The Market Needs More Power

As I have discussed in the past, one of my favorite data to gather and track is cumulative volume delta (CVD) on the front-month index futures.  Considering the S&P futures are the most liquid financial instrument in the world it is important evaluate the volume a bit further.

CVD = volume traded at offer – volume traded at bid

Taking a look at the price action to start the month in conjunction with a moving average of the CVD offers us interesting insight into the overall market behavior.

The futures opened trade last Sunday in a similar fashion to tonight’s gap lower.

You can see pressure being exerted on the offer early in the week, especially when Tuesday hit and all the hot new money was put to work.  Unfortunately, all of the power exertion was effective at only retracing into the upper bracket of our prior range.  Like our distant relatives would study the stars and name constellations, the near-perfect distribution of volume formed during our prior range was named Da Vinci’s Brush.   All that buy flow was capable of testing value area high and nothing more.  There we found a patient, quiet seller resting on the offer.  Actually, the seller may have been large enough absorb all of Monday’s buy flow.  A whale, if you will.

It seems as if the more aggressive sellers caught the scent of this whale around the third and began pressing hard on the bid.  The selling force was enough to reject the Da Vinci range and send us to new lows where again, we found dip buyers.

So we know where the buyers are and where the sellers are. Most importantly we know their battle lines are converging.  The victor has much to gain with volatility on the rise.

The seller, our whale, feels bigger and more patient than the buy flow.  If the buyers are to pull a victory this week, we are going to need more power.  However this market has been unforgiving to bears all year long.  We have distracted minds watching the bureaucrats and political emotions are running high.  The overall climate is a combustible mixture much more volatile than a Tesla Model S battery.

Gentleman, you should take action according the how the following consolidation resolves:

I was able to advance my portfolio by seventeen percent to start the month pressing my high water mark while the market consolidated/traded lower.  As the month continues, the risk continues.  This is a risky environment and stock picking continues to be paramount.

I love open water swimming.  It is explorative by nature and makes me feel small.  Perhaps I feel the same enjoyment trading in the futures.  And although I enjoyed swimming in the /ES these last 6 months, the /NQ has a much better feel.  /ES is like catching the shore pounding waves in Huntington Beach California where /NQ is like the warm rollers down in Costa Rica.

We will however continue profiling the /ES as it bakes the finest contextual cake in town.

Tesla came out and defended his technology like a true gentlemen after the bell today.  Much like Henry Ford would stop and repair any broken down Model T’s he passed, Musk came to the modern day rescue, producing a detailed report on the event.

I do not know any CEOs who are behaving as fantastic as this guy.

I like my book of stocks and I only wish I wasn’t sidelined on ADHD.  Everything else about this week was perfect.

LEDs will continue to be a disruptive tech.  Keep your eyes peeled for them and do not hesitate to report your findings to Raul.  Better yet, use your AMBA cameras to gather intelligence.

Signing off,

Raul

As horrendous as the news flow has been this week, I have these charts setting up something mint.  If I continue playing ostrich to the news, which is the plan, I have setups galore.  The market looks like a well-managed brothel and I am simply partaking in the services hoping the Feds don’t crash the party.

I bought WLT but the big story is the resurgence of LED stocks.  Everyone wrote them off after CREE reported soft numbers last quarter.  Yet here we go again, with these stocks ripping.  RVLT is leading the charge as my book propels over two percent higher on the day.

I switched over to trading the /NQ as I mentioned yesterday and I like the pace of trade much better.  I find I am babysitting positions less often.  Instead I am trading in a stick-and-move fashion that better suits my fringe lifestyle.

FaceBook will not relent and I would quite enjoy seeing it go Nicola Tesla on these shorts.  Being in a well-padded long, I see no reason to sell any.

Everything I sold continued to propel higher, so selling has been stupid.  Look at MHR and YGE.  Stupid.  Selling is for stoopid folks.

Press the boot and sip cognac instead.

Cash @ 18%

The markets were fairly quiet overnight and staged a small rally in the early am hours which is how being faded back.  Price is consolidating ahead of the US open and I suspect more chop is in store before we see any directional conviction today.

We are currently trading near yesterday’s VPOC which tells me little in the way of development occurred overnight.  Instead the markets seemed to tread water, waiting to hear the next development out of the United States.

Early on, buy flow has a slight edge and if the market can put in a higher low here premarket we may get some additional vertical development by the bulls.  Overall however, the situation has become much more choppy and indecisive.

I have highlighted a few scenarios and key levels on the following market profile charts:

http://youtu.be/icIv7nJqjuQ?t=37m26s

I can do anything.

We sure do cover the /ES_F often over here on the Raul blog, discussing its…implications, if you will.  Building the contextual cake helps me to identify abnormalities, flinches, and hand tips by the big money.   The E-mini S&P is the most liquid financial instrument in the world.  It makes sense to pay attention to it.

But trading it has become a slow and painful grind.  It is like going years without a dish washer even though you love to cook.  You get by, but your soul dies a little every day.

I needed some change (No Obama) so I traded the /NQ.  I like the NQ…peep today’s stats:

Thoughts:

• today had a large range
• /NQ is thinner
• smaller contract size suits my size a bit nicer
• I trade lots of Nasdaq and Russell stocks so I may be concentrating my eggs
• It offers more trading opportunities (at least lately)

/ES has been brain numbing, while I go ‘big pimpin’ on these wiry stocks.  Speaking of which, my book was up a percent today.  That is a result of stock prowess and hanging out with traders much more seasoned then me.  Mainly my gains today were a result of being on the right end of a technology revolution.  So while sour bastards get their kicks shorting Tesla, which is fine, I am embracing the future and finding opportunities to invest in it.

In short: CREE and RVLT what what?

I started buying ONVO too, right about at these levels.  You can’t keep me out of this name.  When my pickled organs give out I want robots around to print new ones.  Seems like a no brainer at five fifty.  I consider it an investment in myself.

I sold YGE.  It felt like when I sold VIPS yesterday…too soon-ish.  However, dwelling on these thoughts prohibits the mind from seeking opportunity elsewhere.  I sold RBCN too, for a loss, because it sort of just fell out after mainlining hot money.  I do not want to be around when the Apple WWDC crowd goes running for the doors, should they do so.

ADHD is a ticker which by design frustrates me, ripping higher like a freshman jacked up on Mountain Dew and Ripped Fuel.  Ah high school…when ephedra was still legal.  I have wanted a long on this one for a few weeks but my attention keeps darting away from it.  Instead I want to Snapchat and play ping pong in the futures.

I do not really love the way we are setting up into the weekend.  The market looks like the headless horseman.  Sentiment sucks but the crowd isn’t always wrong.  I have concentrated by book down to the following positions listed largest to smallest:

RVLT, CREE, USO, LO, BALT, AMBA, FB, ONVO, F, IMMR, MJNA, O

That jackass MJNA stock can burn up and go to zero for all I care.  What a garbage stock.  I am -20% on that field play.  I thought about cutting O about 100 times, but I figure keep it and collect the yield.  My basis is a tad below here.

Everything else I hold close to chest.  As a matter of fact, I need more CREE and RVLT but I am exercising patience.  Together the stocks represent almost 30% of my risk capital.

I will let Q4 play out a bit before getting more risk into those two names.  In the mean time I can increase my LED exposure via VECO, RBCN, GTAT, OESX, and LYTS.

This is the third day I have woken up to assess sell flow in the overnight markets.  The S&P rejected the large distribution we built into last week’s close which had a value area low at 1686.25.  It came in the form of a rally that failed to take out the intraday high.  Instead price fizzled out into the bell and eventually sold off hard after hours.

As aggressive at the evening sellers were, their order flow did not take out yesterday’s RTH low at 1673.25.  Instead it stopped and turned on a dime one tick above the low.  Since then we have snapped back and are trading sideways and the globex volume profile shows balance.

Early on the important manner is who pushes first.  We have a low volume node at 1682 (o/n high) which looks vulnerable if some buyers come in early on.

My overall analysis is that if no aggressive selling comes in and we hold yesterday’s low, the stage is setting up for a rally.

I have highlighted some upside targets and a few scenarios on the following market profile charts:

After I sold MHR and VIPS it felt good to book the ten digit gains, and it made sense with my trading plan, but I suspected my mind had gotten in the way almost immediately.  But being overly concerned with booking gains would just jumble my mind further, so I jumped back into the waters looking for my next meal…essentially.

USO, perfect, full size

Bullet point reasoning:

• “I’m an oil man”
• USO moves slow like sludge
• All my mind wanted was crack stocks
• Was sitting on multi-month support, chillin’
• An esteemed 12631 member and I discussed and agreed it had a good look

Two of those reasons pertain to how juiced up I was coming off of yesterday.  iBC Chief Market Strategist “The Fly”, the brains of this whole outfit, eased up and I felt overconfident.  Then I missed an entry I really wanted on ONVO.  Then I made an earnest attempt to punch a hole in a solid wood security door after storming away from my desk.

Yeah…it was like, cool out hot head.

So I stopped trading.  I stopped watching the market mostly, too.  There’s over 30% cash in my books and no doubt that I can’t trade my way through a deeper pullback.

Completely aside, the burning Tesla Youtube video has the stink of fabrication.  I have no intention of proving it.  But if all news is fake then so is this spoof video.  Well done.

All news is fake.

Good night

The kabuki theater kicked into high gear, scaring people.  That is because when you are scared you flinch, and when you slip just that much, JUST THAT MUCH, algos will lance 100 holes in you.

The market is behaving itself like a top tier executive after a good night’s sleep.  The market is reading the Wall Street Journal (have not read this paper in five or so years) while eating roasted duck and poached eggs.  The market is driving the Bentley patiently into the office and greeting the security guard at the entrance with a gingerly tip of the hat.  Then the market is meeting with its top advisors and strategizing the next big move.

The market is behaving very top hatted.

Yet jolts of fear are shooting across the bow of the stock world.  They don’t want to chase your winners.  Instead the smart money wants you to panic so they can buy your blood.

Stick with your best ideas, grab a wad of gumption and stick it in your cheek.  Then spit at the losses you are incurring and welcome a little pain into your life.

I sold out of VIPS and MHR because these were trades aka cheap thrills.  I want to focus on my core.  I’m still an oil man so I simply took down a large position in USO.

Cash is 33%

Top Picks: LED industry

Wish list: ONVO, ADHD, VLTR, OESX, VECO, SFM

The overnight action in the S&P saw a wave a selling rip though overnight pressing prices over 15 handles off the high.  Since then price has rotated higher a bit and we are currently trading about 8 handles below yesterday’s close.

Early on price is negotiating an interesting level right here from 1681 – 1683 which was a huge volume cave during yesterday’s trade.  I am interested to see who dictates price away from the range and the directional conviction they carry with their trade.  It could certainly be the hand tip during the morning session.

With a gap of less than 10 handles, it is prudent to keep the gap trade in your contextual mind during today’s session.  The sellers hold the momentum edge currently and it would not surprise me to see another push lower from them early on.  But it is important to consider the possibility of trapping shorts on that move and the implications it has on a potential gap fill.

I have highlighted a price levels of interest and a few scenarios on the following market profile charts: