Expectations Verses Reality

Trade volume is high overnight in the Nasdaq futures after we printed a 3^rd standard deviation range during yesterday’s session.  The session range overnight is within the realm of normal even under the high volume circumstances.  Prices managed to take out yesterday’s high of the session before finding sellers and the selling accelerated just before we heard from the Bank of England who released in-line Asset Purchases and Target Rate Decision.  Initial and Continuing claims were released at 8:30am the claims were lower than expected suggesting the labor market is improving.  The initial reaction to the jobs data is a slight bounce.  Mario Dragi is set to speak at 11am which has the ability to move markets.

Yesterday’s move was large enough to consider returning the intermediate term timeframe to balance.  Thus I have added a profile to the left of the chart which encompasses the range of recent balance and also gives us a good view of the auction taking place.  I have noted the key price levels on the following chart:

On the short term we can see how elongated the market profile became during yesterday’s large move.  This type of structure suggests buyers sharply rejected lowers prices with a strong response.  Whether they have the conviction to defend their progress today will be key because the expectation is they will, at least for a day or two.  I have noted the key price levels I will be observing on the following market profile chart:

One must be brief as they are coming to change my internet over to speeds unknown to residents in the history of mankind.  One truly is impressed with how far infrastructure has come.  The reversal today was strong and with it moved several momentum darlings like NFLX AMZN TWTR and YELP.  They call me crazy when they see TWTR swell to nearly 20% of my book. There was also a big rotation into old man utilities.  Basically the Fed backed off the idea of raising rates and the market found a bid.

Truth be told, this market was looking for any reason to have a bid.  The depths the Nasdaq traveled before finding a buyer sort of negates the opportunity to call this a higher low.  This makes me think we see some range bound chop in the near term.  What I want to see is whether these conditions lead to range compression and individual stocks decoupling from the broad market.  If not, I will increase the attention and resources allocated to intraday future scalping.

I made one move today, buying back my YELP position in the November duration.  This chart looks splendid to my eye, and I have no shame in reentering a still-valid setup.

Making only one move may seem simple and trite, but you know what I didn’t do?  Capitulate on my longs down in the trough.  Instead I took a long bike ride across the windy Michigan terrace.  The gusts were so strong I managed to hit 37 MHP on flat ground!  The wind helped, as did 3 weeks of training LEGS ONLY at the gym.

As hard as it may seem, the market printed anther neutral extreme.  Yesterday’s pointed to lower prices this AM.  Today’s points to higher prices tomorrow AM. I suppose many of you cannot afford to take this game one day at a time.  But my best advice is to take this game one day at a time.  You are small, use it, like a fast boat on big choppy waters.

Nasdaq futures chopped about in an active session of trade overnight after yesterday printed a directional distribution-type day.  The primary expectation after yesterday’s distribution is chop with a downward bias.  The wildcard today comes in the afternoon, where the market will receive minutes from the September FOMC meeting.

Yesterday the market went neutral early.  Prices wasted little time range extending higher in the morning and pressed into Friday’s range where we found responsive sellers who pressed us through the initial balance and out the other side.  We were in a neutral print before noon.  When buyers made a second attempt higher they could not and choppiness gave way to afternoon selling.  The neutral extreme type print carries strong directional conviction by the sellers, second only to the trend day.

Below current prices we have the strong buyer reaction from last Thursday.  Whether buyers carry the same conviction today will likely be tested.  If not, then price is likely to continue discovering lower in an attempt to find a buyer.  Below last Thursday’s low we might begin to explore the 8/12 price range where an open gap and naked VPOC exist.  Have a look at the cumulative delta on the bottom of the chart as well which emphasizes the strength of the selling pressure yesterday.  I have noted these prices and other observations on the following intermediate term volume profile:

I have noted the short term price levels I will be observing on the following market profile chart:

This market is into distribution.  I am like Atlanta, a hub for connecting sellers with buyers.  Only unlike Atlanta, my primary purpose for many days has been to stand put and be distributed on.  2/3 of the stands I make, joining the ranks of other scarred faces and forming a scrum, result in a geyser of distribution blowing me over.

Today’s wipeouts were YELP and AMZN.

Delta on today’s down move in the Nasdaq was the lowest I have seen.  What this market feels like, literally since the opening throws of The BABA, is someone trying to sell without spooking the market.  The problem is no matter how and where they sell, prices still move lower. Imagine you had an inventory of a few 100,000 futures contracts as a variety of stocks.  You made a fortune during the glory years of QE and with all these Chinese internet companies and political happenings you want out.  So you begin selling, the market goes lower.  It comes back up, you sell into it, and it falls lower.  You try selling pre market and it goes lower.  You try selling at the open and it goes lower.  You try selling at 3:30pm and it goes lower.  You don’t want it to go lower but every action you take makes prices head lower.

That is how the market feels.  Like someone who doesn’t want lower prices can’t help but push price lower by their actions.  Soon they may panic.

The afternoon breakdown marks a neutral extreme day, which is a high conviction directional close favoring the shorts.  It also cut deep into the deep V bounce on Thursday.  This truly was a ‘turnaround Tuesday’ for the bears who are flexing their firm grasp of the intermediate term timeframe.

I have little advice except to stay small if you play the long side and keep your risk defined.  It is hard to short the hole down here but it is looking like it will work out in the short term.  If you are keeping your position size in line then a winner should be good for three or four losers.

Stay thirsty, stay humble, and keep taking your trading pictures.

Interestingly enough, when we first traded up to 4000 in the Nasdaq futures back in August (at the time we were trading the September contract and the ‘spot’ was a bit different) the market gave the price no thought and simply pressed through it.  Demand was high.  Even more interesting is how the market is currently coming to terms with the millennial mark.  As we approach US cash trade, price is straddling the 4000 handle after building support in the region during yesterday’s trade.

There were some fast selling rotations occurring overnight around the time the Swiss were releasing various economic data points, none of which were particularly soft.  During today’s session look for a reaction to the UK’s GDP estimate around 10am.  Aside from that we have some Fed speakers at 2:30pm, 3pm, and 4:30pm ahead of tomorrow afternoon’s FOMC minutes.

The intermediate term has a clear downward trend in tact as we enter Tuesday.  This can be seen as a series of lower highs and lows.  The most recent low was sharply rejected by a strong buyer response.  However, it had to cut pretty deep to find a vein of buyers who were willing to participate.  Buyers may be working on printing their first higher low since the failed auction on 09/19 this week.  They did however leave a bit of unfinished business below.  When we gapped higher on Friday price managed to close the range gap, or the space between the high of Thursday and the open on Friday.  This increases the probability of a full gap fill to the closing print down at 3977.25.  Should the market begin to soften at any point today, this will be a simple target for the sellers.  I have highlighted this observation and others on the following volume profile chart:

Short term, we printed another distribution-type day where the bulk of volume occurred at or near the lower quadrant of the session range.  This managed to push value lower.  The buyers were active and responsive to defend Friday’s buying tail.  This can be seen as the thin market profile near the bottom.  Note however that the coinciding volume profile suggests much business was done near the lows.  Overall, it provides us many interesting levels to observe and I have highlighted them below:

Over the weekend I worked through another range study of the Nasdaq market which focused on up day daily range verses down day daily range.  It took me a while to sift through the raw data I piped in from the IQFeed servers, and I was feeling rather buggy yesterday after spending much of the weekend pouring concrete, however the numbers don’t lie.

When the motivated sell move swept through the marketplace at 10:30am, those motivated sellers started me on the process of defining low of the day.  It just so happens that the first standard deviation of range to the downside since the beginning of 2012 (yes, ranges have stretched a bit recently) is 42.25 points.  Take the HOD-4040.50, subtract off 42.5 and voila, stalk LOD at 3998.  I knew this by about 11am, what were you doing at 11 am?

How’d that work out? So far so good, I was able to buy some YELP and AMZN along with playing the move in the futures.

The bummer?  Today is a down/flat day after gapping higher into the week.  Also, these stocks I bot are not doing anything and no action is LOSING when you buy duration paper.

The vision?  That today printed a higher-low job on the intermediate term and marks the trough low for the next 1-2 days.

When am I wrong?  A definitive break of LOD.

Until then, we dance.

Nasdaq futures are set to gap a bit higher into the new week after spending most of the globex session working higher.  There were no major news developments over the weekend and the economic calendar is rather quiet this week with the most notable event being Wednesday’s release of the FOMC minutes and also a speech from former Fed chair Ben Bernanke.  Also Thursday we will here the BOE Rate Decision and Asset Purchase Target as well as US Continuing and Initial Jobless Claims.

Last week we saw a spike in volatility on the Nasdaq index where ranges increased.  This could be re-balancing activity as the quarter transitioned.  Solidifying this idea was the general lack of geopolitical activity occurring amidst the move.  The only real catalyst in the news was Ebola.  What we do know is a larger timeframe was at work most of last week and might continue to be active this week.  Overall the long term timeframe is bullish-to-indecisive.

The intermediate term auction is printing a series of lower highs and lows which suggests seller control.  However, we had a strong bounce Thursday which carried over into Friday and this morning which has this timeframe back inside its larger balance.  Beneath current prices is an air pocket from when prices quickly moved.  I have noted the key price levels I will be observing below:

Short term we are rallying after finding a strong buyer Thursday afternoon.  The P-shape of Friday’s profile suggests participants were not rushing to initiate fresh risk into the weekend.  Instead the early rally only modestly extended and then came into balance.  I have highlighted the short term levels I will be observing on the following market profile chart:

This first week of October was designed to put your willpower to the test.  Equity index prices have come back to life and with them bring the promise of opportunity.  There are still sellers in this market, strong ones, who have had ample opportunity to take some profits on the recent move and retreat to their shelters.  Bull, pressed right to the edge of the abyss, falling off the cliff, then clinging with one hand to the loose rock managed to claw two hands into grip and sneak a shoulder onto the rock.  As we go into the weekend, here they are, alive, with a strong grip and fire in their eyes.

What is in store for them should they gain footing is quite another battle indeed.

My day featured very little action, some sell scales on a few winners who emerged from the rubble and I started a long about 8% higher in VSLR.  The market is not thrilled to have another solar stock in its ranks, what with oil tumbling and all.  A dangerous man who I keep contact with informed me two Mondays back about the Rockefeller Fund pulling out of oil and gas.  I thought, “This certainly must mark a bottom.”  Apparently not, and that tough guy hedgie (his name escapes me, very pompous) who Bloomberg recently lambasted must be a real pleasure to be around this weekend.  The biggest rift I have with VSLR is how they are competing with my good friend Elon’s cousins over at SCTY.  A clash of titans for the solar rooftop space which will certainly benefit mankind on the net.

Buyers showed their hand today and potentially expended lots of energy.  Come Monday they have a volume cliff to defend and a higher low to print.  And not some pathetic higher low job, something with purpose or it will be bunker bombed by this potent sell flow of late.  I have an interesting study I would like to produce this weekend but I also have a sold 20 hours of labor ahead of me so we shall see if the data is produced.  Overall, grand trading environment, best to you over the weekend, and let’s hope for some more action next week.

Overnight volume in the Nasdaq futures slowed dramatically ahead of the 8:30am release of Non-farm Payrolls and Unemployment Rate and spent most of the session drifting higher.  Prices managed to take out yesterday’s high and sustain trade above those levels ahead of the release.  As one might expect, volumes increased after the 8:30am numbers which showed unemployment rate unexpectedly dropping to 5.9% but a mixed message overall with average pay still compressed.  The initial reaction is higher prices.  At 10:00am we have ISM Non-Manufacturing Composite on tap.

As we head into Friday, the intermediate term timeframe is in seller control.  This can be seen as a sequence of lower highs and lows on the following chart.  You might have noticed yesterday that there is only the blue volume composite on the right edge of the chart.  That is because we have no micro-balance forming.  Instead price is loose and discovering value.  When the market trades lower it is searching for motivated buyers, yesterday’s strong responsive buy suggests we might be done looking for buyers, at least on the short term.  Once they are found the auction begins in the opposite direction until buyers dry up and seller response exceeds demand.  Since the bulls lack control on this timeframe, they are currently guilty until proven innocent by printing a higher low and higher high at the least.  I have marked the key low volume nodes and a few other observations below:

During the first three or four days of the month there is an expectation for increased demand in the marketplace.  At this time, many of the institutional funds receive cash inflows from regular folks making fixed contributions to their 401k and other investment plans.  There are studies proving this phenomenon.  The question is how much funding is put to work and what is its impact on the marketplace.  I have noted the key short term levels I will be observing on the following market profile chart:

There aren’t many (if any) signposts you can point to and say, “oh hey look, that precluded this vicious viscous venturesome move.”  However my dearies, there was one simple occurrence which kicked this whole “process” into ACTION.  If you can bear this excessive use of emphasis then you stand to learn something.  It actually has an axiom:

From failed moves come fast moves – Plato (not really)

For some reason, I am rather keen on observing and presenting key contextual pieces yet doing little to prepare for the move.  It is like for some reason when my Shenanigan play didn’t pan out I abandoned the idea we would ever correct, like some kind of dicknose.  Listen here, internet, I am no dicknose.  The failed auction may have sizzled my anus this time but once is enough to learn me proper.

Anyhow, here’s a picture of the failed auction:

Don’t let these go wasted in the future.  They happen on all timeframes in all instruments.  Think of the powers behind it.  Some stop hunter goes after swings, take it out, finds no order flow, just crickets, says, “oops”, cuts and runs, and the market has shoveled a few bulls onto the head of the gravity hammer.  LEARN WITH ME.

And be well.  Until tomorrow, adieu