Stock market has a bye week coming up

Happy Martin Luther King Junior day everyone.  MLK had the crazy notion that people should be kind to each other instead of being mean and miserable, so they killed him.  His bravery and kindness helped us start down a path to equal rights.  The civil rights he stood for are still being challenged today.  His calm and reasonable voice continues to resonate in the hearts and minds of our young nation’s people.

I listened to the Joe Rogan/Mike Tyson podcast this morning and suggest you do the same.  It’s a trip to hear Tyson reflect on his old self.  He is brutally honest about who he was but not able to step back into his competitive mindset at all.  He cannot so much as start jogging because he worries it will reawaken the ego that drove him to some incredibly dark places.  For some people, complete abstinence from an activity or place or drug is the only option for self-preservation.

I’m reading The Hitchhiker’s Guide To The Galaxy right now.  It is a wonderful book that leads the reader to contemplate the purpose of living, and while doing so keeps the tone light and playful.

I went to an old, restored movie theater last night in Detroit and watched Easy Rider.  The way Peter Fonda’s character is treated in some areas of the rural south is a disturbing reminder of the mentality still present in many parts of the country—that anyone different looking is bad.  Jack Nicholson’s character explains that Americans will talk about freedom all the time and expound how the policies of the United States allow for it, but the second they see someone who is actually free it scares the shit out of them.  Especially if the ones who are free choose to live differently.

The future is decidedly feminine. Look at the Pantone color of the year.  Or last years.  Or how the mid-term elections played out.  Our democracy and the perceived freedoms of consumerism have expressed a desire to move away from masculinity.  Not because masculinity is bad, it isn’t, but because for some other reason that, if I’m being honest, I don’t truly understand.

I’ve never assigned too much energy to understanding why something is the way it is.  All I ever concern myself with is being in a position to benefit from the way things are.  I find tools that seem helpful and, I go to work.  I write, poorly, but it helps me gather my thoughts. I teach the fundamentals of investing and trading to anyone in Detroit who will come to my meetups.  It forces me to distill fifty blog entries into 10-15 minutes of talking.  This helps me solidify the most important principles of my approach so they don’t crack under pressure.

Next week is a bye week for the stock market.  OPEX is behind us.  No major tech companies are reporting earnings.  The IndexModel is signalling calm conditions for a second consecutive week.  The government is shut down.  No major economic meetings or releases are taking place.

I’ll be trading, long only.  If we have a gap down inside the prior day’s range, I’ll be working that gap fill.  Other trades I will take include targeting the overnight high or range extension up.  My primary expectation is for a calm drift clean through Friday.

It seems like all the manufactured hostility is sort of frozen.  Perhaps it is because a large part of the country was just blanketed with a fresh coat of snow.  I dunno.  Maybe it’s all the time I’m spending in 110 degree yoga studios.  Again, I dunno.  All I know is all my context points to next week being a bye week for the stock market.

Position accordingly.

Exodus members, the 218th edition of Strategy Session is live, go check it out!

NASDAQ futures are coming into Friday gap up after an overnight session featuring extreme volume on elevated range.  Price worked higher overnight, slowly auctioning its way back up to the Thursday cash high.  As we approach cash open, price is hovering just below Thursday’s high.

On the economic calendar today we have Industrial/Manufacturing production at 9:15am followed of U. of Michigan’s primary reading of January sentiment at 10am.

Yesterday we printed a double distribution trend up.  The day began with a gap down and push lower.  Sellers discovered a responsive bid right at Tuesday’s naked VPOC 6646 and the auction began working higher.  The overnight gap filled, then we went range bound along Wedneday’s VPOC.  Later in the day price jolted to a new weekly high and despite finding responsiev sellers just up above the 12/14 high, we ended the day in the upper quadrant—in a newly formed distribution.

Double distribution trend up.

Heading into today my primary expectation is for buyers to gap-and-go higher, closing the 12/13 gap up at 6772.50.  Look for sellers up at 6803.25 and two way trade to ensue.

Hypo 2 sellers press into the overnight inventory and close the gap down to 6720 before continuing down through overnight low 6710.  Look for buyers down at 6700 and two way trade to ensue.

Hypo 3 stronger buyers sustain trade above 6800 setting up a move to target 6820 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

Yesterday we looked at the pivot level the NASDAQ transportation index is trading at.  Transportation bears are being pressured today after buyers received newfound conviction from the $CSX earnings.  Now let’s turn our attention to the real driver of stock market gains—the PHLX semiconductor index.  It has the classic overplay for the underlay* set-up.

BEHOLD:

After successfully setting up the overplay for the underlay, semiconductors are catching a bid off the old triangle consolidation.  Pretty straightforward stuff here folks—if buyers defend here we are likely to see a sharp move higher.   If not, probably more chop.   My gambles and bias say we go higher.  Yours should conform to your own damn research and bias. Trade accordingly.

kiss kiss

-RAUL SANTOS, JANUARY 17th, 2019

*Writer’s note – you will not find the ‘overplay for the underlay’ trade setup in any published books on technical analysis.  It is a term taken from the streets of Detroit, for when a dude pretends he’s not interested in something, like a real thick girl, until everyone’s attention has moved away, then he sweeps in and presents himself as a beta cuddle/sex slave.

NASDAQ futures are coming into Thursday gap down after an overnight session featuring extreme range and volume.  Price worked lower overnight, trading down into the Tuesday morning conviction buying zone before discovering a bid.  At 8:30am Philly Fed data came out much better than expected and intial/continuing jobless claims data came out mixed.  Advance good trades balance and retail sales data have been delayed due to the government shutdown, but upcoming earnings from Walmart [Feb 14th, BMO] will provide better insight into trade and retail data anyhow.  As we approach cash open, price is hovering below Wednesday’s low.

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 gap up, and after a brief two-way auction price drove higher.  Sellers stepped in late morning and rejected price away from the value area high of a volume profile distribution that formed back on December 13th.  The result was an excess high.  After bouncing around on the daily low for much of the session, price eventually closed near low-of-day.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 6666.25.  From here we continue higher, up through overnight high 6675.50.  Look for sellers up at 6672.75 and two way trade to ensues.

Hypo 2 stronger buyers trade us up to 6700 before two way trade ensues.

Hypo 3 sellers reject an attempt up through overnight high 6675.50 setting up a move down through overnight low 6612.25 to target 6600.  Look for buyers down at 6572.50 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

We’ve been expecting this move in the NASDAQ transportation index for two weeks, an excerpt from last Sunday’s Exodus strategy session:

Now we wait:

Am I showing you this so you can see how awesome my research is and to tell you to shell out the pittance we charge for Exodus?  No.  I am simply demonstrating, in real-time, that there is a method to what many characterize as an erratic and volatile market.  The auction is the auction is the auction.  QED.

NASDAQ futures are coming into Wednesday gap up after an overnight session featuring extreme volume on only an elevated range.  Price was balanced overnight, briefly probing beyond the Tuesday cash high in calm, two-way trade.  This morning both Bank of America and Goldman Sachs reported better-than-expected earnings, and while neither of these stocks are NASDAQ components, a bid entered the market shortly after the announcements.

Also on the economic calendar today we have crude oil inventories at 10:30am followed by Fed Beige Book at 2pm.

Yesterday we printed a double distribution trend up.  The day began with a gap up and drive higher.  The drive took out both open gaps above [from Monday and last Friday] and sustained trade above it.  This set up a move to target the psychological 6666 level.  Sellers took a shot around 2:30pm that took price right back to the daily midpoint.  Buyers defended.  We ended the day near session high.

Double distribution trend up.

Heading into today my primary expectation is for buyers to gap-and-go higher, trading up to 6731.50 before two way trade ensues.

Hypo 2 stronger buyers sustain trade above 6731.50 setting up a move to target the open gap up at 6772.50 before two way trade ensues.

Hypo 3 sellers work into the overnight inventory and close the gap down to 6674.75.  Sellers continue lower, down through overnight low 6664.  Price pins at 6666 as two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Tuesday with a slight gap up after an overnight session featuring extreme range and volume.  Price worked higher overnight after an attempt early in the globex session to go lower.  Buyers rejected a move down through the Monday midpoint, setting up a steady campaign higher.  Sellers were discovered near the top of last Friday’s range and price slumped back into Monday’s range.  As we approach cash open price is hovering inside the Monday high.

There are no economic events today.  Earnings from JP Morgan came out weaker than expected pre-market.  The stock is indicating it will open down half a percent.

Yesterday the NASDAQ printed a normal variation up.  The day began with a gap down and out of Friday’s range but inside the 3 and a 1/2 day micro-balance that began forming late last Tuesday afternoon.  Buyers engaged after a long two-way open auction.  Said buyers pressed up to last Friday’s high before their attempt to reclaim last Friday’s range was rejected.  We ended the day just below session midpoint.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 6546.  From here we continue lower, down through overnight low 6540.  Look for buyers just below overnight low and two way trade to ensue.

Hypo 2 stronger sellers trade us down to 6520 before two way trade ensues.

Hypo 3 buyers work up through overnight high 6606.75 setting up a move to target the open gap at 6612.50 then the open gap at 6624.25 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into the week with about a 50 point gap down after an overnight session featuring extreme range and volume.  Price worked lower overnight, uni-directionally, trading down through the Friday cash low and briefly poking a few ticks below the Thursday cash low before discovering a responsive bid.  As we approach cash open, price is hovering in the lower quadrant of last Thursday’s range and the auction is in balance.

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

Last week we saw strength across the board Monday and Tuesday, followed by a marking of time through the rest of the week—with most of the major indices flagging sideways into the weekend.  Meanwhile the Russell diverged and continued higher.  This suggests risk appetite was increasing.  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 down and tight two-way auction.  The chop eventually gave way to a slight range extension up, however sellers kept us from filling the overnight gap.  We ended the week near Friday’s high but still inside the Thursday range and still with the overnight gap unfilled.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 6594.25.  From here we continue higher, up through overnight high 6616.50 setting up a move to close the Thursday gap at 6624.25 before two way trade ensues.

Hypo 2 buyers stall out around 6581.75 and we begin working lower, down through overnight low 6525.25.  Look for buyers down at 6519.50 and two way trade to ensue.

Hypo 3 sellers gap-and-go lower, sustaining trade below 6519.50 to set up a move to target 6500.  Stretch target is 6460.

Levels:

Volume profiles, gaps, and measured moves:

Greetings lads,

The turning of the calendar to 2019 has brought new conditions for us to take advantage of.  Climate change is more apparent than ever with weather volatility climbing to levels deniers and global warming believers alike have never seen.  Progressive leaders in Europe are actively shaping their policy to reflect these facts, as are the United States.  Here in America, our authoritarian leader is desperately trying to build a wall to keep the people attempting to migrate to livable parts of the earth down in their water-less deserts.  Until he does, Americans should consider us in a crisis state.  If  you have not secured land with a fresh water source you are setting your family up to be overrun by horrendous heat and desperate humans seeking asylum from the scorching sun.

Despite this national emergency, and the government shutdown, the systems we rely on to dictate our investment decisions have remained bullish.  Starting December 10th, Exodus flagged oversold.  It was very early and wrong, but just as the signal was drawing to an end on December 24th, another oversold signal was fired out.  This meant we had to hold our bullish positions.  While that secondary signal expired on the 9th, we had a less common but more bullish OVERBOUGHT signal on the 4th.  Therefore we continued pressing our longs throughout last week.  Here is what the entire cycle has looked like so far.  Quite the draw down, but back to UNCH…behold:

Now, heading into the second full week of 2019, the above signals have the added context of an extreme Rose Colored Sunglasses e(RCS) signal from IndexModel.  This signal calls for a calm, sideways drift in the upcoming week.

With the other context we cover in the Exodus strategy session, this all fits very nicely.  Expect to see a pause in price this week.  That would do wonders for easing recent volatility, and pave the way for some individual stocks to rocket higher.  In short, a stock picker’s market.

You may not agree that the human impact on our planet is jeopardizing the ability for spaceship Earth to sustain life, but you cannot deny that taking our cues from the robots has been a better guide these last five weeks than the hair-on-fire government or media.

Choose your inputs wisely.  It’s 2019.  Trust is hard to come by.  Robots expect a continued campaign back towards the highs.

Exodus members, the 217th edition of Strategy Session is live.  Check out the very telling context we discuss in Section III and at the end of Section IV

NASDAQ futures are coming into Friday gap down after an overnight session featuring extreme volume on elevated range.  Price poked beyond the Thursday high briefly before settling into balance inside Thursday’s cash range.  Some AM selling came through, and as we approach cash open price is hovering above Thursday’s daily midpoint.  At 8:30am CPI data came out in-line with expectations.

Also on the economic calendar today we have a monthly budget statement at 2pm.

Yesterday we printed a normal variation up.  The day began with a gap down near the Wednesday low.  Sellers attempted to press us away from the Wednesday range early on but were met with responsive buying.  Said buyers turned initiative (initiative relative to Thursday open, responsive relative to Wednesday close) and worked the overnight gap closed.  Sellers returned price to the midpoint around lunch time, using Powell’s talk as grounds for action, but buyers became initiative during the afternoon session and we ended the day near session high.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 6624.25.  From here we continue higher, up through overnight high 6641.75.  Look for sellers up at 6666 and two way trade to ensue.

Hypo 2 stronger buyers sustain trade above 6666 setting up a move to target 6695 before two way trade ensues.

Hypo 3 sellers press down through overnight low 6588.50 setting up a move to target 6557 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves: