BEARISH into first week of fourth quarter

Personally I feel like these are the best of times.  The private equity markets are full of liquidity.  Semiconductors are ubiquitous, and the PHLX semiconductor index reflects this truth.  We are climbing the exponential growth curve of Moore’s law.  Winter is coming, my favorite season.  It is not like I want to be bearish, but the IndexModel is signalling bearish over the next five trading days.

The model does what I cannot.  It follows rules to form a bias.  These rules are founded in auction theory and supercharged with high-level statistics generated by Exodus.  I built IndexModel.  It’s a completely unique approach.  For years I struggled to emulate the behaviors of other traders.  Now I just trade.  It is going well.  I’m grateful.

The last time the model flagged bearish was August 12th.  That was a successful signal.  I named the signal Rose Colored Sunglasses.  I give names to things so my brain has a deeper understanding of their meaning.  Rose colored sunglasses refers to the behavior seen on the surface of the stock market.  The behavior of the four major indices.  They paint a rosy picture.  Meanwhile, under the surface, Exodus is picking up on some nuance that is not showing up on the charts.  Have you ever looked at a grey winter day in the low-income neighborhoods of Detroit with rose colored sunglasses on?  They shine baby.  The lens transforms the picture.  You don’t look at the grayish mud snow and loathe your existence.  You stare at the sky and wonder about the future.

I will only be working the short side of the tape inside the NAS100 arena, via $nq_f.  I will also hold a proxy short for most of the week with SQQQ.  Seeing as Monday is the first day of Q4 (very nice, very clean) my expectation is for some buying pressure early on.  If this occurs, I will bide my time, perhaps preparing an elaborate breakfast and watching the Luddites and Tesla homos rage tweet each other.  Then, after I’ve had my fill of egged plates and grotesque human behavior, I will sashay into MotherShip and start firing out short sales.

A programming note.  I will be attempting this evening to go live on YouTube and adjust the third leg of the quantitative portfolio I manage using Exodus and Motif.  I am monetizing Exodus people, live, in full transparency.  In four years you will all see that this is my finest work yet.  That said, I have been having trouble going live these last two quarters.  I plan to be back online around 6-7pm New York to go live.  Wish me luck.  You can stay updated on the RAUL blog or check my twitter account.  I’ll blast out a link once it is available.

One more programming note. My quant strategy has become increasingly popular and despite my best efforts to keep friends and family on track with assuaging all stock picking responsibility to the algorithms, they keep wanting to pick stocks.  “Fine,” I said, “we’ll build a Motif that adjusts every 12 months.  You can each pick 5-6 stocks.”  I am actually hoping this Motif will under-perform my quants, but I’m not sure if that will be the case.  My west coast correspondent ROBERTO BREGANTE dropped some fire names.  This new Motif goes live tomorrow, Monday, October 1st, 2018.  It’s a hype group of stocks so far.  I get excited and want to jog around Mothership when I think about these companies.  The picks are not finalized, but this is what it’s looking like so far:

SHOP, ADSK, PRLB, OKTA, CRM, MSFT, ALGN, MTCH, GOOGL, GS, ADBE

The model is bearish.  I feel bullish.  My disposition is the sunniest it has been in years.  So I have to be a happy and optimistic bear.  The model is the model is the model.  The only apocalyptic talk I can muster on this lovely Sunday is that floods are coming.  You’ve destroyed our planet and while good people are working to reverse the industrial transgressions committed by the babied boomers, these next several decades will be like pushing a boulder up a slippery mountain.

Best you secure some highland with lots of fresh water.

ciao ciao kiss kiss

Exodus members, the 202nd edition of Strategy Session is live, go check out what I am talking about.

NASDAQ futures are coming into Friday gap down after an overnight session featuring extreme volume on elevated range.  Price worked lower overnight, reversing all of Thursday’s gains in a slow, methodical walk lower.  At 8:30am personal consumption data came out below expectations.

Also on the economic agenda today we have Chicago purchasing manager at 9:45am followed by U of Michigan’s final September reading of sentiment at 10am.

Yesterday we printed a normal variation up.  The day began with a gap up and drive higher.  Buyers trade to a new high of the week and held the gains through lunch before spending the rest of the session drifting back to the daily midpoint.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 7658.  From here we continue higher, up through overnight high 7674.50.  Loof for sellers up at 7696.75 and two way trade to ensue.

Hypo 2 sellers take out overnight low 7617 off the open and trade down to 7613.25 before two way trade ensues.

Hypo 3 stronger sellers trade a gap fill down to 7590.50 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Thursday gap up after an overnight session featuring extreme volume on normal range.  Price was balanced overnight, churning higher and holding inside of the Wednesday range.  At 8:30am a large data dump occurred which included advance goods trades balance, GDP (QoQ, Q2), durable goods orders, and initial/continuing jobless claims.

Also on the economic agenda today we have pending home sales at 10am and a 7-year note auction at 1pm.  Fed chairman Jerome Powell will also be giving a brief talk at a Senate event happening at 4:30pm.

Yesterday we printed a neutral extreme down.  The day began by continuing to explore higher, which has been the trend since Monday morning.  Price methodaically closed a gap left behind on 9/4, then built a base here heading into the FOMC rate decision.  The first reaction after the 25bp hike was a spike higher which stopped one tick shy of the 08/31 gap at 7668.25.  Then second and third reaction were down which triggered a hard sale for the rest of the day, ultimately pressing us range extension down and closing near session low.

Neutral extreme.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 7590.50.  From here we continue lower, down though overnight low 7584 setting up a move to target 7566 before two way trade ensues.

Hypo 2 buyers sustain trade above 7600 setting up a move up through overnight high 7618.25.  Look for sellers up at 7640 and two way trade to ensues.

Hypo 3 stronger buyers trade up to 7671.75 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 elevated range and volume.  Price worked higher overnight, pressing up into the 09/04 (the first full trading day of September) range before settling into balance.  As we approach cash open, price is hovering up above yesterday’s high.

On the economic docket this morning we have a few medium impact events—new home sales at 10am followed by crude oil inventories at 10:30am.  The major event happens at 2pm when the FOMC releases their rate decision.  There is currently a 95% probability of a 25 basis point lift in interest rates, and a 5% probability of a 50bp lift.  This is a live meeting and there is a Fed Chair Jerome Powell press conference scheduled after the announcement, at 2:30pm.

Yesterday we printed a neutral extreme up.  The day began with a gap down and choppy open.  Sellers made a move down-and-away from the initial balance, putting us range extension down.  They were met by responsive buyers down near the Friday close, and we spent the rest of the session auctioning higher.  After initially pusing range extension up and neutral, a rotation back to the mean occurred but then buyers stepped back and and worked back up near session high by the close.

Neutral extreme.

Heading into today my primary expectation is for a gap and go higher.  Buyers defend ahead of the Tuesday high 7596.75 setting up a move to take out overnight high 7629.  This sets up a move to close the gap up at 7640 before two way trade ensues.  Then look for the third reaction after the FOMC rate hike to drive direction into the close.

Hypo 2 stronger buyers drive off the open, take out overnight high 7629, close the gap 7640 and tag the weekly ATR band at 7650.50 before two way trade ensues.  Then look for the third reaction after the FOMC rate hike to drive direction into the close.

Hypo 3 sellers work into the overnight inventory and close the gap down to 7595.50.  Sellers continue lower, down through overnight low 7588.  Look for buyers down at 7566 and two way trade to ensue.  Then look for the third reaction after the FOMC rate hike to drive direction into the close.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Tuesday gap up after an overnight session featuring normal range and volume.  Price worked higher overnight, probing beyond the high print from Monday in a slow, methodical fashion.  As we approach cash open price is hovering near last Friday’s midpoint.

On the economic agenda today we have consumer confidence at 10am, a 2-year floating rate note and 4-week t-bill auction at 11:30am, and a 5-year note auction at 1pm.

Yesterday we printed a double distribution trend up.  The day began with a gap down and drive lower.  Ahead of last week’s lows, a strong responsive bid stepped in resulting in the formation of an excess low.  The open gap from 09/19 was resolved and then converted into support.  By late morning buyers were driving higher from this support to close the overnight gap from last Friday.  The market again paused here before buyers became initiative (relative to last week’s close) and drove price higher into the bell.

