Watching how the Market Digests the Big Move

One of the key elements to yesterday’s trend that should have kept me from fading early on was the opening type.  Yesterday we saw a classic opening drive: the market opened above the value area highs spanning four days and didn’t look back.

Today we’re seeing a more balanced session overnight, with the action taking place within yesterday’s upper volume distribution.  I’ll be keying off the price action inside the upper boundaries of the P-shaped profile.  The single prints below can get slippery, should price trade back down into them, I’m playing for a swift move through them; a crushing blow to the bulls.

But mostly, I’m looking for digestion of yesterday’s move.  Should price consolidate within this upper distribution, we could see individual stocks fare very well.

Today was really interesting as a student of the markets.  Believe me when I tell you, there’s gold in trading the S&P futures at the open.  I just can’t seem to harness it yet.  I have streams of data over all types of markets supporting such a thesis.

I grabbed onto the $ES_F not long after the open.  I got an ace entry just above 1630.  As is par the course, I got my first scale at 1.25 points profit.  I scale at 1.25 because my setup achieves this goal with a 70 percent win rate.  Then I let the other units run.  In theory.  Currently I’m trading a two lot.  I’ll keep trading this tiny position until I get the type of profitability my statistics suggest, and then my goal is to work up to trading 50 lots like the best.

Anyhow, I get the 1.25 and there’s no sign of sellers.  But these positions require my full attention.  More attention than I can give when I get the phone call for an impromptu morning meeting.  WTF?  I booked the other piece a 1.75 points profit and scuttled to a meeting.  Returning to my abode, I watched patiently as the move progressed, and when I got a short entry I took it—then got steamrolled.  That’ll teach me to fade all-time highs.  Had I kept my runner, it would have earned 10 handles without even looking back.  I know—I’m really good at hindsight trading.

While my future’s game is of the little league variety, my stock swinging game is clipping away with major league win rates and profitability BUILT IN.  Mostly everything won today, but ANGI and GS were both solid con #timestamp for the good people of iBC.

I did quite a bit of transacting today, let’s run through it quickly yes?

I added to my GS long early on, and then later sold it when we neared the 155 target my plan called for.

The remaining long in BBRY was closed at break even, after squeezing some profits out of this turnip yesterday.  Blackberry is a big, stupid, Canadian turnip.

I grabbed OptionAddict’s coattails via JOEZ.  It’s not nearly as homo as putting ones hand in another man’s jean pocket.

I scaled a little bit of ANGI off.  Why not take 5 percent before your catalyst?  I still like it into tomorrow’s housing stats.

HAIN was bought into the bell, as it flagged along into the final hour of trade.  My order was followed by a little squeeze which gave the daily chart a lovely look.

All this shuffling took my cash down to 40 percent.  I’m standing atop the mountain on a small piece of rock, being propelled higher by liquid hot magma.  This mountain is in fact, a volcano.

Trade accordingly.

Very solid market this morning for the $ES_F.  This is the type of action that comes after a huge consolidation like we saw over the last 4 or 5 sessions.

I took a long off the open that earned 1.5 points on two contracts.

Then I tried fading this mega move, taking 3 handles of heat on two contracts aka I gave it all back and more.

I’m not beating myself up over these losses, although I may go back to the drawing board to build in a caveat for fading moves after a long consolidation.

You can have a losing day according to your plan.  It’s the deviations that cause confusion, loss of confidence, and consistent losers.

The market is speaking clearly today.  It says, “Don’t fade me brah!”

UPDATE:  We had some jawboning jerk the overnight market up, we’re now dealing with a double distribution on the 24 hour profile:

It’s been a quiet morning session, but certainly of a different character than we’ve seen since entering this large balance zone.

Since the neutral day on the 9^th, I’ve been watchful for the next move out of balance.  This morning’s profile suggests we may see it today.

What I’m referring to it the toothy characteristics of the volume.  Recent overnight profiles have been near-perfect bell curves.  This morning not so much, instead the profile lacks a clear point of control.  Price rejected yesterday’s high overnight at 1633.25 and swiftly rotated lower, with a current low right at the major confluence of VPOCs at 1626.50.

As we progress into the morning USA session, I’m looking for the market to rotate higher off of the major VPOC level and result in another quiet open with little gap to trade.  However, if the buyers don’t file in to buoy this index, I suspect we may explore lower.

Today I’m getting those butterflies in my stomach that ZenHunter spoke on over the weekend.  They come from following your method and seeing it work.  I keep a tight schedule now, nothing unbreakable, of course, but guidelines to keep me in the zone while there’s action.

Look at the financials.  They’re not as overextended as the rest of the market.  That’s why I’m back in Goldman.  The inverse head and shoulders is a bonus and it allows us to build context into the play.  It doesn’t matter if the market conforms to the chart setup.  What matters is your ability to use this context to frame the position of other participants and how the live action is treating them.

Like when we say BBQ the shorts—it’s because you know they’re leaning on a major level, like GS $150.00.  Today, they defended the level with decent tenacity.  Their tenacity was overkill, if I may be so bold.  Much like the last fight of an old tiger, they may realize their days are numbered.

These behemoth large cap stocks need a supportive overall market more than the crack rock that worked so well today, so be cognizant that playing GS means possibly having to ride that out.  But once you’re prepared for that, you can play the inverse head and shoulder pattern accordingly.

I cut that HDGE position this morning. It felt good to dig that 12 percent losing thorn out of my side.

Other tickers of interest are current longs: ANGI, BBRY, FB, AAPL, RGR, and CREE

Other tickers of interest I’m stalking: INVN, ELNK, F, LYTS, and RH

I own SAM and AWK too, but they’re not of interest if you catch my drift.

Cash was a little above 50 percent into the bell.  MORE I WANT MOAR.

Angie’s List has gone dead fish intraday, but I like this tight consolidation going into Wednesday’s housing stats:

It’s been a solid morning so far for stocks as we continue to chug along on the value train mountain ride.  The question is are we about to begin a descent ala Thunder Mountain or will the engines continue to power higher using banks and Apple as fuel?

The morning offered me one setup that earned a single ES point.  I’ll take it to start the week.  The primary feature of the morning was a solid five handle rotation higher that buoyed many stocks along with it.  It filled the gap and now we’re watching the market consolidate so far above value.

It will be interesting to see if the market can hold onto this strength through the lunch hours.

I took some profits in YELP and BBRY this morning but still hold 2/3 positions in each.

I started a new long in ANGI, again.  Third time is perhaps the charm?

Expectations today are rather simple.  We have a large three-day value development occurring at these highs.  From Wednesday-Friday the market worked a value area with the control level between 1626 and1627.  Three VPOCs are stacked up at these levels.

Overnight we put a high in at 1627 in near-perfect confluence with the above value area.  Where we trade in relation to this level for the remainder of the day could be very telling of the market tenor for the week.

The overnight session started with a gap lower and thus far has been unable to recapture.  The action resulted in three rotations and a balanced session occurring almost entirely within Friday’s value area.  This tells we we’re still in balance, for the most part.  If the market continues to build acceptance below the value area, we could expect the next exploration of price to be lower, in search of buyers.

I have positioned myself in these markets exactly how I didn’t want to—long this HDGE cheese and bologna sandwich with a side of stocks and cash.  What a shame it is.

This is how the week has played out for the Raul:

I’m trading this ES_F in the mornings.  I enjoy the process and planning.  My win rate is 70 percent meaning I’m right WAY more than wrong.  This is a critical component to consistent profitability.  However, I’ve deviated from my plan a few times this week and it has resulted in me losing money.  I’ve lost over 600 dollars, a gift to the market gods.  I kid you not, EVERY time I deviate from my plan I lose money.  Every time.  Next week, my goal is simply to not deviate from the plan.  If I stick to my plan 100 percent next week, I’m going downtown and getting a steak the size of a toilet seat.  Until then, no red meat.  I’ve been too aggressive.

I’m red on stocks too.  Unreal right?  Stock market went up five days straight!  My CREE is up 6 percent.  I’m still red.  I had a losing trade in ANGI.  Other notable weakness in my book includes FB and SAM.  BBRY is new and still looks decent, same with new long YELP bought this afternoon.

I have this damn HDGE.  It hasn’t bothered me all week, until today.  I bought this position as insurance for my book.  Much like real life, the insurance just costs me money and I receive zero benefit beyond homo peace of mind.  I’ve accepted that.  I even expected that.  But my patience wears thin.  My cost basis is $18.30 and it’s unlikely we see that level any time soon.  HOWEVER, it’s so very oversold here.  “Markets—rational—irrational—solvency”  bla bla bla.  I know…I’m not adding to this name, I’m simply managing my way out of it.  I’ll close on the next bounce.

As bad as this all sounds, my book is hardly down.  As a matter of fact, I’m 12 percent YTD.  Last year about this time I had already given back all my double digit gains on the year.  Perhaps memories of that savage dick punch are what have me positioned oh so homo.

All-in-all I still consider this week a success.  Sometimes you just have to pay the troll toll to get out of a market hole.  I’ll be burning thickets of sage to cleanse my home of demons and digging into The PPT for clarity.  Best part: we get to come back Monday and do it all again.

We’ve seen a pretty aggressive overnight session thus far in the ES globex.  The main feature of the session is two impressive rotations higher followed by a third not impressive attempt higher all coming together to form a head-and-shoulder pattern.  Interestingly, all of this activity is contained within yesterday’s range, occurring in above the midpoint of the session MOSTLY.

Yesterday I was making a fuss about the normal day we were seeing on the market profile because unlike the name, the occurrence is anything but.  A normal day has a wide base from aggressive early entry of a market participant followed by disruption of the intial balance (first hour of trade) both to the upside and downside.  It’s a strong signal that the market lacks directional conviction and the play is to aggressively fade the second range extension back to the mean.  It had about 5 handles of profit built into it.

Going into today, we know the market lacked conviction, we know it’s overbought on the stochastic or RSI or CCI or Keltner or Bollinger band studies and we also know it’s been up all week.  Therefore, I’m looking for sell orders to flow into the market.

It won’t be anything to get excited about, but we should keep in mind the proclivity to book profits into the weekend, the globex HnS, and the normal day.

Here’s the levels I’ll be working this morning: