Contextual Roundup Ahead of A Busy Week

Nasdaq futures are down a bit overnight, currently trading near the lows of yesterday’s range.  The economic calendar was quiet mostly during the globex session, with the main release being UK CPI stats.  However, the real news over the pond comes Thursday when Scotland is set to vote on whether to continue as part of the United Kingdom.  The outcome of this election could send waves through the macro world as the Pound reacts.  Also on Thursday we have the BABA IPO.  But before all of that excitement we will hear from the Fed tomorrow afternoon who will be setting their QE pace followed by a Janet Yellen press conference.  Thus the market will have much new information to price in later this week.

Taking a quick look at the long term timeframe, we can see the trend on the Nasdaq composite is still up.  We can also see the fast behavior occurring in this gap zone from 14-years ago.  We are having a proper auction of these prices, both ways, to determine which side of the gap we belong on.  See below:

Determining what data to pull into your intermediate term composite is a matter of knowing what you want to see as far as detail.  Premarket yesterday we switched the start date to 08/25 which revealed the imbalance present in our upper balance.  Now I have pulled more data into the intermediate term composite to give the tail end a bit more detail for reference.  By doing so, we have some clear levels of interest to keep in mind as the day progresses.  Note also the lack of structure just below.  If we are not done finding buyers today, then there is scant volume structure to slow prices down until about 3980.  See below:

I have noted the short term levels I will be keying from today on the following market profile chart:

What we just observed today was the rarely discussed counterparty to the short squeeze.  My friends, this is what a long liquidation looks like:

This is a temporary market phenomenon where an aggressive other timeframe enters the market early causing an elongated profile.  However, instead of continuing to trend for the rest of the session, the market instead comes into balance.  When this day type occurs in the context of a downtrend, there is not much you can take away from it—you just know longs were liquidated which is part and parcel to a downtrend.  However, inside the context of an uptrend, this day type often serves as a pressure release valve which blows off some steam (tosses a few pikers into the furnace) before continuing higher.  Today’s also featured a responsive buying tail, thus the bulls have a few contextual pieces to hang their hat upon.

The extension lower traveled a bit further than I expected, which elevated my concern a bit.  I might have missed an opportunity to buy some cheap charts, but part of me wanted to wait and see tomorrow before taking any action.  The kicker is Wednesday.  There is literally USA QE pace on the agenda for mid-Wednesday trade.  You would be a damn fool to not expect price movement on the news.  No matter the nature of the news, because I am not one of those analysts, there will be a reaction, and then a reaction to the reaction, and then we likely will have a pretty clear picture of how the next few days of trade will play out.  This is big league price action going into the end of Q3.  The price action this week is way above my pay grade.  I will wait for these big waves to woosh through the market place, apply auction logic to the footprints, make an educated guess about the next 2-3 days, position accordingly, and manage risk to make the money.

In summary, today we printed a b-shape profile.  These are temporary phenomena, especially during an uptrend.  We have been in intermediate term balance for 16-sessions, why break it before the BIGGEST ASSED piece of information is introduced Wednesday afternoon?  And I may not be aggressive enough, opting to not add risk today.

However, I have enough risk to tide me over, so don’t worry about your old pal Raul.  I was down about 6% today.

The market opened today and was an institutional sale.  We had a directional drive lower off the open and it carried a bit of follow through as early knife catchers were liquidated.  With the move went many of the momentum stocks, possibly due to the Nasdaq and Russell leading the way lower.

Since my daily analysis is a point of pride, using the wrong start date for several analysis to describe intermediate term balance sucks.  Once that small change was made, the downside imbalance became abundantly clear.  Last week we were on watch for shenanigans, it appears said shenanigans were held off until today.  Old school iBankCoin bad boy Scott Bleier had a name for this—day of terror, we see about two per month in the QE environment.

Moving on, I booked my GPRO investment just shy of $70 after we nearly touched my $72 price target this morning.  Many of you thought I was a bit batty, buying this IPO and calling for $72, when in reality I was dead on.  The truth is, no one thought I was batty, instead the call was mostly overlooked.  It shall go down as my best investment call ever, to date.

I stopped out YELP early, LOCO is on the fritz, and PBPB is dead money but has me craving peanut butter.  There is still a bid in the slower names, V does not look horrible nor do my October calls.  I tried grabbing the GOOGL knife this morning, expecting some dastard reversal to print some epic hammer.  All I have is a flesh wound to show for it.

Finally, everyone has their own style of trading.  Just look at the numbers and make sure you maintain a positive expectancy.  I scale, and scaling allowed me to milk a big profit out of WB.  I still have a small piece, which is down a stupid amount of money, but the emotional toll is practically nonexistent.  As I continue to develop, this consistent victories keep me focused and sharp.

Embrace the day of terror, do not let the initial blow of its impression knock you off your feet.

Yesterday I reached out to some of my fellow traders for their thoughts on a somewhat grey area of interpretation on the intermediate term timeframe—where did it begin?  By vote, it was determined the start date of our current intermediate term balance was 08/25, the Monday after a glitch at the CME resulted in a delayed start to trade Sunday evening.  Changing the volume profile to start at this session makes a significant change to the picture we see of market behavior.

If we opt to use 08/22 instead, the current volume profile is in near-perfect balance, and quiet environment where one could aggressively pursue breakouts in individual stocks.  But instead using 08/25, the downside imbalance becomes evident and suggests a bit more patience is likely to yield better entry points at the least.  I have noted the intermediate term imbalance below:

The only other way for the above profile to redevelop balance would be to blunt out on the topside via a multiday grind above the mid.

All of this analysis of past market behavior might be long history come Wednesday when we are set to hear lots of information about The Fed and their QE pace.  These types of news events as close as you will see to a guaranteed market move.  It makes sense to keep this context in mind this week, especially if the market starts grinding sideways, then we are definitely pausing until more information is made available.  This week is also option expiration for the front month index future contract as well as many other contracts.  We might see an early move because of this.  Just before the bell today at 9:15 we have some industrial production numbers which might start the futures moving ahead of the bell.

The overnight session got off to a bumpy start last night.  When trade opened in globex a wave of selling ripped through.  The volume on the move was very low and the price action erratic as if a few algos were playing ping pong.  The net result is a fairly normal 30.75 point range on volume which is slightly above normal.

I have highlighted the key levels I will be observing on the following market profile chart:

Something to keep in mind whenever using a tool or indicator or data set to observe market behavior is the risk of confirmation bias. As objective as numbers and graphical representations of numbers are at first impression, as we shape them and select pieces from them we form our own data.  The key is perception and whether it is guided by the logical mind or the more instinctive, yet emotional mind.

One of the essential tasks for any trader is knowing when conditions have changed as early as possible.  Some strategies fare better in certain conditions, like balance.  Other strategies would be better suited for the price discovery phase.  If these concepts are a bit over your head, then I suggest taking a few hours to bring yourself up to speed with market profile. This however is not mandatory to interact with today’s post.

Below I present the same chart in every way except one—the first chart shows our developing balance as I have presented it for the last several sessions, with 08/22 being the point of change where our current balance initiated.  The second chart instead uses 08/25, the following session.  What I need your help with, traders, is determining when the CHANGE event occurred.

The implications are important for a few reasons.  I will discuss these in detail if I have at least five votes.  Observe the two charts below and simply leave a comment whether your think chart 1 (08/22) or chart 2 (08/25) marks the moment when a change occurred which led us into our current balance.  If you feel like it, add a few notes about why you answered the way you did.  See below:

If there is one vice I simply embrace it would be my passion for food, lots and lots of food.  There is this vegan eatery nearby my home.  There food is fantastic.  The problem is how tiny their servings all, like a bird’s portion.  I am an ox, I order three entrées.  You have to be willing to compromise sometimes.  If I want massive portions of healthy food, then I have to pony up some extra cheddar, you dig?

Fine foods can be like a diamond in the ruff out here in the mean suburbs of Detroit.  I am sure it is nothing like the backcountry, dire choices some of you face, but to procure something light on the sodium and disgusting fats takes some digging around.  How do I dig exactly?  Well with YELP, of course.  Great app, I like chart even better. I bought some to wrap up the week.

This position adds to my food empire, which includes another undersized food proprietor, Potbelly, and a California delicatessen second only to In-And-Out, The El Pollo Loco.

As you can see, my book is laden with foods, delicious casual dining experiences we can all confidently enjoy.  There are all sorts of other moments that were special about today, like dumping my transitory hedge for a scratch at the low of the day.  That was special.  These types of executions bring a warm feeling to my heart and make me hungry for more winship.

Stay hungry my friends.

Now I am off to sacrifice a few organic chickens to my belly gods.

I cut my TZA yolo’esque call position, essentially betting that the low of the day is in.  I could be wrong, we are lingering down here, but with the expiration so near, and speedy shenanigans not quite here, I decided to shed the hedge.  Let’s see if buyers can come in and we print a low.  There hasn’t been a buyer all day.

Aside- four times a year, this roll period, trade becomes so sluggish in the futures.  My edge is a bit dull until this September contract is officially put to rest. Sucks, but such is life. Maybe these are perfect times to take little miniature vacations.

Futures in the Nasdaq are a touch lower overnight on a drift down overnight.  During this rollfoward period, where some traders opt to move into the December contract whiles others stick around and trade the September contract, most of my volume studies are rendered less useful.  However, the session appears to have occurred on fairly normal volume.  We had Advance Retail Sales numbers premarket which were in line with expectations for the month of August.  On the docket during the trading session is U. of Michigan Confidence at 9:55am and Business Inventories at 10am.

As we wrap the week, take a look at the big picture, via a weekly chart of the actual Nasdaq composite index.  After racing through a gap left behind 14 years ago during the dot com bubble bursting, we are now holding steady along the upper edge of the gap.  This long-term timeframe is buyer controlled and we can see responsive buyers on attempts to take price back down through the gap.  Keep in mind, however, this type of activity, responding to lower prices multiple times, expends the buyers resources and energy.  Whether this resolves via another leg higher or an exhaustive buyer giving the gap back is unknown, but the context is interesting nonetheless:

On a more actionable timeframe, the intermediate term, we can see balance maturing to now 15 sessions.  If you are a swing trader who buys quality chart setups, you couldn’t care less if this index stayed in balance indefinitely.  What is curious about balance on the index is “where” it occurs and “how” it allows individual names to behave.  When we spend weeks slugging out balance down in a trough, individual stocks can be punishing, win rates on the long side lower and less robust, and short sellers gaining a slight edge.  However, up at a peak, individual names can breakout and stick as we have seen recently.  With that in mind, and depending on how you trade, it is pertinent that you understand the boundaries of this balance and where value is.  Your job is to buy below value and sell above value until this environment resolves itself.  Also we need to be on the lookout for a value shift and who it entices into the marketplace.  I have noted the key levels  on the intermediate term timeframe below:

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

There come times when your physical body challenges you and attempts to take you away from the present.  In my case, it’s a sore jaw recovering from a not-so-pleasant contouring rending me unable to enjoy eating and unable to perform strenuous exercise.  Pair that with one of my computer systems going down today, taking out two of my screens, a queasy stomach from grotesque winship, and the Nasdaq printing the THIRD neutral extreme day in a row, and you have a recipe for a mental breakdown.

These days are when you must be at your very best, a citizen who rises above the material world and simply exists now, in the present, and behaves as one must.  A better trader?  Perhaps, but not a better citizen.  Thus, with screen real estate DOUBLING in value, I chose to take a long lunch and purchase a new computer.

Upon returning, things went very well.  WB had gone insane, I scaled a piece at new all time highs.  AMZN had made an aggressive counter rotation off the low, I bought next week’s call.  GPRO is so very close to my target, one might have to bend to win, as if facing the German Blitzkrieg.  SINA suggested a failed auction, I scaled.  My ZU calls, rendered practically worthless in a setup still beautiful, a strong volume characteristic and a weak high, I bought more time.  Little market profile and auction theory quirks, practiced and studied over-and-over, like judo, until they become natural and practically automatic.

I must say, it is a wonderful feeling being free of thinking and simply able to trade.  If you have never experienced this feeling, the last thing you should be is discouraged.  Stay with this site, these traders, they are some of the brightest minds in finance.  If I sat here and thought my work was done, the need to study and review and improve, or even if I became a bit too boastful, my head would be on a pike in two short market days.  The work never stops, if you do not love the process and are only attached to the material outcome, then I assure you a path of suffering awaits.

These were some of the thoughts experienced during my out of body dentist visit, I am finally feeling cognizant enough to type them out.  Stay humble lol.

Nasdaq futures are down a bit into the open.  Trade was mostly lower overnight, with not many counter rotations to the upside.  Early this morning Chinese CPI and PPI came in a bit lower than expected but that does not appear to be the “reason” for the selling.  It simply appears we had more sellers than buyers in the overnight session.

Intermediate term we are in a maturing balance area, and area which is becoming increasingly prone to breakage as it ages.  I have highlighted the key price levels on this balance on the following volume profile chart:

I have also noted the key levels I will be observing using the following market profile chart.  Note, I have made a few splits to Tuesday and Wednesday’s profiles to have a better view of the action: