All of my timing algorithms have failed me

While reviewing last week’s action to prepare the Sunday Strategy session, I kept catching myself feeling negative emotions towards the stock market.  Then venomous thoughts and more anger.  I had to step back and read some Marcus Aurelius for a minute and ended up using a line from the OG emperor as quote of the week:

“You have power over your mind—not outside events.  Realize this, and you will find strength.”

I built my trading career on closing the overnight gap.  I trade it extremely well.  I am the one out of ten trader of fintwit lore, who quietly did one trade well.  Over the years I began adding new trades to my arsenal, notably to Exodus Strategy Session readers I added Rose Colored Sunglasses, Extreme Rose Colored Sunglasses, and Bunker Buster.  These ‘biases’ were used as part of a trade I’ve been taking for the last two years or so where I target either a break of the overnight range or the initial balance range.  If bias is Rose Color Sunglasses, I target overnight low/initial balance low, e(RCS) overnight high/IB high, and Bunker Buster begins the week targeting lows, then forces me to pivot at some point, mid-week, and start targeting the highs.

Straight up—Bunker Buster is too fucking confusing to trade in the heat of battle.  I will keep tracking it, but using it to trade futures is off the table.  Power over the mind :::breathes in, breathes out:: power over the mind.

For next week, I am sitting the action out.  Come January I will start rebuilding my emotional confidence by only trading overnight gaps in range, with a little 2-lot, and assess my fortitude on a week-to-week basis.  I will likely be in the mountains for the entirety of February, chasing powdery mountains, then in March I will consider adding back the RCS and e(RCS) trades.

This isn’t my first significant drawdown.  I have been made a poor man many times by the oscillations of stock market price.  I have also managed to extract great sums and put said funds into other investments, like farmland.  Financial markets taught me years ago that they are nothing more than an intangible representation of millions of humans interacting, and that the ‘wealth’ they represent [on paper only] is merely a social construct—much like nations or ‘borders’.  These things are not real to me.  A farm is real.  Farm equipment is real.  Livestock is real.  You cannot take away my work ethic and ability to sustain my people with the fruits of our mother earth.

I love pulling money out of the financial complex and earmarking it for my farm complex.  I will continue to do so for as long as my mental abilities allow it.  While I am a very poor man in stock market and bitcoin terms, I am very wealthy in time, health, workable land, and working capital.  So while all of my timing algorithms have failed me, one after another, big time! –since the failed auction at the beginning of October–I will only be making minor tweaks to them.  I still consider them to be of better guidance than any banker or activist fund (lumps of coal for Andrew Left) or media sound biter.

I also still consider TSLA to be the greatest investment of all time.  It is incredible that Elon and his crack team of scientists and engineers are actually solving modern societies greatest problem (commuting).  TSLA will eventually be the largest company in the world, and when it is we can start to worry about the dumb dumbs in congress jamming the company up.

Investors with long term horizons can seem arrogant during bear markets.  I hope I do not come off that way.  Only time will tell if buy-and-hold and dollar-cost-average will be proven right again.  My money says it will.  Good thing I never plan on retiring.

Merry Christmas everyone.  Here’s to another year down in the trading trenches with you.  Saluti

Exodus members, the 214th edition of Strategy Session is live, we gone make through this bear market, and be better for it!

NASDAQ futures are coming into Friday with a slight gap down after an overnight session featuring extreme range and volume.  Price was balanced overnight, chopping along the Thursday midpoint for most of the Globex session.  As we approach cash open price is hovering just above the mid.  At 8:30am both GDP and durable goods orders data came out below expectations.

Also on the economic agenda today we have PCE core at 10am.

Yesterday we printed a normal variation down.  The day began with a slight gap down which buyers quickly resolved.  Said buyers were hesitant to initiate risk up into the Wednesday liquidation however.  As a result, responsive sellers stepped in before we completed the initial balance and began working price lower.  We made a new swing low by late morning and continued to probe lower into the afternoon.  We traded to levels unseen since February 9th before a responsive bid stepped in.  Buyers managed to ramp price higher into closing bell, positioning price above the daily midpoint into the close.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 6326.50.  From here we continue higher, up through overnight high 6333.50 setting up a move to target 6400 before two way trade ensues.

Hypo 2 stronger buyers trade us up to 6476.75 before two way trade ensues.

Hypo 3 sellers trade down through overnight low 6265.05 setting up a move back down to swing low 6180 and a test down below it.  Look for buyers down at 6100 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 extreme range and volume.  Price briefly took out the Wednesday low overnight before rotating higher.  As we approach cash open price is hovering in the lower quad of Wednesday’s range.  At 8:30am initial/continuing jobless claims data came out mixed.

Also on the economic calendar today we have 4- and 8-week T-bills up for auction at 11:30am followed by a 5-year TIPS auction at 1pm.

Yesterday we printed a neutral extreme down.  The day began with a gap up and drive higher.  Price was chopping along the Tuesday high, briefly probing above it twice.  Then after the FOMC rate hike sellers stepped in, there was a battle at the weekly lows which ultimately resulted in sellers overpowering the buying response and sending us down through the lows.  A responsive bid stepped in late in the session that managed to stabilize the selling right near the year-to-date unchanged mark.

Heading into today my primary expectation is for sellers to press down through overnight low 6287 setting up a move to target 6241.50 before two way trade ensues.

Hypo 2 buyers sustain trade above 6326.50 setting up a move up through overnight high 6391.  Look for selelrs up at 6477.25 and two way trade to ensue.

Hypo 3 stronger sellers sustain trade below 6250 setting up another leg of liquidation.

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, slowly working its way back up to the Tuesday midpoint.  As we approach cash open, price is hovering just above the Tuesday mid.

On the economic calendar today we have existing home sales at 10am, crude oil inventories at 10:30am, an FOMC rate decision at 2pm, and a Jerome Powell press conference at 2:30pm.

Investors are currently pricing a 71.5% probability of a 25 basis point lift in the Federal Reserve’s benchmark borrowing rate.  Investors will also be pouring over the statement’s verbiage and the tone of the press conference afterwards for indication of whether or not the Fed will continue their plan of lifting rates through 2019, or if they intend to slow the pace of rate hikes.

Yesterday we printed a neutral extreme down.  The day began with a gap up and tight two-way auction.  The market went range extension down before lunch, then price shot higher to go neutral.  This neutral rally was sold into, with selling accelerating into the afternoon and close.  We closed near session low.

Neutral extreme down.

Heading into today my primary expectation is for a gap-and-go higher.  Look for price to take out overnight high 6549, setting up a move to target 6586.50 before two way trade ensues.  Then look for the third reaction after the FOMC rate decision/press conference to drive direction into the close.

Hypo 2 sellers work into the overnight inventory and close the gap down to 6479.50 setting up a move down through overnight low 6458.50.  Look for buyers down at 6413 and two way trade to ensue.  Then look for the third reaction after the FOMC rate decision/press conference to drive direction into the close.

Hypo 3 stronger buyers trade us up to 6654.75 before the FOMC decision, then look for the third reaction after the FOMC rate decision/press conference to drive direction into the close.

Levels:

Volume profiles, gaps, and measures moves:

No need to over think this—how price action behaves into end-of-day today will very likely dictate direction into year-end.  I made this handy grid for review during the heat of the action:

FOMC decision/reaction grid:

hike/rally: extremely bullish
no hike/rally: bullish
hike/unchanged: bullish
hike/liquidation: neutral
no hike/unchanged: bearish
no hike/liquidation: extremely bearish

— RAUL (@IndexModel) December 19, 2018

Trade accordingly, and trade’em well.

—RAUL SANTOS, December 19th, 2018

NASDAQ futures are coming into Tuesday gap up after an overnight session featuring extreme range and volume.  Price was balanced overnight, chopping sideways beneath the Monday midpoint.  As we approach cash open, price is hovering below the Monday 6536.25 midpoint.  At 8:30am housing starts/building permits data came out better than expected.

There are no other economic events today.

Yesterday we printed a neutral extreme down/double distribution trend down.  The day began with a gap down and drive lower which managed to find a strong responsive bid at the 11/23 open gap at 6350.50.  Responsive buyers reversed the drive down, closed the overnight gap and pressed us range extension up right into the lunch hour.  Then sellers came in and reversed all the intra-day gains.  Then they pushed the market range extension down, putting us into a neutral print.  Selling accelerated at this point, taking us down to the weekly ATR band at 6454.50.  Near the end-of-session a slight responsive bid stepped in.

Neutral extreme due to double range extension and closing in lower quadrant, double distribution trend down because the daily VPOC kept shifting lower.  These labels are broad brush strokes as every day is unique.

Heading into today my primary expectation is fro sellers to work into the overnight inventory and close the gap down to 6488.50.  Sellers continue lower, down to 6413 before two way trade ensues.

Hypo 2 buyers take out overnight high early on 6548, setting up a move to target 6567 before two way trade ensues.

Hypo 3 stronger buyers trade us up to 6600 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

I made my Q1 motif allocations before quarter-end, and bought a TQQQ position end-of-day that I will hold for no less than 4 and a half trading days (X-mas eve half day).

If the same insomnia that had me awake at 5am grabs me again this evening, I’ll elaborate.

Until then, enjoy my horribly timed tweet from just before lunchtime:

we about to have a Thanksgiving, Hanukkah, and Christmas rally #hallelujah

— RAUL (@IndexModel) December 17, 2018

Quick shout out to my trading plan for putting me on the sidelines before this $4000/contract unidirectional move in $nq_f could blow me up #grateful.

Hope you guys are doing okay out there.  Feel free to leave comments in the hotline below.  We’re all in these battle trenches together.  Even the traders on the right side of this move have much to process.

#developing

I probably look like a mad man, but I do think we could be at or quite near the bottom of the trough (hole? bottomless pit?) we’ve worked down into.

I will be cleaning Mothership for the next five hours, perhaps even tackling a major appliance scrub down.  Cleaning like I just killed someone is a drawdown habit I formed over the years, for better-or-worse.  Next comes the thickets of sage and chants.  I probably look like a mad man.

#tbd

NASDAQ futures are coming into Monday gap down after an overnight session featuring extreme range and volume.  Price was balanced for most of the globex session, chopping along the lower quadrant of Friday’s RTH range.  Around 8am price began probing lower, and as we approach cash open prices are down near last Monday’s lower quad.

On the economic calendar today we have NAHB housing market index at 10am, 3- and 6-month T-bill auctions at 11:30am, and Long-term TIC flows at 4pm.

Last week began flat across the board and with a wide open auction Monday morning.  Said auction was overrun by pressure from selling which drove price lower.  This ultimately resulted in an excess low and we rallied off of it through Wednesday morning.  Sellers came back in Wednesday afternoon and we spent the rest of the week working lower.  The low from Monday held for all but the Russell, which made new lows at the end of the week.  The last week performance of every major index is shown below:

On Friday the NASDAQ printed a trend down.  The day began with a gap down and two-way auction.  Buyers were unable to reclaim the Thursday low before initiative sellers stepped in and began driving price lower.  A steady selling campaign continued throughout the rest of the day, ultimately closing on the low.

Trend down.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 6621.25.  From here we continue higher, up through overnight high 6656.  Look for sellers up at 6666 and two way trade to ensue.

Hypo 2 stronger buyers trade us up to 6698.25 before two way trade ensues.

Hypo 3 gap-and-go lower, trading down to close the gap at 6530.50, look for buyers down at 6543.75 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

The header photo for this Sunday, December 16th blog entry comes courtesy of The New York Times SundayStyles front page, which I poached from a Howard Lindzon Stocktweet.  It depicts two tiny cartoon humans moments away from being kookslammed by a giant black and white wave with a red crest.  Here is the cover again, for emphasis:

This is the type of sentiment that gives me bullish conviction.  CNN’s Fear & Greed index shows a similar sentiment and the prevailing tone amongst my carefully curated Twitter feed is that the world is fucked and so is everyone else on it.  Bitcoin wealth is all-but-gone and on paper some people look a heck-of-a-lot less wealthy then they did this time last year.

But I do not base my decisions of the capricious sentiment of the herd, or the newspapers, or even the politicians.  Or the raucous behavior of Frenchmen, or the patriarchal shake-ups in Arabia.  I base my decisions on the will of my robots.  They are my guide.  I am their steward.

What are the robots saying?  Last week they said ‘acceleration to the downside then a tradeable low’.  Last week Monday we accelerated to the downside, and except for on the Russell, this resulted in a tradeable low.  Now my IndexModel is back to neutral, while Exodus has a bullish cycle lasting until the end of the half day Christmas eve.  The robots are bullish.  Therefore I am too.

This is a good week coming up.  There is an FOMC rate decision Wednesday afternoon.  It is a live meeting.  There is a press conference scheduled afterwards and the gambling halls in Chicago are placing 76.6% odds of a 25 basis point lift in rates.  Only 76%.  They usually have more conviction one way or another.  So the hike is not guaranteed, despite being the heavily favored bet.  We like uncertainty.

We also like distractions.  Holidays are distracting.  I fielded over three hours of phone calls this weekend with relatives, some crying, some belligerent, all because of the holidays.  Bringing everyone together can be challenging.  Not being able to satisfy the desires of everyone can be discouraging.  And people are just sort of brainwashed by the consumer cycle foisted upon Americans by the forces of capitalism.  These are rife conditions for a balanced mind to capture opportunities.  This is a good week coming up.

Whether or not rates lift this Wednesday is important, but investors will also be looking closely to see if the Fed is dialing back their intentions to continue lifting rates through 2019.  The 2:30pm press conference will be scrutinized for slight changes in verbiage and tone.  Overall, Wednesday afternoon will serve as a useful guidepost on the week.  The third reaction after the decision/conference will likely dictate direction for the rest of the week.

And listen, while I do my finest work inside the NAS100 futures, I am less concerned with the intermediate-term direction of the indices and more interested to see how individual stocks that I like are behaving.  Tesla, for example.  All this fear and crash sentiment but my favorite stock (and largest position) is a few dollars away from record highs.  Twitter has been fierce. I love solar into 2019.  Sangamo. Goldman.  These are the areas that I expect to see move higher over the coming weeks and months.  That is where my concern lies.  The indices could chop and even head lower, but if individual stocks decouple, this continues to be a healthy bull market.

So there you have it.  The theme going into year-end has been persistence.  I think adding kindness to that theme has been helpful for me.  Persistence and kindness.  Especially kindness for your fellow traders.  2018 has been shaky.  By no means has it been as extreme as 2008 or even 2014 when indices didn’t bother to reflect the huge destruction of market cap happening almost everywhere outside of the FANG stocks, but 2018 has been a test of grit.  Resist the urge to pile onto someone who holds positions that oppose yours.

I am bullish heading into OPEX.  I am bullish heading into this crappy calendar-timed Christmas.  I am bullish into this extremely negative sentiment.

Hopefully I’ve made myself clear and mahalo for reading along.

– RAUL SANTOS, December 16th, 2018

*Note: this morning’s trading report references the December ’18 NAS100 futures contract (NQZ18).  I will be trading the December contract despite most action ‘rolling forward’ to the March ’19 contract.

NASDAQ futures are coming into Friday gap down after an overnight session featuring extreme range and volume.  Price worked lower overnight starting around 8pm and continued lower until two-ticking the Tuesday cash low.  After that a responsive bid stepped in and we came into balance.  As we approach cash open price is hovering near the overnight low, inside the lower quadrant of Tuesady’s range.  At 8:30am Advance Retail Sales data came out above expectations.

Also on the economic calendar today we have Manufacturing Production at 9:15am, Manufacturing/Service PMI at 9:45am, and Business Inventories at 10am.

Yesterday we printed a normal variation down.  The day began with a gap up and two way auction.  Buyers attempted higher early on but stalled out before they could take out the Wednesday high.  Responsive sellers worked the overnight gap fill before we spent the rest of the session chopping inside of Wednesday’s range, forming a weak low along the way.

Heading into today my primary expectation is for buyers to work into the overnight inventory and attempt to reclaim Thursday’s low 6749.25.  Sellers reject a move back into Thursday low, setting up a move to take out overnight low 6650.75.  Look for buyers down at 6606 and two way trade to ensue.

Hypo 2 stronger sellers gap-and-go lower, trading down through overnight low 6650.75 early on and tagging 6600.  Trade is sustained below 6600 setting up a move to target the open gap down at 6530.50 before two way trade ensues.

Hypo 3 stronger buyers work a full gap fill up to 6748.75 then continue higher through overnight high 6760.75.  Look for sellers  up at 6800 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves: