NASDAQ down a quick -100 into Monday (again), here’s the trading plan

NASDAQ futures are coming into Monday pro gap down for the third consecutive week after an overnight session featuring extreme range and volume.  Price was balanced until about 4am (again) when sellers stepped in and drove price lower.  As we approach cash open price is trading inside of last Wednesday’s lower quadrant.

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

Last week began with a big gap down into Monday, as did the week prior. Last week we saw weakness through Monday then buyers began to auction higher Tuesday and through Thursday afternoon.  Then sellers stepped back in.  Overall, choppy volatility.  The last week performance of each major index is shown below:

On Friday the NASDAQ printed a neutral extreme down. The day began with a gap down and after a brief two-way auction price worked higher to close the overnight gap and tag the Thursday naked VPOC before sellers returned.  We chopped through most of the afternoon before sellers drove back down to the lows near the end of the session.

Heading into today my primary expectation is for sellers to gap-and-go lower, trading down to 7334.50 before two way trade ensues.

Hypo 2 stronger sellers take us down to tag the 7300 century mark.

Hypo 3 buyers work into the overnight inventory and close the gap up to 7511.25 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

It is well past the time of day when I normally conduct financial research, and earlier I subjected myself to 75 minutes of hatha-style contorting.  Pair that with intermittent downpours of hot rain, and the act of preparing this Sunday’s Exodus Strategy Session was a bit of a sluggish go.  It’s still solid research.  When I began publishing my findings into Exodus, I was met with an issue at the private entryway behind the paywall enjoyed by iBC elites.  Perhaps The Fly has revoked my access card.  In any case, I was forced to make an executive decision to put the report live outside the paywall, in the ghettos of iBankCoin where public conversation regularly drifts to violence and impulse.

Therefore you have, you all have unfettered access to my weekly research.

For the c-suite types roaming about these back allied streets, who need to return to turning tricks or whatever it is you all do, the executive summary is sufficient reading.  It sums up, in as few words as needed, what I expect to happen over the next five trading days.

Enjoy this 235th edition of the Strategy Session on the house, gyarrrr.

Raul Santos, May 19th 2019

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I. Executive Summary

Raul’s bias score 3.08, neutral.  More chop.  Look for price to mark time via volatile price action that accomplishes little directional discovery.  Watch for the third reaction after the FOMC minutes Wednesday afternoon to provide direction into the second half of the week.

II. RECAP OF THE ACTION

Big gap down into Monday for the second consecutive week. Monday closed week but the rest of the week was spent discovering higher prices.

The performance of each major index is shown below:

Rotational Report:

Rotation into risk averse sectors

slightly bearish

For the week, the performance of each sector can be seen below:

Concentrated Money Flows:

Exodus [PPT 2.0] streamlines how we can research the individual behavior of each industry and how it pertains to overall market sentiment.

Using the Industries screen, we can filter for the Median Return [1 week] of each industry.  I have established an arbitrary -/+ 3% cutoff for qualifying industries of interest.

Money flows skewed bullish in a subtle way, with many key driver industries populating the positive side of the ledger.

bullish

Here are this week’s results:

III. Exodus ACADEMY

Still on the bearish side of  ‘Hybrid Chg %’

I have found it extremely useful to monitor the ‘Hybrid Chg %’ column on the Historical tab, which is found under the Market drop down menu.

That big -12.15 reading printed on March 22^nd dropped off page 1 last Tuesday.  Then Friday May 3rd, Exodus printed a big plus 10.

But only a few short days later an even bigger negative 10 hit.

The data point is yet to be taken out, despite some conviction buy days Wednesday and Thursday.

CAUTION

Note: The next two sections are auction theory.

What is The Market Trying To Do?

Week ended searching for buyers.

IV. THE WEEK AHEAD

What is The Market Likely To Do from Here?

Bias Book:

The following biases were formed using basic price action and volume profile analysis. By objectively observing these actual attributes of the market we gain a sense of the overall market context. To quantify the effectiveness of this approach, each of the 4 equity indexes (/ES, /NQ, /YM, and /TF) has been assigned a fixed long/short target using a standard 14-period ATR. Each week there will be an outcome of win, loss, or timed stop on all four indexes. The first bracket level hit is deemed the winner in the event that both sides are tagged. This will be tracked and included in the Exodus Strategy Session.

Here are the bias trades and price levels for this week:

[Note: All levels are as quoted on the front month future contract (currently June 2019) by the IQFeed Data Servers. Prices may differ slightly from your data provider. If you do not have a platform which provides real-time futures quotes, please click here for a free (but limited) alternative.]

Here are last week’s bias trade results:

Bias Book Performance [11/17/2014-Present]:

Compression Watch: Semiconductors fall back into balance, Transports balance out

Markets fluctuate between two states—balance and discovery.  Discovery is an explosive directional move and can last for months.  In theory, the longer the compression leading up to a break, the more order flow energy to push the discovery phase.

We are monitoring two instruments, the Nasdaq Transportation Index and the PHLX Semiconductor Index.

Transports seemed to find buyers below the key support level lost two weeks back, and the index now looks to be back in balance.

See below:

The semiconductor index lost a support level we expected to hold and are now back inside a wide balance area dating back more than a year.  Expect the levels slightly lower to behave like a magnet for price.

See below:

V. INDEX MODEL

Bias Model: neutral

Bias model is neutral for a second consecutive week after six consecutive bullish weeks.

Here is the current spread:

Vi. QUOTE OF THE WEEK:

“Pay attention to what’s in front of you—the principle, the task, or what’s being portrayed.” – Marcus Aurelius

Trade simple, handle every trade at your best

NASDAQ futures are coming into Tuesday gap up after an overnight session featuring extreme range and volume.  Price worked higher mostly overnight after a brief probe down below Monday’s low.  As we approach cash open, price is hovering just above the Monday midpoint.

There are no important economic events scheduled today.

Yesterday we printed a normal variation down.  The day began with a pro gap down below the Friday range.  Buyers attempted back into range early on but were rejected away from it.  Sellers then slowly discovered lower prices, eventually tagging 7300 before two way trade ensued.  We closed near session low.

Heading into today my primary expectation is for buyers to gap-and-go higher, trading up through overnight high 7399.75 triggering a move up to 7507.50 before two way trade ensues.

Hypo 2 sellers press into the overnight inventory and trade down to 7332 before two way chop begins.  Chop eventually gives way to more selling, down through overnight low 7290.  Look for buyers down at 7271.25 and two way trade to ensue.

Hypo 3 stronger buyers trade up to 7609.75 closing the Friday open gap.

Levels:

Good morning.  Quick note.  I just published the Exodus Strategy Session that normally airs on Sunday.  The model is neutral after six consecutive bullish weeks.  I think there may be a signal developing when the model goes bullish that many weeks in a row, but for now, that is simply an observation.

Models are calling for volatile chop until we hear earnings out of NVIDIA and Walmart Thursday afternoon.  We also have Alibaba Wednesday morning, which is an interesting barometer of China amid all this tariff nonsense talk.

Tariffs are not nonsense it’s just that macroeconomics are not actionable no matter how smart we sound when we talk about them.

Trump tweets are actionable if you are at the turrets when they hit and you trade the reaction.

Regarding last week’s selling.  I am of the belife that the selling pressure seen last week has nothing to do with geopolitics. It is more a factor of basic market mechanics.  The rich private equity goons of the west coast are unloading billion’s worth of equity supply onto the markets.  Participants are doing their best to absorb it, but only so much money is funneled into the equity complex every pay period from W-2 chumps.  This is causing imbalance.

Pair that with the CME launching a wildly successful new set of index futures, and you have a nice recipie for volatility.

Ignore the noise.  Focus on the auction.

I have to attend to a few non-stock-market-related matters then I will be back to assess the state of the market after the big boys duke it out.

PRO GAP DOWN

Trade’em well.

Raul Santos, May 13th 2o19

NASDAQ futures are coming into Thursday gap down after an overnight session featuring extreme range and volume.  Price worked lower overnight, trading down into levels unseen since 04/04.  As we approach cash open, price is hovering near the 4/4 highs.

On the economic calendar today we have Fed Chairmen Powell delivering opening remarks at a community development conference in DC along with initial/continuing jobless claims data at 8:30am.  There are 4- and 8-week T-bill auctions at 11:30am followed by a 30 year bond auction at 1pm.

Yesterday we printed a normal variation up.  The day began with a gap down and two-way auction.  Chop eventually gave way to buyers working a full gap fill before we balanced in a tight range above the midpoint for most of the day. Then, late in the afternoon sellers drove price lower, ending the day just below session mid.

Heading into today my primary expectation is for sellers to gap-and-go lower, trading down to close the open gap at 7518.75.  Look for buyers down at 7513 and two way trade to ensue.

Hypo 2 buyers work into the overnight inventory and reclaim the Wednesday low 7600 setting up a move to target 7622.50 before two way trade ensues.

Hypo 3 stronger sellers trigger a liquidation.  Look for price to slash down through 7500.  Look for buyers down at 7643.75 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Wednesday gap down after an overnight session featuring extreme range and volume.  Price was balanced most of the overnight session until about 5:45am when sellers pushed into price.  Said selling was unable to take out the Tuesday low before discovering a responsive buyer.  As we approach cash open, price is hovering in the lower quadrant of Tuesday’s range.

On the economic calendar today we have crude oil inventories at 10:30am followed by a 10-yeat note auction at 1pm.

Yesterday we printed a double distribution trend down.  The day began with a gap down below the Monday midpoint.  After a brief two-way open auction, price drove lower, taking out the Monday low early on before beginning to trend lower.  We trended down to 7600 before a ramp higher set up into closing bell.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 7674.  From here we continue higher, up through overnight high 7698 before stalling into two way trade.

Hypo 2 buyers sustain trade above 7700 setting up a move to target 7731 before two way trade ensues.

Hypo 3 sellers press down through overnight low 7602 setting up a move to target 7557 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Tuesday gap down after an overnight session featuring extreme range and volume.  Price was choppy overnight, real choppy (90 point range, circumnavigated thrice) bouncing along inside of the Monday range.  As we approach cash open, price is hovering just below Monday’s midpoint.

On the economic calendar today we have a 3-year note auction at 1pm followed by consumer credit at 3pm.

Yesterday we printed a double distribution trend up.  The day began with a gap down that was driven by news from the ‘Trade Wars’ battlefront.  A quick poke below last Thursday’s low during the opening two-way auction discovered a strong responsive bid and sparked a drive higher.  The drive puttered out right at the weekly lower ATR band 7786.50 and retraced a bit before buyers became initiative (initiative relative to Monday’s open, responsive relative to Friday’s close) and put together a second drive higher, trading up beyond 7800 before ultimately settling into the century mark by end of day.

Heading into today my primary expectation is for buyers to work into the overnight inventory and trade up to 7786.50 before we tighten up and chop for the rest of the day.

Hypo 2 sellers gap-and-go lower, trading down through overnight low 7719.25 to set up a move to target 7700.  Look for buyers down at 7683.75 and two way trade to ensue.

Hypo 3 stronger buyers work a full gap fill up to 7807.25 setting up a move to close the weekly gap up at 7865 before balance ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Monday pro gap down after an overnight session featuring extreme range and volume.  Globex gapped down into the Sunday evening open and proceeded to liquidate down to a new two-week low before coming into balance.  The move is news driven, after the White House went on offense in the ongoing tariff talks with China.  As we approach cash open, price is hovering inside of last Thursday’s range.

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

Last week was choppy early on, ultimately giving way to sellers Wednesday afternoon and continuing into Thursday morning before finding a strong responsive bid.  Buyers then took the markets trend up into all of Friday, closing the week out at the highs.  The Russell 200o demonstrated divergent strength throughout the week.  The last week performance of each major index is shown below:

On Friday the NASDAQ printed a trend up.  The day began with a gap up to near the top of Thursday’s range.  Buyers stepped in early on and we began trending higher, with the behavior extending through the entire session and us closing the week out a few points off of all-time highs.

Heading into today my primary expectation is for buyers to work into the overnight inventory and tag 7800.  From here we continue higher, up through overnight high 7813.50 before two way trade ensues.

Hypo 2 stronger buyers work a full gap fill up to 7865 before two way trade ensues.

Hypo 3 sellers gap-and-go lower, trading down through overnight low 7667.50 to tag the open gap at 7648.50 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

But feel free to go away.

In general, we would do well to forget about our investments and let them work for us while we build more important things, like our character.

I work hard every Sunday to identify the key elements of the stock market to watch in the upcoming week.  Then I define those factors as clearly as possible with pictures and words.  It may seem like an odd public service of sorts, and it can be, but it’s also what has taken me to consistent profitability as a futures trader.

Last Sunday it was clear we needed to watch the Russell, and I tweeted as much:

Russell 2000 will tell the story into month-end $RTY_F will it breakout or head back down through its range? $RUT pic.twitter.com/ine4G73X0F

— RAUL (@IndexModel) April 28, 2019

Index Model is included in the Strategy Session every Sunday.  The model attempts to predict market direction five days into the future, hence it needing to be updated every Sunday.  The predictive portion of the model is useful, but it offers something much greater—context.

When the markets started moving fast mid-week, I had to reduce the number of futures contracts I follow because my analytical computer starts to lag.  Since I had done my Sunday homework, I knew what was non-essential; the Dow, S&P, SOX, and TRANX.X. All I needed was the Russell and what I actually trade, the NASDAQ.

At that point, while popular traders were passing around the popular, “Sell in May, go away” mantra, I was simply watching the Russell bounce along its lower ATR band.  Why else do you think I was able to add to my Tesla investment with near-perfect precision?  An Elon Musk tweet?  Please.  I am a slave to no man’s word. Take a look at the last five days of trade on the Russell 2000, separated into 15 minute candles with volume profiles (volume at price) for each 24 hour day:

That’s all I wanted to reflect on for a moment.  If you’ve ever thought about trading index futures but haven’t been able to sufficiently capitalize an account to handle the notional value of index futures contracts, you’re in luck.  Beginning Monday, the CME is launching micro futures on the Dow, S&P, NASDAQ, and Russell.  I think every trader should pick one of these markets and trade it exclusively for a few years.  It will develop you much further than ferreting from one degenerate stock to the next.

Chop wood and carry water.  We cannot just stop doing the things that brought us to where we are.  Sunday research, highly concentrated tweets, compassion for others, and pulling lots of weeds.

This isn’t the kind of May to go away from trading.  From fussing with your long-term investments?  Yes.  Do that now and thank me in four years.

I’ll still be here.

Raul Santos, May 5th, 2019

Exodus members, the 233rd edition of Strategy Session will be live by like noon eastern time.  Be sure to check it out and for gods’ sake, if you have have questions ask.

NASDAQ futures are coming into Friday gap up after an overnight session featuring extreme range and volume.  Price worked higher overnight and trading up near Thursday’s high as we approach cash open.  At 8:30am advance goods trade balance and non-farm payroll data came out stronger-than-expected.

Also on the economic calendar today we have ISM non-manufacturing at 10am.

Yesterday we printed a double distribution trend down.  The day began with a slight gap up that was resolved during the opening two-way auction before we headed higher and tagged the 7800 handle.  Sellers stepped in here and drove lower, pushing us RE down and continuing lower, tagging the 7700 handle before settling into balance.  We ended the day chopping below the daily mid point.

Heading into today my primary expectation is for buyers to gap-and go higher, testing up through Thursday high 7805 which sparks a move up to 7830.75 before two way trade ensues.

Hypo 2 stronger buyers tag the naked VPOC at 7840 before two way trade ensues.

Hypo 3 sellers press into the overnight inventory and close the gap down to 7736.50.  Sellers continue lower, down through overnight low 7724.  Look for buyers down at 7711 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves: