BATTLE SPEED

This market has been fast and that acceleration in velocity has been a tonal shift in and of itself.  Many of you do not like processes.  They are the red tape in life which separates the have’s from the have not’s.  What we are seeing today is by no means an all clear flag to pile back into longs, and let’s be clear, that flag doesn’t exist.  What is occurring today is a neutral print on the Nasdaq.  These start to show up near inflection points.  The market is making an earnest attempt to squeeze shorts into the weekend.

With all the fear mongering taking place on the news channels it would only be appropriate to release some pressure on a book which might have become ‘too short’.  The buyers started this move early which means they are now tasked with sustaining the action for another hour and 15 minutes.  Believe me when I tell you the closing bell can’t come soon enough for buyers.

The range is already abnormal for an upside day.  Extending from here would lead me to presume something indeed is afoot.  Someone is front running the grand scheme of beating the living daylights out of equity prices ahead of Q4 to boost performance metrics in the final quarter.  This is merely a cynic’s words.

IN short, this is not normal, it is a feather in the bull cap, and no matter which side of the fence you reside on, its best you wear a helmet.

Nasdaq futures were already operating on slightly above average volume ahead of the 8:30am GPD release.  Prices were up ahead of the data and saw a slight selling reaction to the inline numbers.  There is also news of Bill Gross leaving Pimco for Janus Capital.  Since the news came out we have seen selling accelerate a bit and the news has also served as a disruption to the overall bond market.

Yesterday the sellers made enough progress on the Nasdaq to call intermediate term balance into question.  The boundaries of intermediate term balance as well as any bracketed-type trade are always a bit grey, meaning you cannot assign a fixed price level to them.  Instead we can use volume profile to see if activity dries up as we enter the extreme territory.  Also of importance is the price action leading into the extreme.  This move lower started with a failed auction, an attempt to make new highs where activity quickly evaporated followed by a fast move in the opposite direction.  It then printed a lower high and lower low suggesting multiple day seller control.  This balance is going on 30 sessions old.  Once they become this mature the likelihood of leaving them to explore new prices is elevated.  In summary, we are at risk of starting a discovery process lower.  I have highlighted these observations and more on the following intermediate term market profile:

I have noted short term price levels on the following market profile chart.  Note also, barely visible in the top left of the chart is the “solid structure” I discussed yesterday.  This multiple day support foundation was obliterated yesterday and is out of normal upside range as of our current premarket prices.  See below:

That hot stream flowing down your shirt is the blood of dip buyers.  There is a definite tonal shift in the marketplace and each attempt to buy the Nasdaq was met with an overwhelming supply of sellers.  Someone knows something and is liquidating at every chance they see.  This is panic selling, fund raising, flight to safety action.

But why the hell is everyone so scared?  Is it the inflated multiples many stocks trade at?  It could be.  Is it quarter end re-balancing?  Perhaps.  Is it, “let’s have a nice entry point for Q4 so we can have a decent quarter and not lose all our investors?”  Is it our newest puppet installation, Haider al-Abadi spouting off about an imminent subway attack (dick)?  People are scared and it is showing up in risk asset prices, that is all you need to know.

Prices tend to overshoot, and one could make a reasonable argument that the intermediate term still barely hangs in balance.  That however, depends on tomorrow.  If we retrace some of this sell candle tomorrow only to see another strong sell day TOMORROW, then this intermediate term balance argument is officially toast. The sun, is going down, you dig?

Speaking of foods which coincidentally refer to my current condition, my nuts are on the proverbial chopping block after making some dip buys this morning.  I joined the KORS trade, it held up splendidly amid this sell flow.  I also bought NFLX.  It’s performance was not quite as impressive and truth be told it was maleficent.  It just sat there at the lows, brooding.  Do you see how I can personify the price action of a stock with a taste of fear and negativity?  It is very unhealthy for the trading psyche.  I do it simply to entertain you.  It is a narrow line I walk out here in the limelight.  The truth is this stock does not care if you bought or sold it.  It printed a b-shaped long liquidation profile, there were no afternoon sellers, this is all I can say with a reasonable amount of confidence.  Perhaps my duality will prompt someone to deduce I am on the LSD today.  Who knows what any of us truly have in store?

I suddenly feel like a rather brilliant risk manager from stopping out Visa and Nimble yesterday.  See how that goddamn feeling didn’t get in my way too long?  RISK, PLAN, LOGOs—these are your only real boulders.

If this game is about becoming really good at taking punches, then after 2014 I ought to be a regular Mohammad Ali.  Here’s to keeping my limber mind.  *clinks glasses*

Until tomorrow, vai con dios

Nasdaq futures traded in a quiet range for most of the globex session before selling stepped up around 8am.  Since 8am there has been a steady flow of sell orders which paused only briefly ahead of the 8:30am durable goods order release.  Overall we are priced to gap down at the open of US trade.  Just after the open we will have PMI numbers at 9:45am, natural gas storage data at 10:30am, Kansas City Fed Manufacturing Activity at 11am, and Fed’s Lockhart speaks at 1:20pm.  Bank of England Carney is speaking as we head into US trade and the main talking point is interest rates which he says are close to rising.

The intermediate term timeframe continued its balancing act yesterday when it quickly traversed the point of control at 4066.  The velocity of the move might be attributed to the compression which took place prior to the breakout.  When balance begins to form inside of a larger balance, you know there is a coil ready to spring a big move.  Buyers will want to defend their progress and extend upon it soon, otherwise they risk calling the entire move into question.  I have noted the key levels I will be observing on the following volume profile chart:

On the below market profile chart, I have made some cuts and merges to best view the auction taking place.  Note the solid structure below our current prices.  This is comprised of trade from late Monday morning through to early yesterday.  On either side of it is the hard sell on Monday’s open and the fast buy yesterday.  I have noted the key short term levels I will be observing as well:

After one of the biggest single day rally since early Mid-August, there is a surprising lack of enthusiasm from the various social platforms.  However looking across the stock complex there are some big moves taking place.  BABA caught a solid bid today, which might be important to the overall tone of risk.  Having literally sold the low right around the close yesterday after buying the opening print on Friday, I can tell you firsthand the tone was looking a bit dire on this one.

There were some strong moves today and we managed to penetrate the weekly-close cap on the Nasdaq.  The Nasdaq market seemed to be in a hurry today, and that makes sense given we are still operating inside of the slippery gap zone left behind back in 2000.  We are doing a really good job of properly and thoroughly auctioning these prices.

I made note on Twitter that this morning’s opening action put sellers in the hole.  This could be seen two ways.  First, we saw the early move up met with strong selling like we saw early Monday and Tuesday.  As soon as something becomes commonplace it becomes suspect, IMO.  Second we saw big rotations off the lows which would offer shorts entry, go their way a bit, and then very rapidly go against them.  This is prime fuel for trapping shorts.  Failed moves.  In the uncertainty I suffered two casualties however, V and NMBL.  From the looks of NMBL however, that might not have been a bad trade.  It is resting on support, it could bounce tomorrow but I still had a nice bit of premium left and did not mind salvaging it.

On the net we used the tight compression on the Nasdaq to fuel a move higher.  There is talk of a shakeup at the Chinese Central Bank, and according to modern QE economics, any and all central banking news is to be held in the highest priority.

Until we see some resolution to this battle taking place on the Nasdaq and other indices, the absolute best move is to stick to one side of the tape, seller or buyer, pick one, and position at the right moments.  Buying the breakout yields elevator shafts lower, selling the breakdown leave you deep in the hole.  It is truly that simple, this is our environment of bracketed, balanced trade.  Playing both sides is possible, but you need to really know where we are in the market and which stocks will work for you.  Every trader is unique, but for me there is no worse position then having both longs and shorts go against you simultaneously.

Trade accordingly and if you do not like the big oscillations, boost your cash.

After a bumpy start to the week the Nasdaq is back to where it opened which is still a touch lower from where we left it last Friday.  Despite the comeback, my book has not, yet.  Part of the lack of catching up is the result of bottom ticking three, I say three of my positions when I stopped out.  Jokes aside, pull up a chart of V, NMBL, or BABA and look for the exact swing lows if you want to timestamp my exits.  It ‘feels’ pretty lousy taking your exits at these prices, three times, however they would ‘feel’ like smart decisions if the prices had continued lower.  I can take solstice in adhering to my plan, a plan which yields me consistency, and turn an eye to managing other positions and scouting new ones.

The buyers showed up after The President wrapped up his speaking at the UN summit however attributing this move to the talk or any other news event is a guess at best.  Something motivated buyers and they pressed prices back up through the well-established VPOC at 4066.  They suspect the value is higher and snatched up perceived discount prices.  They now have their eyes on the weekly gap above.

There are plenty of positions working, now it is just a matter of their options coming back to life.  Nothing is really jumping out at me to buy right now, but I am continuing to scan for some setups into the back end of the week.

On the economic calendar today we have New Home Sales set for release at 10am.  Interesting anecdote, I was speaking with the largest lumber dealer in the metro Detroit area over the weekend who said they are having their best year on record.  Odd, or he’s lying.  Energy traders will be watching the 10 and 10:30am releases of crude oil, gasoline, and distillate.  Fed Mester will speak on monetary policy at 12:15pm and Fed Evens will s peak at 1:00pm on the labor market.  Pre-market Thursday we have US Durable Goods Orders on the docket which is something to keep in mind for any overnight positions you intend to hold.

I love when rare events occur and yet receive no coverage in the financial media because it means I have something interesting to share with you.  Yesterday the Nasdaq futures printed a ‘normal’ day-type which interestingly enough is anything but normal.  There have only been 55 instances since July 2010 aka 95% of the time this type of day does not print.  We have printed eleven such days in 2014.  A normal day is classified as a day where no range extension occurs on either side of the initial balance.  Its characteristics usually include an aggressive entrance into the early markets which stretches a wide initial balance which remains as the extremes for the duration of the session.  We indeed printed an abnormal IB range yesterday.  I have noted our range on the embedded chart inside the below chart, which highlights all prior normal days this year:

We cannot infer much information to aid in prediction using this fact, however we can examine the contextual powers at work.  This is the story and we always want to read it as more information is made available.  Lately this market has seen prices aggressively pushed around by other time frame participants.  Their actions can be seen both on price bars and volume profile as long stretches of action with no respect for day trader levels (value areas, VPOCs, etc.)  These higher time frame moves are motivated more by geopolitical events, macroeconomic data, or some other longer term perspective analysis.  However yesterday, and to a certain extent Monday, we began seeing signs that the other time frame activity is abating.  On Monday I actually split off most of the day’s profile from the initial balance because after the first hour of trade the market completely shifted its behavior.  Pair that with yesterday’s big initial balance and you see what is occurring—early session OTF aggression but a market coming into balance.

Even more interesting, this balance is forming inside a larger intermediate term balance which, as highlighted yesterday, needed some back-and-fill to properly form the symmetrical Gaussian curve.

I will stop here, for this is becoming too complex when in reality markets are very simple mechanisms for facilitating trade.  We are doing a very good job of it inside of this intermediate term balance.  If trade dries up on attempts lower, then we head higher to previous sources of liquidity.

I have highlighted key intermediate term price levels on the following volume profile chart:

Finally and most actionable, I have marked up the market profile chart with the key levels I will be observing today.  Also note, once the splits have been made to reveal the auction activity we printed an outside day yesterday:

Today is special, just like me and you.  Today the auction has played like a symphony under the passionate baton of Leonard Bernstein.  It has been a journey, from one land to the next, settling unfinished business in a manner which invokes the collective emotions of some.  I am merely playing my piccolo, on cue, like a cold dead man walking. After all, ‘tis the season to be a dead man walking, yes yes yes?

There will be no cheering nor jeering as the music plays, for only when the music stops may the audience be permitted to a brief round of applause.  There is a science to this art, and it centers are physics and probabilities.

Only a scant two-to-three of my positions need to work for this ship to keep on clipping along.  This affords me the freedom to talk to you, finest folks of the interweb.  A part of me senses a bit of winship on the horizon.

That or I might have to change my breeches.  I hope you are beginning to see the duality in my work.

Stay objective my friends.

The Nasdaq futures were a sell overnight where we saw prices move lower from their closing print.  The overall volume and range were by no means abnormal, the sell flow managed to print about 20 points of range on about 30,000 contracts.  Sellers managed to take out Monday’s low print by a few points before finding responsive buying.  Since then we have seen buyers attempting to defend yesterday’s low at 4035.75.  Whether or not they sustain trade above this level into cash open is still up for debate.

Chinese “flash” PMI came in slightly better than expected and had little effect on equity future prices.  Eurozone PMI was mixed with manufacturing lower than expected and services a bit higher.  We are set to see our US PMI at 9:45 am today.  We also have Fed speakers Powel and George right around market open and Richmond Fed Manufacturing Index at 10am.

The major headline this morning is the US and allies launching airstrikes on Syria.  Expect headline risk to run high as this information develops.

Below we can observe the mature balance of the intermediate term.  After making a slight new high on Friday, prices came barreling lower through the VPOC at 4066.  This suggests a larger timeframe participant, someone whose timeframe is greater than the intermediate term, was motivated to take action and as a result we saw this directional move lower which disregarded these intermediate term levels.  Their actions abated late in the afternoon and we saw a modest response from the buyers.  My initial impression of the failed move higher is to suspect a failed auction.  The fast move away further supports that idea.  However, the sellers need to make a bit more progress to gain control on this timeframe.  Essentially, they either need to take out the price levels I have highlighted below or print a lower high and a lower low.  See below:

I have highlighted the short term levels I will be watching on the following market profile chart:

Today was a day of atonement for me.  The market opened, rejected Friday’s range and began exploring lower.  At first impression, I am always a skeptic of early directional moves.  I have studied many opening swings, and the higher probability course of action is a fade of the first move out of an open auction.  Given the nature of today’s initial move, away from prior day range, initiative selling, and also given the nature of our current context, “Higher Timeframe Activity Pushing About”, I demonstrated a bit of patience.

Not, quite, enough, my friends.  I initiated some fresh risk on the session in FEYE.  It was sort of strutting about this morning whist wearing green trousers. This position is down a quick buck.

But that play was not the true atonement.  My correction came in the form of Pandora, which I was stopped out of today.  I rolled into more duration on this position last week, too soon, because I was emotionally invested in the trade.  I had already made my mind up that I was going to be right with my Pandora long and would be pissing victory across the financial complex while listening to seductive R.Kelly hits.  Becoming this invested in a trade runs the risk of going on tilt.  I made a sacrificial sale of Pandora to right myself in the eyes of the stock gods.  The cold, dead, probabilistic eyes of the market are now off of my ego and back to auctioning.

I say everything I love is dead hoping that one of my others can toe the line and pull off an incredible move.  Maybe it will wham short sellers in the scrotum for old time’s sake.  But, I accept that it might also decide to turn the wham hammer on its faithful operator, such is the fate of a trader.  We become really good at staying calm while being punched in the face. Resist the urge to react, instead think, be limp, and conduct yourself as your preformed plans direct.

There is always a silver lining to a grim tale, and today it comes in the form of a magic potion I possess, one able of curing the world of their dreaded Ebola virus.  TKMR is ripping stupid fast to the upside in this direction down tape.  It has me questioning a whole myriad of other biotechnology ideas, even if their sector is under a bit of fire.

Hmm…