We could see some panic soon

If the top is in, we’re still pretty early in the process. To sit here and type an entry saying the top is in would be irresponsible. We don’t know if a top is in. We’ve made several observations that match-up with the type of sentiment we look for near tops. There are some major upcoming events geopolitical and otherwise that at some point will force the invisible hand to slap markets around in a fit of reprice. How and when the hand strikes, we don’t know. Winter is coming but not before spooky season. The possibility of putting a good scare into everyone is present. But without a solid data set there is no way to put a probability to it, and I’d rather go sit in the woods and eat with sticks then put the fear in any of yous.

I’ve been positioning for a correction. I panicked first—some time near the end of August I raised a decent chunk of cash since then resisted the temptation to redeploy it.

Then I put a big SQQQ position on Thursday morning. Decent entry. Not great, but certainly not as reactive and impulsive as some of the other entries I saw folks calling out:

I just loaded up an SQQQ hedge. If we rally into the close I will cut the position. But if we close week—i shall press.

— RAUL (@IndexModel) September 17, 2020

So I am cashed up and hedged. Money has met mouth and together they are synchronized in expecting some kind of a correction. Either the market will prove me wrong, moving higher, forcing me to cover the hedge at a loss then chase prices higher. Or I think and fast and wait…until a good scare sets in so I can cover the hedge and begin to pepper some buy orders in.

I won’t be gung ho to buy the next dip. Not into the election. Too much uncertainty. I’d rather have funds earmarked for my latest project—a sweat lodge. They took away my precious hot yoga. I haven’t had it since the very beginning of March. This was fine during the initial COVID freakout. I was busy gathering supplies and whatnot. Then summer came and the warmth was ever present. But now winter is coming. A long one, by any measure. I am going to need a hot and dark and quiet place to sit and think.

You want to know my secret? Thinking. Fasting. Waiting. These are skills 99% of the competition lack. Master these and you’re well on your way to competency in investing and trading.

Winters are harsh in the murder mitten. They can twist the psyche and render the mind vulnerable to self deception. Ask me how I know.

The sweat lodge must be built and there must be some damn urgency behind the project. Winter is coming.

So I will not be buying heavily into the next dip. I will pepper in some buy orders. I expect the next dip is coming soon.

I could be wrong.

Models are neutral. There are whispers from the model and algorithims that a big down move is coming, but as of yet there is nothing probable. If selling accelerates this week. I will buy more SQQQ. Otherwise, assume your humble boy Raul is simply thinking, fasting and waiting.

Raul Santos, September 20th 2020

Exodus members, the 304th edition of Exodus Strategy Session is live. Go check it out.

Let this entry serve as a reminder to the reader that while most week day mornings Raul is a humble market practitioner, there exists a wild impulse that writhes in the background of my subconscious, fighting to break free from its cage and click-punch orders in a wild melee at the exchanges. The “boring” research I present in public forum and on Sundays behind the paywall is constructed to keep my carnal side contained. If it were not, my ability to survive trading would come to an abrupt end. The stock market gods would pick up this old crocodile by the hind legs and hammer toss my body off a high cliff.

It may sound a bit bourgeois, but all I care about is financial independence. I’ve tried the whole working thing—blue and white collar. I’ve even wrapped a rag around my neck and worked Latino style. Of all thesee workneck dressings, the only one I can feel right about is Latino style, and I can assure you even a structure as well fed and fit as mine is limited in the amount of honest labor it can perform.

A work horse dies toiling in the fields. That is no way to live. Therefore I must do what on the surface appears easy but when done right is simple at best and damn impossible for the 95 percent; to consistently extract a meaningful amount of fiat american dollars from the global equity complex.

Today I shook myself awake from a long-form dream where I was back at my last corporate employer, touring the facility and catching up with all my old comrades. They were all still where I left them. Poking away at keyboard in little foam and steel divided cubes except for one—the young feller of Bangladeshian decent who I trained to be my replacement. He transferred to the “product” department. It was on the ground floor and no cubes. It had smooth cement floors and giant screens everywhere and gorgeous women all around—some of them smoking. In short, he had ranked up to some kind of interesting role. The stress levels were high, so was his pay and there was a real sense of urgency.

Read into that how you will. I woke up feeling a bit off. Was part of me considering phoning my manger and begging to be reinstated as an Excel monkey? Mothership was a cool 61 degrees. The bedside fire had gone out while I was asleep.

Now I am on the desk and NASDAQ futures are up +70 or so and I don’t want to trade. I traded great yesterday morning, capturing over 100 handles, traded according to a plan constructed before the open. Good trading. I made enough this week. Today poses too much risk of sullying my mood heading into the weekend. But before this existential prose drags on any longer I want to share some of the reasoning behind the SQQQ position I initiated yesterday. First, here are the daily levels to be aware of on NASDAQ futures:

The main chart that has me carrying a hedge into today and possibly the weekend is the semiconductor index. I imagine most of you are tired of seeing the old sentiment cycle analogue I hitched onto my wagon when OptionsAddict presented it a few years back, but I don’t care. It works for me and helps me wrap context around all the noisy external events we’re constantly wading through. More on this later. First, check out the semiconductor index:

Nothing about the above chart is bearish. That is a strong up trend with a slight break recently. My brain however can’t shake the image of the giant GPU NVIDIA recently put out. It really seems glutinous. This is my subjective brain, not the analytical one used above. But look at this thing:

In my brain that hog of a GPU is the chrome spinner wheel that infested public streets back in 2006 before the Great Recession. A warning that seems so obvious in hindsight. It may be a stretch of the imagination. I will be first to admit that. But come’on man.

Next let’s look at the daily chart of the NASDAQ-100 rolling futures contract:

If you read my entry last Sunday you’ll recall my loathing these big instagram influencer accounts that have suddenly, in the absence of stimulus from posting videos of themselves doing things, became fucking stock market commenters. Another dude comes to mind with a green mallet. On Instragram it was not just an Amanda Cerny in on the act. KrispyShorts also was all over his story these last couple months talking about how he made millions in the stock market using a loan from the bank. What does this all look and sound like? To me it picks up a megaphone and shouts RETURNING CONFIDENCE…see Exhibit III:

Now I may be just a humble Latino laborer, but part of my brain has an obsession with waves, stock markets, Hellenic philosophy, statistics, crowd psychology and a whole other slew of intellectual pursuits. Am I a bit jaded? Hardened emotionally from watching the entire Faces of Death VHS collection as a pre-teen? Four years fighting and fucking my way through a parochial college prep academy? Paying for a bachelor in finance and half a master in accounting only to abandon that career path? Heading into the wild? Alone? Living in a van down by the river trading stonks?

We don’t know.

All I venture to do on this here blog is present the facts as I see them in a time stamped matter. Let history be thine judge.

summarily,

Raul Santos, September 18th 2020

NASDAQ futures are coming into Thursday pro gap down after an overnight session featuring extreme range and volume. Price drove lower overnight, continuing on the momentum of Wednesday afternoon’s selloff until about 2:30am, when responsive buyers stepped in slightly below last Friday’s open gap. Those sellers managed to put together a 110 point rotation higher that ran until about 6am. Since then sellers have been in control. At 8:30am initial/continuing jobless claims data came out very slightly worse than expected. At the same time housing starts came in soft and Philadelphia Fed data came out in line. As we approach cash open, price is in a bit of a free fall and nearing last Friday’s low.

Also on the economic calendar today we have 4- and 8-week T-bill auctions at 11:30am followed by a 10-year TIPS auction at 1pm.

Yesterday we printed a normal variation down. The day began with a slight gap up and after a tight open two way auction sellers stepped in and erased the open gap. Said sellers managed to take out the Tuesday low and press rang extension down by a few points before responsive buyers worked price back up to the daily midpoint. Sellers defended the mid, setting up a new low of the day. Third reaction to the FOMC rate decision was down and we spent the rest of the session working lower, eventually closing on session low, down in the lower quadrant of Monday’s gain.

Heading into today my primary expectation is for buyers to work into the overnight inventory, working up to 11,000 before stalling out and going into chop.

Hypo 2 sellers gap-and-go lower, tagging the open gap at 10,903.50 before two way trade ensues.

Hypo 3 full on liquidation. Downside targets 10,875 — 10,823 — 10,719 — 10,695.

Levels:

Volume profiles, gaps and measured moves:

NASDAQ futures are coming into Wednesday with a slight gap up after an overnight session featuring extreme volume and range. The campaign higher continued overnight, with buyers bidding the Globex market back up near last Thursday’s high (but not exceeding it) before discovering responsive sellers. Said sellers stepped in around 7am New York and knocked price back down into Tuesday’s range. At 8:30am retail sales data came out weaker than expected. The market hasn’t shown much reaction to the data point so far, and as we approach cash open price remains hovering in the upper quadrant of yesterday’s range.

Also on the economic docket today we have business inventories and housing market index at 10am followed by crude oil inventories at 10:30am. Then comes the FOMC rate decision at 2pm followed by a press conference from Federal Reserve Chairman Powell at 2:30pm.

Fed fund futures are currently pricing in a 100% probability that the Fed will keep their benchmark borrowing rate pinned at 0%. The event is likely to cause an uptick in volatility as investors attempt to price in any further clarity they gain on the changes announced by Powell at the Jackson Hole symposium last month along with other factors like new economic forecasts and whether the central bank will commit to allowing inflation to overshoot their 2% target before tightening.

Yesterday we printed a neutral day. The day began with a gap up beyond Monday’s range. There was an open drive higher which stalled out within the first 30 minutes. Sellers managed to press the market range extension down right around 10:30am but buyers rejected an attempt back into Monday’s range. Instead price recovered the daily midpoint by late morning. Around 1:15 the market went range extension up, pressing into a neutral print. Sellers quickly reverted that move back to the midpoint before crossing down through it and making a new low of day. Again buyers were seen rejecting a move back into Monday’s range. Price ramped back up through the mid and ended the day in the upper quadrant of range.

Choppy neutral day.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 11,452.75. From here sellers continue lower, taking out overnight low 11,388.50 before two way trade ensues. Then watch for third reaction to the FOMC announcement to dictate direction into the close.

Hypo 2 stronger sellers trade down to 11,300. Then watch for third reaction to the FOMC announcement to dictate direction into the close.

Hypo 3 buyers press up through overnight high 11,539. Look for sellers just above at 11,545.25. Then watch for third reaction to the FOMC announcement to dictate direction into the close.

Levels:

Volume profiles, gaps and measured moves:

NASDAQ futures are coming into Tuesday pro gap up after an overnight session featuring extreme range and volume. Price was balanced overnight until about midnight New York when initiative buyers stepped in and bid the market higher. Price has been on a unidirectional campaign since, trading up to levels unseen since last Thursday. At 8:30am Empire State manufacturing index came out much stronger than expected:

NY FED'S SEP MFG INDEX 17.0 VS 3.7 IN AUG

— *Walter Bloomberg (@DeItaOne) September 15, 2020

As we approach cash open, price is hovering around the upper quadrant of the Thursday (rollforward) range.

Also on the economic calendar today we have industrial production at 9:15am and a 20-year bond auction at 1pm. The Fed meeting has begun and we will hear their announcement tomorrow at 2pm tomorrow.

Yesterday we printed a normal variation down. The day began with a gap up and after a brief open two way auction price drove higher, driving higher right up until about 10:30am. Buyers could not, however, press the market range extension up. Instead price stalled just above last Thursday’s midpoint. Price then consolidated just below the daily high until about lunchtime when sellers stepped in and drove price back down through the midpoint and eventually to a brief range extension lower. Sellers were rejected from closing the overnight gap. Instead, only a few points below low of day responsive buyers (responsive relative to Monday’s open, initiative relative to Friday’s close) stepped in and worked price back up through the midpoint. We ended the day a bit above the midpoint.

Heading into today my primary expectation is for buyers to hold price above 11,381 setting up a run to 11,500 before two way trade ensues.

Hypo 2 sellers work into the overnight inventory and close the gap down to 11,261.75. Look for buyers down at 11,237 and two way trade to ensue.

Hypo 3 stronger buyers drive up to 11,546.75 before chop ensues.

Levels:

Volume profiles, gaps and measured moves:

NASDAQ futures are coming into the week gap up after an overnight session featuring extreme range and volume. Price was gap higher at 6pm Sunday evening when futures opened for trade. Price then drove unidirectional higher, trading right up to Friday’s high print and stalling (to the tick) and failing to take it out. Since then around 4:15am New York) we have been in a balance and as we approach cash open price is hovering in the upper quadrant of Friday’s range.

On the economic calendar today we have 3- and 6-month T-bill auctions at 11:30am.

Last week was choppy and holiday shortened. U.S. markets were closed Monday in observation of Labor Day. Then we had two days up and two days down, ultimately closing lower across the board. The last week performance of each major index is shown below:

On Friday the NASDAQ printed a normal variation down. The case could be made that it was a double distribution trend down but I will classify it as a normal variation down. The day began with a gap up that was resolved during an open two way auction. From there sellers worked a bit lower but could not take out the Thursday low on their first attempt. Price campaigned higher before stalling out ahead of the morning high. The action was lower from then until about 1:45pm, selling down into levels unseen since August 11th. We caught a bid and rotated back to the daily midpoint, eventually closing just a few points below it.

Heading into today my primary expectation is for a partial gap fill down to 11,125 before buyers step in and work up through overnight high 11,265.75. Look for sellers up at 11,300 and two way trade to ensue.

Hypo 2 buyers gap-and-go higher, taking out overnight high 11,265.75 early on setting up a move to tag 11,300. Stretch target 11,381.

Hypo 3 full gap fill down to 11,050 then a tag of the Friday VPOC at 11,010. Look for buyers around 11,000 and two way trade to ensue.

Levels:

Volume profiles, gaps and measured moves:

Man I had to take the second half of the week off from trading. I kept feeling an odd vibration in my bones that something was amiss. Recall that two Thursdays ago I “panicked first” and raised some cash—even selling a piece of my coveted Tesla position. When Tesla had that big down day a few days ago, what was it down like -18% or something? At one point? The temptation was to re-buy and claim a dazzling victory over the gods of speculation, flip-flopping about the most holy-of-holy ticker symbols T-S-L-A.

I did not re-buy.

Now I am not saying we’ve topped. But I will state that topping is a process, and it looks like we may have taken the first motions to begin. If this is a swing top there will be plenty of time to gird our loins and/or seek the safety of the sidelines. Why? Because topping takes time.

There have been warnings abound. These talented Instagram influencers, jesters of the court who consistently dazzle the smart-phone-addicted dullard with jokes or big old juicy asses suddenly became stock market gurus like a month ago. Even Amanda Cerny, who I feel confident labeling the Sarah Palin of Instagram, got in on the act by announcing to her million followers that she bought 15 shares of Tesla (pre-split):

Just bought 15 shares of TSLA 💦

— Amanda Cerny (@AmandaCerny) August 27, 2020

Nothing ruins a party quite like a bunch of god damned influencers showing up and blowing up your spot.

Speaking of party, daddy-o I finally found one last night. I haven’t had me a rousing jaunt across the anarchic roads of Detroit all summer. Like a squirrel sensing winter coming, I got all gussied up, sprayed my high bun with a bonding agent and set out into the city night. As I left Mothership, I said au’revoir to the constant rumble of idiots toiling to keep their precious grass lawns rank and file and headed into the kill zone.

As soon as I crossed 8 Mile that wonderful feeling washed over me, that great sense of relief that I was back in a place where I was safe from all the walking mozzarella sticks and their dumb assed “this house backs the blue” pathetic-ness. I cracked open a 24-ounce can of malt hooch and made the rounds, checking in with all the usual suspects to see if anyone knew where I could find an orgy of song and drink.

Well I found it. North-west side. A party promoted under the guise of “Sexual Tension” or something of that salacious nature. I picked up a couple ride-or-die homies and we headed to the fashion mile, a hotbed for hellcat street racing and other lawlessness. My happy place. We had to fill out a questionnaire to enter the patio and have our temperatures checked. It was mask required but my goodness the mamacitas.

Like some shit I’d imagine most of you will never experience during your milquetoast life. Blonde lady, skinny as a rail and 6’5 dunking on any jabroni trying to spit some game. Except for yours truly, of course, humble Raul. I’m too pretty and my charisma is contagious. Maybe she loved me. Maybe she wanted to kill me.  A four hundred pound Black transvestite QUEEN with an assembled court and all. Loud, thumping techno, house music, to wash away the wretched memory of all those idiots and their internal combustion grass trimmers and whips and fucking blowers. I was safe.

We stayed until last call, some honeys invited us up to their 20th story rooftop for a knight cap, etc. etc. You know how these things go in the city…

The rooftop terrace was nice and all but I couldn’t stop looking at the walls that led another eight or so stories higher. I wanted the top. So I slipped into the shadows, threw one leg over the steel fencing, then the other, and I was on the service end of the roof. You know, with the loose gravel and lots of cables running every which way and giant HVAC systems…

I found a sturdy aluminum ladder back there that could reach about two stories high. Not quite enough to easily claim the next ledge without standing on the top rung, of a relatively straight up ladder, then getting my armpit onto the ledge and carefully lifting my yoga-sturdied limber ass up, but I made it. Then I hoisted the ladder up to me and took it to the next wall, then the next wall, and voila! I was at the top. Just me and the American flag whipping in the wind.

Finally, a peaceful perch to sit and contemplate all things life and otherwise.

And that was when I realized two things—nothing really matters, and that topping is a process. I made my way back down, but not before first doing my old tight walk routine to startle some life into the after-party-goers some seven stories below. Came back down, drank some cranberry juice chaser, no alcohol, until it started pouring rain. Then I returned to Mothership, woke up at 9am and did a.m. yoga in the whipping wind. Made some food, took a nap, and here we are.

Models are neutral lads. The only trade I will be taking is the trade that has allowed me to survive on my own for these last seven years—the bread and the butter—the open gap inside the prior day’s range. I wake up, I work that trade, then I go about my day, no one’s master, no one’s slave.

There are some clear places on a few charts to watch over these coming weeks to confirm (or deny) that the top is in. Remember: we have an FOMC rate decision this upcoming Wednesday, we rolled forward to the December futures last Thursday, and we are about 50-some days away from the big vote.

There is no shame in going to the sidelines. Our job is to survive first, then thrive when conditions allow it. Maybe those conditions are now, maybe there not. I dunno I might be a madman, but I am dead set on l-i-v-i-n.

Raul Santos, September 13th, 2020

Exodus members, all you need to see in this week’s report is the NASDAQ transportation index. It is telling a huge story. Go check it out now!

NASDAQ futures are coming into Wednesday up about +150 after an overnight session featuring extreme range and volume. Price drove higher overnight, steadily campaigning higher until about 6am. Sellers became active around Tuesday’s midpoint, and as we approach cash open, price is hovering below Tuesday’s midpoint.

On the economic calendar today we have JOLTS jobs openings at 10am followed by a 10-year note auction at 1pm.

Yesterday we printed a neutral extreme down (barely). The day began with a gap down near last Friday’s low. The open auction was fast, bouncing first higher then lower to take out the Friday low by a few points before forming a sharp excess low. From then on the next hour was spent campaigning higher, filling a half gap up to 11,400. Then sellers knocked price back down through the daily midpoint. We chopped along the daily midpoint until about 2:30pm when sellers stepped in and drove lower. Sellers worked lower and ended the day on the lows.

We were only range extension up for about 2 minutes. It is debatable that yesterday was a normal variation down.

Heading into today my primary expectation is for sellers to work into the overnight inventory, closing the gap down to 11,054.50. Look for buyers down at 11,000 and for two way trade to ensue.

Hypo 2 stronger sellers trade down through overnight low 10,935.25 tagging the open gap at 10,903.50 before two way trade ensues.

Hypo 3 buyers gap-and-go up through overnight high 11,296.25. Look for sellers up at 11,411.50 and two way trade to ensue.

Levels:

Volume profiles, gaps and measured moves:

NASDAQ futures are coming into the first trading day of the week down about -350 after an overnight session featuring extreme range and volume. Price was balanced overnight until about 2am when sellers began campaigning price lower. As we approach cash open, price is hovering near last Friday’s low.

On the economic calendar today we have a 3-month T-bill auction at 10am, 52-week T-bill auction at 11:30am, 3-year note auction at 1pm and consumer credit at 3pm.

Last week kicked off with three days of buying across all major U.S. indices. The rally came to a conclusion Wednesday afternoon. From Thursday onward there was heavy selling pressure on the tape. While the Russell demonstrated some relative strength, all indices ended the week lower after reversing their upward trends from earlier in the week. The last week performance of each major index is shown below:

On Friday the NASDAQ printed a normal variation down. The day began with a gap down in range. An open-two way auction was quickly overrun by sellers who drove lower for the first hour and fifteen minutes of trade. This selling took price down to levels unseen since August 14th before discovering a bid. After a sharp excess low formed, buyers worked price back up to the daily midpoint. After battling over the mid for about two hours, buyers eventually reclaimed it and drove higher from it. Said buyers could not push the market into a neutral print. Instead stalling out at the daily high set during the open auction (to the tick). Price slightly faded back to the midpoint into the closing bell.

Heading into today my primary expectation is for buyers to work into the overnight inventory and trade up to 11,400 before two way trade ensues.

Hypo 2 sellers gap-and-go lower, trading down through 11,091 and sustaining trade below it, setting up a move to tag 11,000. Look for buyers down at the 8/11 open gap down at 10,903.50 and for two way trade to ensue.

Hypo 3 stronger buyers work a full gap fill up to 11,551.75 before two way trade ensues.

Levels:

Volume profiles, gaps and measured moves:

Howdy internet friends, and happy Labor Day.

I’d like to take a moment to update you on the latest findings from my weekend research. I will keep this post brief given my need to labor elsewhere. Working on Labor Day is what America is all about and I have work to do. But first, let us look back on last Sunday’s headline. Isn’t it a bit unsettling how this here humble Raul blog (hRb) regularly presents a forecast that materializes? Here is the headline I put out last week Sunday:

I suppose I panicked first, as they say, because when that wave of selling came through Thursday morning I raised some cash.

Raising cash never feels good to me. I need risk exposure and do not trust the american fiat dollar. Or those wretched bitcoins for that matter. Therefore I have to find a darn good use for cash anytime I have it. I’d rather maintain a lean checking account that has funds available for the next three months then have an unsettling six figure cash balance sitting around.

Cash unnerves me. It makes my impulses flair up. I suddenly find myself waiting in line at Gucci with a bunch of dolts keyed up on social media, wanting some dumb new belt or flip flop. Then, when they don’t have the thousand dollar loafers I up and decided I wanted when I woke up, there I am calling all the stores in more established regions like Manhattan and Bal Harbour, trying to hunt down loafers. Then a whole day I could have been working is gone, and I am trying to venmo some likely scammer for a pair of furry loafers.

It’s enough to make my feet spin right off the earth and into coo coo for cocopuffs land. Then what follows? Other impulses—to find some fast women and take them up on top of an old building to drink a few liters of tequila then jump down the fire escape to see if the welds hold up.

All of this takes my eye way off the prize. Staying invested, and hungry and broke keeps me focused. It never feels good raising cash.

Nevertheless, I am 35 heckin’ years old now and I am so tired of hitting my head. So I need to find ways to carry all this useless cash without going insane.

Because I need to carry some cash into these next three months. Winter is coming and before it we have to walk through the ruthless climax of an election cycle. The extreme right is doing all they can to initiate helter skelter and the extreme left has gentrified the Black Lives Matter movement and I can’t escape to Canada like I usually do about now. I’d much rather chase the fall colors. Seeing one brilliant red alert sunrise from a good vantage point can cure a decade of suburban mind rot.

I suppose I will have to keep myself busy with the giant hole in the backyard. I will probably add another two feet to its depth to refrain from other extracurricular activities.

This upcoming week will be a challenge. The models have gone neutral which gives me nothing to lean on in terms of bias. I have no edge heading into this holiday shortened week. A week that signals the end of summer in many a brain. It signals the time is now to gather up your nuts before the hard winter settles in. Without a clear bias, I have only one way of objectively engaging the market and extracting nuts—the open gap inside the prior day’s range. That’s about the only trade I will be working this week.

As always, we’ll be taking it one day at a time. Be sure to drop by around 9am New York for my daily trading plan. I may take a few days off. If I do, I shall let you know over on my twitter handle @IndexModel.

Cheers lads, and happy labor day.

Raul Santos, September 7th, 2020

Exodus members, the only real edge we have heading into next week is the set up on the NASDAQ transportation index. Be sure to read Section IV of the report, which is live now behind the paywall, and understand what price levels to be aware of.