Monday Gut Check

Today was designed to frighten late longs. It was an arctic gust to the face knocking them down to their tush. Now their pasty face has blisters and flashbacks of prior corrections are swirling to the frontal lobe.

Relax. This was sort of expected.

Will it go faster? That should be your primary concern. The Nasdaq did something today that raised a contextual flag. It printed a double low at intermediate term balance low. The last three days of overlapping balance were all fine and dandy until this occurrence at 4191.50. Now you may find such granular observations to be trivial but I assure you in my approach they are anything but.

They mean the difference between triggering longs or hand sitting.

This needs to be resolved, and it might happen just as soon as tonight. Starting with tonight’s sit in the futures, I am calling for an overnight drift lower towards the low of today. I laid out four bets as part of my Weekly Strategy Session-contextual bets on the direction of each major equity index. This context piece on the Nasdaq puts my bullish call on this instrument at risk.

Moving on, I sold and raised some cash all morning, and when I could no longer resist, though it might have been prudent to resist, I started a position in SUNE. It is trading right at my risk threshold and management is relatively easy for me at this juncture. If it opens lower tomorrow, I will be very busy elsewhere, laser focused on the Nasdaq. I don’t watch stocks on the open, they are too random for my liking. Then, at some point, I will sashay over to the SUNE ticker and see how it has fared through the noisy open. If it has decidedly turned lower, I will cut it, poof, go away silly acronym, you no longer please me.

Plan, execute, manage.

I have been on the sell side this morning, covering my YELP December calls for a loss, taking a small scale on TSLA and exiting WDAY. The goal coming into the week was to elevate cash slightly into an OPEX and FOMC kind of week.

Overall the Nasdaq is balanced, with 3 days over overlapping value. The bigger picture supports longs and I am patiently seeking entry into some new positions as the week matures.

I am still holding my SCOK, in case you were wondering.

Thank you for all the positive feedback on the inaugural Weekly Strategy Session. I look forward to building the broad context going forward.

Nasdaq futures trader lower for most of the globex session after Japan reported a weaker-than-expected third quarter GDP data. Buyers stepped up just above Friday’s low and as we approach US trade prices are pairing back more than half the overnight losses.

ECB Central Bank President Draghi is speaking in Brussels as we work through this final half hour of premarket trade. We also have US Industrial Production set to release at 9:15am.

A quick update of the weekly composite chart shows price worked higher last week following the indecision doji candle printed the week prior. We are trading above the now thoroughly auctioned ’14-year gap’ left open back in the year 2000 and are trading in a zone that was fast both upward and downward during the mania of the dot com bubble. See below:

Drilling down to the daily chart we can see just how stretched the market has become. Following a V-shaped recovery in Octobter the market has subsequently grinded higher through the start of November.   We are now trading up at the top end of some broad Fibonacci strokes drawn to assess whether the move higher is primarily driven by stop runs or if in fact it is something much larger. Buyers need to defend above the HVN at 4150 otherwise they run the risk of filling the air pocket 100 Nasdaq points below. I have noted these observations on the following daily Nasdaq future chart:

Finally, I have note the key short term levels I will be observing on the following volume profile chart. Note especially the short term LVN pivot at 4214.50 derived from the micro composite on the left.

The inaugural Raul3 Santos Weekly Strategy Session has been published.  Enjoy.

Many traders were greeted with the old back door Chinese handshake afterhours when SCOK released a surprise earnings announcement.  I am caught long of the stock and am far too busy to become caught up in the trivial nature of afterhours trade.

I have more important matters to attend to, like hearing Option Addicts latest stock pitch.  The man has a knack for finding the big ones, and you can too. However, there’s another piece to trading that it seems many of you are behind the curve on.  I’m talking about a big and hairy elephant named context.  What if I told you I intend to offer a simple recipe, week in and out, for understanding broad market context?  If you appreciate direct calls on market bias, then you will love my iteration of the Weekly Strategy Session.  Won’t you stop by this weekend and have a look?

It felt like we were flung into this week head first and came out the other end better because of it.  If you are caught in this loser SCOK and find yourself frustrated with the surprise, let it serve as a reminder of what exactly we are dealing with when trading sub $5 Chinese stocks.  There is huge risk involved here, just like a triple levered ETF.  If you are unsure how to size a position in such a name, don’t hesitate to drop me a line.

Aside from this, the week was all about success.  There is excitement in the air and I can feel it.  Through it I will remain emotionally like a boulder and logically like river water.

Let’s look at how simple trading can be if we remove the noise.  Below is a weekly chart of Zillow.  You do not need any indicators except price bars.  Even price bars have their limitations.  All we attempt to glean from a chart is the behavior of supply and demand.  This is a very physical force in nature that drives movement.

