The battle for 7600: here is the Monday NASDAQ trading plan

NASDAQ futures are coming into Monday with a slight gap down after an overnight session featuring elevated range and volume.  Price worked up through last week’s highs briefly before falling back down into Friday’s range.  The nature of the move suggests a mini failed auction to the upside.  7600 is a key battleground for sellers as it marks where the aggressive selling began late last year as we ended Q3.  As we approach cash open, price is hovering below last Friday’s midpoint, about 10 points below 7600.

On the economic calendar today we have factory orders at 10am followed by 3- and 6-month T-bill auctions at 11:30am.

Last week began strong.  Unexpectedly strong economic data from China eased worries that the world’s second largest economy was leading us into a global recession.  The data put a strong big into the markets early Monday morning.  Buyers drove higher off the gap up clean through Wednesday afternoon before discovering strong responsive sellers.  The selling continued through Thursday afternoon before buyers again stepped and worked price higher.  Most of the indices finished the week at-or-near their highs.  The last week performance of each major index is shown below

On Friday the NASDAQ printed a normal variation up.  The day began with a gap up, inside the prior day range.  Sellers were unable to close the gap during an early two-way auction.  Instead we held a tight range above the daily mid for most of the day before finally going range extension up near the closing bell.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 7605.75. From here we continue higher, up through overnight high 7619.75.  This sets up a move to target 7660 before two way trade ensues.

Hypo 2 sellers trade down through overnight low 7585.50 setting up a move to target 7556.75 before two way trade ensues.

Hypo 3 stronger sellers sustain trade below 7556.75 setting up a move to close the open gap at 7518.745 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

I have a long working list of reasons this market shouldn’t (the most dangerous word in speculation) be rallying, yet here we are again, just a 150 points or so from all-time highs on the NASDAQ.  The PHLX semiconductor index is already there.  This weekend more reasons were added to the ‘should not be rallying’ list like the continued leadership by the Materials sector.  What’s up with that?  Is inflation starting to be a thing, in a bad way?  Headlines are scary too, way too rosy, look at this hubris from Barron’s:

So yes, I am cautious.  But the system is the system and IndexModel, the model I built with brawn and raw exchange data is my only faithful guide during my active campaign to extract fiat American dollars from the global financial complex.  And IndexModel again signaled bullish this Sunday.  Therefore my directional bias these next five days is higher.

If we believe the markets to be a wholly efficient mechanism which has priced in all known information, then there are very few factors we need to consider before making a decision to buy or sell.  In reality, all we need to monitor is the way some goods are currently auctioning.  It is the flow of orders that happens in real time that gives us the relevant information we need to make day-to-day entry and exit decisions.

When it comes to investing, it helps to hard wire some assumptions into place. Things that only need to be reconsidered infrequently and ideally when you are high atop some mountain or way out in the ocean.  Some of my hard wired assumptions:

The Federal Reserve is the most powerful entity in the world.

Millions of W-2 employees blindly feed money into the stock market every pay period and their entire retirement is dependent upon a thriving stock market.  To placate the masses, The Fed will keep this puppy propped.

Technology has changed the pace and shape of economic cycles, and right now we are on the hockey stick growth curve portion of a Moore’s Law-esque chart (see: Let’s talk about AI and crocodiles for more info).

Baby boomers are finally losing control.

The economy is a zero sum game.

Nature always wins and is indifferent.

Market timing is possible.

Dollar cost averaging is easier.

With those rules in place, I only want to invest in cults.  If Scientology had a ticker you best believe I would own it.  Cults I will always have exposure to: Apple, Amazon, Google, Tesla, Adobe, Goldman Sachs, Twitter, Microsoft, bitcoin, longevity (CRISPR, etc).

Back to trading.  Trading is not investing.  You cannot dabble in trading just like you cannot dabble in mixed martial arts.  There are people like me who take trading very seriously.  There are thousands of hours of research, reams of data, planning, and thousands of hours of devoted screen time behind every trade I take.  I am ruthless and fast, like a fox, because the competition has more resources and plays as dirty as they can.  When you step into an arena like electronic futures, nothing else matters but the auction and mental clarity.  Distractions kill.  Hubris, kills.  Errors, kill.

To trade you need private office space fitted with some decent machinery (unless you’re sharing a space with other fully devoted traders).  You need full, distraction-free autonomy for at least 2-3 hours, lots-and-lots of money to lose while you learn, and a commitment to the craft.

Anyhow I am rambling.  Sunday research is complete, it is cautiously bullish heading into the second full week of Q2, and pretty much every thing we need to know will be seen on the PHLX semiconductor index.  Be sure to check out the morning trading reports, which I post around 9am New York.

I am off to shake away these Q2 scaries by digging some holes in the yard.

Cheers and trade’em well

Raul Santos, April 7th, 2019

Exodus members, the 229th edition of Strategy Session is live, go check it out!

NASDAQ futures are coming into Thursday with a slight gap down after an overnight session featuring extreme volume on normal range.  Price more-or-less marked time overnight, balancing along the bottom-side of Wednesday’s midpoint.  At 8:30am initial/continuing jobless claims data came out better than expected.  As we approach cash open, price is hovering below the Wednesday midpoint.

The only other economic events today are 4- and 8-week T-bill auctions at 11:30am.

Yesterday we printed a neutral day.  The day began with a gap up and out of range, and after about 30 minutes of 2-way auction buyers stepped in and drove price higher, trading just a bit beyond the 7600 century mark before discovering responsive sellers.  Cum delta ran negative for much of the move despite heavy volume to the upside, meaning more orders were being executed on the bid than the offer, meaning the rally way being ‘sold into’.  By about 3:30pm the market went neutral, and this set up a ramp back to the daily midpoint by end-of-session.

Neutral.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 7594.  From here we chop, marking time between 7600 and 7540.

Hypo 2 stronger buyers take out Wednesday high 7616.25 and sustain trade above it, setting up a move to target 7660 before two way trade ensues.

Hypo 3 sellers press down through overnight low 7558.25 and sustain trade below 7540, setting up a move to target 7513 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Wednesday gap up after an overnight session featuring extreme range and volume.  Price worked higher overnight, trading up into the 10/4 range (a liquidation day) before forming a p-shaped balance profile.  This profile shape is often indicative of a short squeeze.  As we approach cash open, price is hovering near the overnight high, around the midpoint of the 10/4 liquidation day.

On the economic calendar today we have ISM non-manufacturing at 10am followed by crude oil inventories at 10:30am.

Yesterday we printed a normal variation up.  The day began with a slight gap up that was resolved during opening trade.  Sellers were unable to break down through the upper quad of Monday’s range before buyers stepped in.  From then onward, it was a slow ascent higher until the very end of the session when some responsive selling stepped in.

Heading into today my primary expectation is for buyers to gap-and-go higher, trading up to tag 7600 before two way trade ensues.

Hypo 2 stronger buyers sustain trade above 7600 setting up a move to close the open gap at 7665.50 before two way trade ensues.

Hypo 3 sellers work into the overnight inventory and close the gap down to 7518.75.  Sellers continue lower from here, working down through overnight low 7513.25.  Look for buyers down at 7509 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Tuesday gap up after an overnight session featuring normal range on elevated volume.  Price held Monday’s upper quad overnight before working higher.  At 8:30am durable goods orders came in below expectations.  As we approach cash open price is hovering near the 3/22 (two Friday’s back) highs.

There are no other important economic events today.

Yesterday we printed a double distribution trend up.  The day began with a gap up after strong economic data came out of China Sunday night.  Sellers initially pushed price lower off the open but were unable to regain last week’s high, the 3/26 high was rejected by buyers before the first hour of trade completed.  We then began to campaign higher, trending slowly upward for the rest of the session, with the volume profile marked by value building then ascending higher.

Double distribution trend up.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 7497.75.  From here we continue lower, down through overnight low 7483.75.  Look for buyers down at 7464.25 and two way trade to ensue.

Hypo 2 stronger sellers trade down to 7415 and close the gap at 7410.50.  Look for buyers down at 7400 and two way trade to ensue.

Hypo 3 buyers work up through overnight high 7511.75 setting up a move to close the swing high gap at 7535.  Look for sellers up at 7538.50 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into April 1st, the first day of Q2, gap up after an overnight session featuring extreme range and volume.  Price went gap up into the Globex session Sunday evening on the heels of strong economic data from China:

China PMI was a huge beat…everyone looks at that as a potential bottom forming in the global slowdown narrative..US futures opening gap up should have been no surprise

— ??? ?️ (@chigrl) March 31, 2019

At 8:30am advance retail sales data came out below expectations and knocked futures off their session high.  As we approach cash open price is hovering in the upper quadrant of the 3/22 range (two Friday’s back).

Also on the economic calendar today we have ISM employment/manufacturing, construction spending, and business inventories at 10am followed by 3- and 6-month T-bill auctions at 11:30am.

Last week marked time.  Indices were weak to early on then finished out strong.  The Russell was bullish divergent throughout the week.  The last week performance of each major index is shown below:

On Friday the NASDAQ printed a neutral extreme up.  The day began with a gap up and tight range.  Sellers stepped in and pushed us range extension down but were unable to close the overnight gap before we discovered responsive buyers.  Buyers eventually turned initiative late in the session pushing us neutral and we ended the day at the highs.

Neutral extreme up.

Heading into today my primary expectation is for buyers to gap and go higher, trading up through overnight high 7487.50 to tag 7502.25 before two way trade ensues.

Hypo 2 sellers work into the overnight inventory and trade down through overnight low 7425.75.  Sellers tag the naked vpoc at 7425.75 then continue lower to close the Friday gap down at 7410.50.  Look for buyers down at 7400 and two way trade to ensue.

Hypo 3 stronger buyers sustain trade above 7500 setting up a move to close the swing high gap at 7535 then a probe above swing high 7537.25.  Look for sellers up at 7538 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

Late last week I allowed my mind to paint a negative bias onto the market.  My ego took a commanding lead on my thoughts for petty reasons—I never liked LYFT really, begin in bed with General Motors and all, with their money losing livery service.  For that matter I’ve got a bit of a bias against these unicorn IPOs, probably because they’ve lost me so much money (see: Snapchat o_0).  My pride has been assaulted by hyped up IPOs, but so what?  Other factors were at play.

As solid as my March Madness stock looked heading into last week, I lost to Operator, whose stock also looked real nice heading into the week.  When I say, ‘looked nice’ I mean the daily price charts looked, to my trained eye, like charts that would go up.  Anyways, as much as one week doesn’t matter to my position, I lost.  Again, petty.  I lost a game.

Anyways, the models lads, throughout my emo Friday, were expecting higher prices.  They couldn’t care less that one percenters were dumping their unicorn shares into public markets by the billions, or that RAUL was losing some website tournament.  Never.  They do not concern themselves with the petty.

The models are a better guide than emo RAUL any day.  Heading into Q2 they are bullish.

I have a long list of reasons ‘why’ this market should (such a nasty word) be selling off but by golly it isn’t.  It could.  And maybe it will.  If I want to know ahead of time I think I know how.  The only way to think beyond the logical parameters of IndexModel is to watch the PHLX semiconductor index.  It has told the story for years, often a few weeks ahead of the broad market.  You don’t have to take my word for it.  Go back and look for yourself how the October 2018 breakdown preceded the market-wide selling.  Or what it has done since.

Any reasonable reader should now be asking me what will happen next.  Of course I don’t know.  But I do know exactly what level to watch and a few ways we could behave around that level and that will give me the conviction I need to take action.  That level, until further notice, is called ‘Resistance becomes support’ and is shown below in black:

Saturday was a lovely spring day, with heavy rains falling from sunrise to sunset, then turning to snow overnight.  Today I woke to a surreal landscape of snow and ice, and it felt like some much needed breathing space.  I was not ready for the second quarter.  For spring.  Now I am.

You can be too.

RAUL SANTOS, March 31st, 2019

Exodus members, the 228th edition of Strategy Session is live, go check out my notes in Section IV where I lay out the two scenarios for upside/downside on the PHLX.

NASDAQ futures are coming into Friday gap up after an overnight session featuring extreme volume on normal range.  Price worked higher overnight, balancing for several hours near the Thursday high before breaking away from the balance around 7am New York.  At 8:30am PCE core came out below expectations.

Also on the economic calendar today we have new home sales at 10am and University of Michigan’s final March reading of sentiment.

Yesterday we printed normal variation down.  The day began with a slight gap up.  Sellers resolved the overnight gap and then we worked higher, eventually stalling out before the first hour of trade completed and well below the Wednesday high.  Sellers then pressed us range extension down but the selling dried up well ahead of the Wednesday low.  Price eventually worked back above the daily midpoint and closed as we started to rally up-and-away from it.

Normal variation down.  Inside day.

Heading into today my primary expectation is for buyers to take out overnight high 7390.75.  Look for a tag of the naked VPOC at 7415 before two way trade ensues.

Hypo 2 stronger buyers trade us up to 7460.25 before two way trade ensues.

Hypo 3 sellers work into the overnight inventory and close the gap down to 7352.50.  Sellers continue lower, down through overnight low 7349.75.  Look for buyers down at 7309.25 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Thursday flat after an overnight session featuring elevated range on extreme volume.  Price held Wednesday’s range overnight.  At 8:30am GDP data came out worse than expected and initial/continuing jobless claims data came out better than expected.  As we approach cash open, price is coiled up just below the Wednesday midpoint.

Also on the economic calendar today we have pending home sales at 10am, 4- and 8-week T-bill auctions at 11:30am, and a 7-year note auction at 1pm.

Yesterday we printed a normal variation down.  The day began with a gap up and attempt higher which resulted in an excess high.  Sellers then stepped in and drove the overnight gap shut then continued lower, tagging the weekly ATR band low before we bounced back to the mid.  Price chopped along the midpoint for the rest of the day.

Heading into today my primary expectation is for sellers to press down through overnight low 7289.50 setting up a move to close the gap down at 7266.75 before two way trade ensues.

Hypo 2 buyers work up through overnight high 7346.75 setting up a move to tag 7400 before two way trade ensues.

Hypo 3 stronger buyers trade us up to the naked VPOC at 7415 before two way trade ensues.  Stretch target is 7460.25.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Wednesday flat after an overnight session featuring elevated range on extreme volume.  Price was choppy overnight, with price bracketing in a wide range below the Tuesday midpoint.  As we approach cash open, price is hovering below the Tuesday midpoint.

On the economic calendar today we have crude oil inventories at 10:30am, a 2-year note auction at 11:30am, and a 5-year note auction at 1pm.

Yesterday we printed a normal variation down.  The day began with a gap up and spike higher.  We formed a sharp excess high at the Monday midpoint and began to auction lower.  Sellers eventually closed the overnight gap.  Late in the session, around 3:45pm, we ramped higher into the bell but still closed well-below the daily mid.

Heading into today my primary expectation is for buyers to work up through overnight high 7403.75 setting up a move to tag the Tuesday VPOC at 7414.50 before two way trade ensues.

Hypo 2 stronger buyers trade us up to 7460.25 before two way trade ensues.

Hypo 3 sellers work down through overnight low 7359.50 setting up a move to target 7314.50 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves: