge. Our fortress stands as a humble stronghold. Its walls are scorched and stained from countless battles with lesser tribes. Soon we will build new walls, paid for by our enemies.

My book performed beyond my expectations today. The energy play prescribed by Option Addict is up over eight percent. The fat-man’s gym, Planet Fitness closed up from my basis. GARP is up as is my BIS hedge. All of this doesn’t matter though. What matters is how the dust settles Friday.

If I had to guess, I would imagine this battle will end like the 10,000 before it—a definitive win for the iBC consortium. Then we shall drink libations from the skulls of our enemies high atop New York City’s Yale Club.

I am busy spinning plates over here but wanted to drop a line because it seems like something special is setting up here. I know this could be wishful thinking, but why do so many charts look so good? Is this the ultimate death knell for technical analysis? Or will this actually be the first month this year where markets stop screwing momentum traders?

I am not trading futures this week. When there’s two contracts being actively exchanged my algos get a bit screwy. I used to fight and gripe, now I just sit it out and talk smack on in the Twittersphere. Also, they’re changing the RTH/Globex hours next week, so I will be sitting out the first few days.

What does this all mean? It means it is time for stocks to make me money, dammit.

I resisted the urge to buy a few of my favorite setups this morning by ‘enjoying’ a cold shower. Then I came back, thought about it some more, and took a starter position in PLNT.

My cash is now down to 10% with BIS on as a hedge.  I will be entering fixed stops tomorrow, and even potentially raising some cash if the opportunity presents itself ahead of 2pm ET.

Algo hunters will be swarming my stocks tomorrow, so placement is vital and must be risk I can acceptably say, “yes, this idea is wrong, cut it.”

Nasdaq futures were flat heading into today’s session. Action overnight was balanced and contained inside yesterday’s upper quadrant. Volume and range were normal for a globex session. At 8:30am CPI data came out in line with expectations and created no reaction.

The big economic data looms for tomorrow when we shall hear the Fed rate decision. Other items for today include NAHB Housing Market Index at 10am and Net Long-term TIC flows at 4pm.

Yesterday we printed a double distribution trend day. It was stronger than any hypo I wrote for the day, and price managed to trade right up to the 8/20 open gap at 4363.50 before finding sellers and rolling over.

Heading into today, my primary expectation is for seller to test down to the overnight low 4335. Look for responsive sellers at 4330 and two way trade to ensue. Buyers may want to work up above yesterday high 4364 and see if there is any order flow above.

Hypo 2 is sellers push down through 4330 opening up a move down to 4307.

Levels:

I am resisting the individual stock picking game these days and instead outsourcing my management to the GARP portfolio.  I built it into a Motif on August 24th aka the day that made every chart look jacked up.  Since then some of the positions have made admirable comebacks.  Weighing the basket down is bastard GoPro.  Here’s where it gets fun: GPRO was my favorite stock in the GARP and the one I would have picked on my own, FML right?

Conversely, I would never have looked twice at GTN which is up nicely on the day.

Anyhow, I added some GARP exposure today.  I also bought one of Option Addict’s energy stocks.

Cash is around 15% and I still have a BIS hedge.  I will likely maintain this cocktail until I see Thursday’s reaction to The Fed.

Nasdaq futures are flat headed into Tuesday. The overnight session was normal—normal range and volume. Price managed to briefly push below yesterday’s session low before finding buyers and heading back into a well-established balance zone. At 8:30am the Advanced Retail Sales came in a bit below expectations. The initial reaction is buying.]

Also on the economic calendar today we have Industrial/Manufacturing Production at 9:15am and Business Inventories at 10am. These early events ought to lend a certain choppiness to opening trade.

Yesterday we came into the week with a decent size gap up [not quite pro gap] and sellers quickly faded it. The opening swing was an open test drive down. Sellers managed to push the range extension but not much initiative selling was seen. Instead we formed the classic long liquidation b-shaped profile.

Heading into today however, my primary expectation is for sellers to continue probing lower. Look for sellers to work down and target the overnight low 4280. This opens the market up for a move down to 4258. Look for responsive buyers here and two way trade ensues.

Hypo 2 bulls push up into yesterday’s single prints and work us higher. Look or a new weekly high and responsive sellers up at 4333 putting us into 2-way trade.

Hypo 3 churn between 4307.50 and 4288.75 which ultimately gives way to a break of overnight high 4314 but barely before we resume the churn.

In essence, not expecting much directional movement ahead of Thursday’s FOMC rate decision. Levels:

Opening trade featured aggressive sellers followed by a real slow grind down.  This action seems constructive, albeit only somewhat, after the spine twisting volatility seen over the last two weeks.  Still, ATRs are blown out across the board and will continue to be until an extended period of compressed volatility.  Said compression may already be underway.  Or we will continue thrashing about wide swaths of price range.  Either way, now is not the time to be aggressive with your bias.

I am watching Facebook.  This stock is consolidating nicely today.  The company is Best in Breed social media, and one of the few unbroken momentum charts out there.  What I am looking for is a nice rally this afternoon from the intra-day compression.  If said rally is sold into [“Rick Rolled” as the kids say] sort of like Netflix last Thursday, then I know we are still deep in the muck and subject to fake moves.

If Facebook breaks down from consolidation, sucks in the short sellers, then squeezes higher, I will still consider us deep in the woods–only Facebook will maintain its AKC Best in Show certification.

Third scenario, one for the dreamers, that would give me some confidence in the bull case, is seeing Facebook break this stupid intraday wedge to the upside then sustain higher prices.  This would be an old school breakout WITH continuation, something practically extinct in modern momentum trading.  A unicorn for the technical analysts.

Scenario 4 breakdown that sticks.  50 basis point rate hike imminent.  Hide your wife, hide your SHAK shares.

Nasdaq futures are priced to gap up into the week. The overnight session was balanced mostly and traded above Friday’s range mostly. Price managed to push up near last week’s high before finding sellers and transitioning into two-way trade.

The economic calendar is open today. Investors have a major news item on the horizon this week—Thursday afternoon’s FOMC rate decision. The primary expectation is for rates to rise 25 basis points.

Friday the market printed a normal variation up after opening slightly gap down. It was an inside day, meaning the range was contained within Thursday’s range, which was nearly contained inside of the Wednesday range. Essentially last week was three days of compression after sellers ended the 10-day streak of neutral prints.

Heading into today, my primary expectation is for sellers to work into the overnight inventory and close the gap down to 4314. Look for sellers to continue working lower to target the overnight low 4305.25 then the 4300 century mark. Expect responsive buyers at 4298 then two way trade ensues below 4333.50.

Hypo 2 buyers work a gap-and-go higher. Price probes up above the overnight high 4346.50. Look for buyers to test above last week’s high 4352.25 to close the open gap up at 4363.50. Then look for sellers to step in and two way trade ensues.

Levels:

Sometimes I can put together a pretty clear read on the old market and then go out and punch it to bits for a modest stipend. Heading into this week, that most certainly is not the case. After reviewing all the data I don’t really see anything to lean on and form a bias.

If I were a teevee watching man, I would expect to hear lots of interest rate talk scatted between all the immigration talk. But I do not watch the teevee these days. Nevertheless this week comes down to Thursday afternoon.

I might as well go sit in the woods until then. Cash is still high, I have a hedge of sorts via BIS, and a pocket full of highly explosive growth stocks.

Do you know how the market will act this week?  I am all ears, leave me a comment below.

Exodus subs, the latest strategy session is out.