The physiological $100 print was the scene of sellers for quite some time.  They sat there, on the offer, absorbing the demand of buyers.  Their staying power was enough to cause a correction nearly 30% lower.  This was not just longs taking profits. The short float is reported to be over 30% in this stock.  There are short sellers who live at $100, and they took $60 dollars worth of heat in 2014.  Some of them might have some lingering traumatic stress from the event and seeing price return to this level allows them to scratch their idea.

Others, who sold their $40 shares at $100 only to see price rocket to $160 now can jump back on where they left off.

These are just hypothetical characters to envision when wrapping your mind around how prior resistance is converted into support.  Markets are the net of all interacting humans’ behaviors.  Nothing more.

I have no Z position, but I love it right here, especially if we see another dip that lets me in next week:

Extended markets have a knack for continuing in the direction of the move well beyond what would be considered rational.  Mean revision strategies take heat, stubborn traders are slowly forced to liquidate, and eventually prices lurch back when a strong enough opposing force is found.  This is the auction process.  What we have seen this week is four steady days of value progression higher with only a slight sign on excess showing up on Thursday’s tape.  As we close out a week that was focused on retail we are currently trading right in the middle of Thursday’s range and a few points higher from the close.

The market appears to have come into balance overnight and it will be interesting to see how this is treated heading into the weekend.  Unlike the fast v-shape that put us into these last 10 days of grinding trade, we have moved higher on healthy auction activity free of overnight gaps.  We saw some signs of responsive selling yesterday where two waves of selling swept through the market at 11am and 1pm, vital times of day.  Whether that responsive seller is able to turn initiative and press down into Thursday’s range to target the NVPOC at 4190 will be a slight hint.  Even more telling of a market that has found a seller would be prices accepted below the LVN zone around 4183.75.  This is the key short term pivot for bulls.

I have highlighted this level and other key price levels on the following volume profile chart:

If you think they are simply going to allow you access to the fruits of laboring in the mines just by showing up for the win, then you have it all wrong my friend.  This is hard work, where men are forged in the furnaces of speculation.  While you sit comfortably at your desk wringing the sweat off your hat know this—you are nothing.  This is light work, why are you sweating so much?

Most of you fear a real day’s work.  I see it all the time.  It is nearly impossible to assemble a cement crew from my peers.  The only ones willing to work 16 hours in the summer heat are OG foreigners.  Even then there’s a 60% fail rate during initiation day.  They walk off, not even requesting pay for a days work.  If they do ask for money, I flip them a waded-up hundred from my pocket and tell them to, “Fuck off and leave the men to their work.”  Most of the time they hitch a ride to the job site which makes for an awkward pause before they walk off into the horizon.

I tell this all to you for one simple reason.  You need to wrap your head around trading and nothing more.  Your pasty hands can perform just as effectively as mine, but is your mind sharp?  It’s never too late to pick up a fine piece of literature or explore a philosophy.  I encourage both.

This SCOK position might lop off my unit and hand it to me.  That’s fine because I am the lizard king and will regrow another one trading god-only-knows what instrument.  This is risk and we rigorously plan for it, you should too.

The coal trade, all the energy trades, will be winners.  Elon will be a winner, I will be a winner, will you?

Booked the GOGO trade, it was a standout before everything starting standing out NASDAQ style.  Swapped into some WDAY and JDST.

Nasdaq futures are up overnight with the primary thrust occuing just before midnight.  However as the US has come online prices have steadily declined and given back about half of the overnight progress.  The pullback began around 6am which does not coincide with any economic report or news story but did begin with an overnight failed auction.  Price took out the prior overnight high by a few ticks then quickly reversed.

At 8:30am US initial and Continuing Claims were released and both numbers were a bit higher than consensus expectation.  The initial reaction in the Nasdaq is light selling.

Volumes picked up yesterday and overnight to the highest levels on the week.  Walmart topped earnings forecasts this morning suggesting the US consumer is healthier than analysts expected as we head into the holiday season.

On a daily chart of the Nasdaq futures we can see price has entered a zone where according to measured move analysis there is an expectation of finding sellers.  Measured moves are not as dependable as volume profile and prior price action, however they give a sense of where the market might go to run the stop orders of short sellers.  The globex market is showing signs of effectively finding sellers, however it is more important to see it show up during regular trading hours.  I have noted the above observations and a few more notes on the following daily bar chart:

As a general rule, after three days of movement favorable to your bias, it makes sense to take profits.  On the below chart you can see value made a steady three-day progression away from a well-formed intermediate term balance.  This morning might be an opportunity to lock in some stretched stock trades you have, especially if they show signs of pause or reversal.  This will also free capital to initiate fresh risk, if you choose.  I have also noted the very key levels that emerged during yesterday’s session.  Note too how cumulative delta (Ask Traded vs Bid Traded) was unable to remain positive yesterday for the first time since 11/5: