A Vote of Confidence

Today is the day we have long awaited.  What we are seeing today began yesterday and with any luck it will continue into year end.  Yes, the indices surmounted great technical damage to return to annual highs in a matter of weeks.  Yes, oil prices cratered sending trillions of pennies into the virtual wallets of the US consumer.  Yes, the US dollar returned to supremacy.

But just this week, and really over the last two days, have we seen genuine pockets of strength in the market.  Suddenly, there is a bid for your favorite tech idea or brand.  Suddenly the best looking charts and paying you for sitting through their consolidations.  The stock picker is alive and well and calls 12631 home.

We are at the apex of greatness.  There is a buzz in the air, and people know there is serious coin to bank in the year-end dash.

Pile into longs?  No, but as I said, there will be opportunities.  Find you best setup, your favorite company, and wrap some risk into a trade.  Your wealth depends on you keeping a cool head.

A word of caution—do not start shooting anything that moves.  You do not need to shake every baby and kiss every hand.  You need only as many positions as you can comfortably track and manage according to your style.  The last thing you want is an error due to a broad wave of selling.  Your levels should be in place and they should be sacred to you.  Do not waffle.

The moves occurring today are the sprouts of what will soon grow into great sequoias.  Others will vanish in the next brush fire.  Knowing when to harvest and when to prune are skills just as important as where and when to plant.

There has been a bid under bid earning gap downs like TWTR, FEYE, GNRC, and GOGO.  They were gobbled up.  Does this look like participants are cowering in utilities and cash?  Follow the money flows.

My book is not overly concentrated in social media or tech like the past.  But it is my favorite.  Tech/social media tech longs include TWTR, CREE, GOGO, FEYE, TSLA, and YELP.  Retail plays are LULU and GPRO.  Winter play is GNRC.  A few other slow plays are in the book but why bore you?  Let’s talk about my SCOK, shall we?

It is not huge, but it is sufficient for the moves it is capable of.  The chart is a beauty of consolidation.  This is my junk, my republican, and my coal play all wrapped into one.

Hard working men and women are plotting to extract consistent coin from this market.  It is the only proper way to move forward.

Nasdaq futures worked lower overnight after yesterday’s action which featured a low volume advance to new highs on the year.  The nature of the move yesterday suggests prices were driven by the shorter timeframe, perhaps a mix of day traders and 2-6 day intermediate term traders, who pressed beyond the highs a bit to run stops.  The question as we head into the tail end of the week is whether buyers can sustain trade above the VPOC of our current balance or if instead we will break through the formation and fill the gap left behind when Japan announced their stimulus package.

A brief spike higher and subsequent fade occurred around 5:30am when the Bank of England released their inflation report, and ahead on the docket for today we have ECB President Draghi speaking at 9am in Rome, and US Wholesale Inventories at 10am.  We are entering the thick of retail earnings today and tomorrow with M, JCP, WMT, and many others set to report their performance over the next two days.

The below daily chart of the Nasdaq shows how prices entered a grinding phase after a strong v-shape bounce.  The slow pace suggests the market accepting higher prices at best and waiting for additional information at the least.  The drift achieved the initial measured move target of 4186.25 to the tick before the close yesterday.  These levels are Fibonacci in nature and serve as guides to whether moves are algorithmically driven stop runs or real progress.  If we see strong selling taking us below our upper HVN at 4149.50 then sellers are opening the opportunity to trade into the air pocket below.  I have noted these observations on the following daily bar chart of the Nasdaq:

As cautious as the above statements may seem, the market has several traits supporting the buyers.  Value has migrated higher during the last four sessions, there is no sign of excess on the highs (a wick), and the longer term trend is up.  What buyers lack is strong volume during the advance.  On the below chart I have noted the key price levels I will be observing during today’s session:

For the most part, I choose a healthy lifestyle.  But sometimes I cut loose and run with the devil on the dark side.  We guzzle excess amounts of libations while smoking and courting fast women.  We forego sleep and instead dance in the fires of hell and throw dice.

Once you hit the three day hump of being ‘on one’ your only hope at continuing is more.  Bloody Mary breakfasts, two martini liquid lunches, steak and cigar dinners, and road sodas for any and all treks.  It is the destructive path that often shortcuts one to the hobo lifestyle of witty cardboard signs demanding hooch and marijuana. However, much like any power move, when saved for the proper moment it can be effective for achieving a higher level of success and enjoyment.

However it would be vile to torture the vessel I call home longer than reasonable.  Thus when the music is over you must face the music—you have damaged your body and must repent to your liver, lungs, and brain.

First and foremost, and this should be ongoing during any bender, large doses of water, especially prior to any (if any) sleep cycles.  Upon returning to sobriety your water consumption should remain elevated to the point of requiring hourly urination.  Suspend said drinking 1.5-2 hours before sleep.  You should protect your sleep cycle as it is now sacred.  Plan to be in bed at least a half hour earlier than normal and allot time to decompress via mediation, love making, or reading fiction.  Upon waking your first task is to drink a glass of water.  Breakfast should be nutrient dense and consumed within 45 minutes of waking up.

If possible, split your lunch into two meals and keep them small.  Aim to add a fermented product to each meal.  Some options are kimchi, sauerkraut, and kombucha tea.  Limit dairy consumption to organic fat free milk, plain Greek yogurt, or kefir.  Caution—many kefir products are loaded with sugars which will slow down the healing process.  You should be sparing with deli cuts as well.  The sodium will leave you feeling bloated.

Significantly limit the amount of land-based animal protein you consume.  Opt for fish or bird meat whenever possible.  Vegetarians should be sure to up their legume and nut consumption.  Introduce dark leafy greens into at least two meals per day.  These can be vehicles for adding healthy fats like flax oil, grape seed oil, or fish oil.  You may also add acids to the leafs like lemon juice or vinegar.  Coffee consumption should also be consistent and before noon to prevent insomnia.  Coffee should drank black and accompanied with a glass of fresh squeezed grapefruit juice.

One shot of unfiltered apple cider vinegar to settle any upset stomachs and aid pH regulation.

As soon as the body feels ready introduce strenuous exercise, every other day or at least three times per week.  This will stimulate cell turnover and water consumption.

For goodness sake, do not smoke anything.  If you must use cannabis then either vaporize or via edibles.  Be sure to keep sugar free lozenges to stave off any dry mouth conditions which may lead to tooth decay.  Ideally you avoid this activity entirely.

It makes sense to keep a BCAA supplement handy, especially for any late night hunger fits.  Eating 1.5-2 hour prior to a sleep cycle should be avoided to prevent insomnia.

If you follow these steps you will be fit as a fiddle in one weeks time.  You might even want to continue on this path.

I offer these steps as I am in day two of all of them, and more.  In an interview, Paul Tutor Jones once said his mentor forced him to be in the best shape of his life before he could begin trading.  Who am I to think differently?  It makes sense to emulate those who have excelled in your desired profession.  Think of it as an investment in yourself and penance for your gluttonous sins.

You might want to consult a medical professional before undergoing this routine.  After all I am not a doctor, dammit, I am a trader.

Since I was talking book yesterday on the headline, I will keep talking this position, added some at $17.80.  I also sold out of BLOX and bot CREE and GPRO.

Volume overnight in the Nasdaq futures ran on the low end of normal as prices traded slightly higher on the session.  The economic calendar was fairly quiet with a few data points coming out of Japan.  The Yen trade balance beat expectations while Consumer Confidence is the east was lower than expected.

Most of the discussion surrounding volume centers around time-duration volume and often on a per day basis.  However given the right data, like raw tick data streaming from the IQ Feed servers, you can map other dimensions of volume like at-price and cumulative delta.

Volume at price produces the price levels where our attention might yield an area of interest to gauge sentiment and trade from.  Cumulative delta can show us who is more motivated to take action in the tape.

Yesterday the market gap slightly lower found responsive buyers.  These buyers were responsive to the open, but initiative in nature on the intermediate term.  They initiated risk away from the VPOC of the then 6-day (now 7-days mature) volume profile.  The resulting print pushed value to new highs.

This might be a bit less clear since doing away with the market profile charts.  However they were a bit redundant and using only the below presented chart frees up precious screen real estate and requires one less chart to monitor.  You might not as clearly see it as before, but Monday printed a P-shaped profile suggesting early OTF strength (active intermediate term buyer) which caused a short squeeze.  In the context of a downtrend, these often occur at-or-near a peak.  In the context of an uptrend they are not as effective.  All we know is value migrated higher but is still contained in the intermediate term balance.

The third dimension of volume is delta.  It can be seen in the bottom pane of my chart window and suggests buyers were the more active participants for the entire duration of the session.  That has been the case for six of the seven days of balance up here.  It could mean two things—a large seller is resting on the offer and absorbing all of this demand which creates sideways price action amidst motivated buyers.  Or it could suggest pressure building for another thrust higher.  If we continue to balance and delta cannot flip to negative then we are likely to continue grinding.

I have highlighted the key price levels I will be observing on the following volume profile mashup chart:

I must be stepping away from the market just as soon as the bell tolls to visit the local torture purveyor so let me impart you with some closing thoughts.  Bull runs tend to feel best near their climactic peak.  There are some names making big intraday moves today, they type of intraday moves we haven’t truly seen at any point during the V-shape bounce and subsequent floating island.  These days were the norm for months during the closing months of 2013 and into the beginning of 2014.  You would place out 6-10 out-of-the-money call option positions and two or three would make breathtaking gains.  Even during the quiet periods of this year this type of action never lasted long.

This v-shape bounce is/was of the largest magnitude I have every directly experienced.  It will carry aftershocks for weeks and months much like a proper earthquake.  After all, the epicenter of the move has origins in Japan.  Think about it.

You have to be expecting a pullback soon.  The $NYMO registered its highest reading on the year a few sessions back.  As much as it has been less effective at locating tops, it is food for thought.  This is no place to press your bets all in long.

At the same time, smaller position size and some select exposure is essential to my style of trading.  If individual charts brush off sideways/lower index prices in the weeks and months to come, then there will be spectacular gains left on the table from being completely sidelined.  Build a risk profile and have some exposure to the ‘greatest bull market ever’.

My position count will remain lower than historic times and my position sizes are smaller than normal.  But the trades will be managed with the same degree of execution.  Now is not the time to loosen your play.

It is always a pleasure to run the headline on the best financial site the internet has ever seen.  This weary traveler is grateful it was a slow grinder of a session.

Until tomorrow, I bid you adieu.

Bought a starter position in GOGO, shorts are in a concentrated momo rout on a slow day. I also started a position in YELP.

Nothing negates a failed auction quite like a slow and sideways trade right at the swing high.  The quiet manner by which the market lingers at swing high suggests two things.  First, the market is not sharply rejecting higher prices.  Instead we are building acceptance at these prices.  Second, the slow action suggests the market might be waiting for new information before moving elsewhere.

Under the hood of the market, the internals are showing an interesting rotation to start the week.  Most interesting is today’s weakness in retail which has become a widely discussed area expecting some positive rotation.  It is a simple trade to understand and started showing early signs of working last week.  However, one must keep an open mind that the whole idea could take some heat before ultimately playing out into Thanksgiving.   Shares in EXPR, ANF, JCP, and AEO are showing signs of relative weakness and LULU reversed its early pop.  On the flip side we can see rotation into risk especially in security software, China names, and solar.

Overall the grind higher makes it tough to short, especially individual stocks who could squeeze at any moment.  And on the other side, taking longs requires proper risk profiles to your trades and overall book in case we see a leg down quickly materialize.

The top three trades I am stalking into the close are YELP, DANG, and SCOK. All long ideas, especially if bulls sustain trade above the zone from the daily mid (4163.75) to opening swing high (4161.25).

Markets move in harmonics and fractals which produce events that are not necessarily repeated but without question have a certain rhyme.  Back in September there was a singular event you could point out on the Nasdaq chart which precluded the multi week trade lower.  Some call it a false move, others a stop run, but in auction theory we call it a failed auction.

The structure can be seen as taking out a prior high or low briefly, testing the waters beyond the reference point, before sharply reversing in the other direction.  It will not always produce the same outcome, however I now have a rule in place that insists I back off until this structure resolves itself.

We happen to have a failed auction print in place on the Nasdaq futures as we come into this week’s trade.  The swing high set during Monday’s trade was briefly breached on Wednesday only to quickly reverse lower.  Both times the new swing high was achieved via a gap higher to new highs which was subsequently faded lower.  The current structure is a bit different from the September event.  Here are the bullet point differences:

• September’s event was separated by eight sessions of trade and nearly a week and a half of time and volume buildup.  Last week’s was separated by two sessions within the same week.
• The Alibaba IPO was generating buzz the day the September failed auction took place

Returning our attention to the market, we start with a high timeframe and drill down closer and closer depending on our style of trade.  If you swing trade exclusively you likely only need to drill to the daily chart and perhaps a 15-minute chart for trigger points.

The weekly time frame shows wide indecision last week in a long term bullish market.  We are trading above the “14 year gap” left behind during the year 2000 dot com correction.  The following chart is of the actual Nasdaq composite:

On a daily chart of the front month Nasdaq futures contract (December ’14) we can see prices are trading on an island atop the strong V-shape recovery we recently printed.  An excess low printed and is shown as the long tail on Tuesday’s candle.  The trend over the last 2-3 days is flat while the trend of the last 2-3 weeks is up.  The gap up is still intact suggesting demand for equities remained present during all of last week’s trade.  I have noted a few other observations on the following daily bar chart:

The first addition I make when drilling down to the 15-minute volume profile “mash up” chart is drawing a volume profile which encompasses the six sessions of overlapping trade.  This will yield highly potent price levels where we are likely to see market behavior occur.  It also shows the auction health and structure on this time frame.  I have noted these price levels below:

After missing a few sessions of active trading, here is how you rebuild your contextual feel.  Keep in mind, I blew into the dead lands of Detroit on a red eye flight only a few hours back.  A proper gent might enjoy their family Sunday before dismissing them to their favorite television series while he retires to his study to assess global financial matters.  However a tight deadline forces efficiency.

Thus you strip the nonsense and focus on the essentials that produce 80% output with 10-20% input.  Foremost, clean the filth of travel from your person.  Then a lean breakfast must be produced using a modern oven aka the microwave.  Three to four whole organic free range eggs in a Pyrex scrambled and mixed with a hearty salsa to create a lean southwestern energy source.  Next an oversize bowl of spinach also heated via microwave then doused with lemon juice, ground flax seed (this should already have been ground), and a dash of ghost pepper sea salt for flavor.

Now cleaned and nurtured, you need power sources of market information.  People who were not degenerates while you were who are still in touch with the market pulse.  ChessNwine’s Weekly Strategy Session is the best primer on the internet.  Perhaps introduce a small dose of caffeine to the body while enjoying the comprehensive recap.

Next peruse a detailed economic calendar.  The last thing you want is a scheduled economic event which carries an elevated likelihood to move the markets ‘surprising’ you.  The best calendars can be filtered for importance eliminating the need to scan 30-40 events.  There are only eight major economic announcements this week and two came from China overnight.  They produced no reaction on the Nasdaq.

A rifling through the last three or four blogs from consistent tier one sources makes sense, if only to see if a title grabs you.  You may choose to slide through a well built twitter stream as well (careful, this can be a shortcut to distractions).

If you attended the First Annual iBankCoin investor conference, a treasure trove of information, then you have an intimate understanding why earnings out of Walmart are more important than most government generated economic numbers.  Jeff Macke, a comported expert on the retail space, explained how much information can be gleaned about the consumer from this report as we head into the holiday shopping season.  Take heed to the market behavior ahead of Thursday’s open.

Finally a proper look at the most objective market information available must be conducted.  Recent price action and the structure of volume observed and objectively judged through the lenses of auction theory.

Put that mouse down and step back from your trading terminal unless you have given yourself a fair chance at understanding the market climate for the weather is cold and the dagger of winter and headed for your assets.

If you subscribe to the tenants of mindfulness this is also a splendid time to take some slow meditative breaths and focus on oneness or perhaps your god, whatever helps clear the mind to awaken to what truly matters.