Heading into today my primary expectation is for buyers to gap-and-go higher, up through overnight high 7603.25, trading up to 7614 before two way trade ensues.

Hypo 2 stronger buyers sustain trade above 7624 setting up a move to target the open gap at 7640 before two way trade ensues.

Hypo 3 sellers work into the overnight inventory and close the gap down to 7585.75. Sellers continue lower, down though overnight low 7573.50 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

Greetings lads,

The floods keep coming.  Climate change is affecting large migrations of insects and mammals around the world.  Drought forces humans in South America to abandon their homes and head north in the quest for water—a resource so abundant to the United States that we allow the Swiss to pump millions of gallons of it into plastic bottles and sell it back to us.  Water—a force so ubiquitous it lies waiting to consume our shores and riverbanks at a moments notice.

Storms are becoming more fierce.  You can deny the facts if you want.  But it is only a matter of time before three of these hurricanes combine and collide with a nor’easter to create something that wipes out a good chunk of land.

Pigs are excellent swimmers.  Yet they died by the millions in North and South Carolina when Florence swelled up.  This is shady.  Were the intelligent animals abandoned in their enclosures?  The cement floored factories they spent their entire lives in, never feeling the sun on their back?  Then there are the chickens.  So many dead chickens.  These animals have central nervous systems just like us.  Drowning is supposedly a painful way to cease existing inside a flesh sack.  The gross negligence of these animals is a crime that will never be punished beyond economic loss.

Then there are the swine cesspools flooding into waterways and onto farmland.  Despicable consequences of the industrial meat complex.

We do not have to fuel this evil.  We can raise our own livestock or buy from a local producer.  Or become a vegetarian.

In any case, it is still our job to extract as many US dollars from the electronic trading markets as possible.  Said funds shall be used to secure land as far north as our constitutions will allow.   Then to develop the land—building solar powered water pumps and filtration systems, building a wall–too keep the local hill people from invading.  Then working the land to a point where it can support you should the thin thread that holds society together ever come unraveled.

The IndexModel is offering little guidance into the upcoming week.  We’ll have to improvize.  Less is more when we lack an IndexModel edge.  The best opportunity to extract fiat US dollars from the exchange comes Wednesday at 2pm New York when the US Federal Reserve announces whether they will lift their benchmark borrowing rate.  The gambling halls in Chicago are currently placing a 93.8% probability that rates will stay unchanged at 2.25%, a rate that encourages expansion by any stretch of the imagination.  Should they unexpectedly lift rates to 2.5% we are likely to see a big move.  But even if they don’t (they won’t) we are likely to see a strong ekg pulse of activity strike the market at 1400 New York time.  The third reaction to this pulse will likely drive market direction into the second half of the week.

This is the last week of Q3 already.  Last week was choppy and dangerous.  The trend down Monday was never tested below.  This would have burned me, had I traded the week.  But alas, my plan to sit in the woods instead worked out.

Things tend to work out for me.

And I hope they work out for you as well.  It comes down to control and discipline.  If you’re having doubts or negative emotions related to your trading, like feeling freaked out every time you take a trade, there is likely a kernal of information in that emotion.  It would behoove you not to ignore that feeling.  Explore it.  See what its origins are. Recheck your plan and make sure it makes sense.  Does it?  Then stick with it.  The worst slumps often occur when you’re beating yourself up and overworking.  Try sleeping instead.  The mind often continues to work while you sleep—solving things.

But only if you allow it.

In summary, the world is in trouble but we’re going to be okay.  Kindness is almost always the solution.  Fed announcement is the best trading opportunity of the week and feelings are useful.

mahalo for reading along

Exodus members, the 201st edition of Strategy Session is live, go check out that coil on semiconductors!

Once a year about 100 people from Detroit ascend up into a small town in northern Michigan and essentially take over—infiltrating the weekend market with urban brands and overrunning the hospitality staff at all motels, hotels, and restaurants.  Some locals tend not to fare well, especially if they take to the drink along with the seasoned degenerates of Motown.   I joined the large pack of marauders for a few days, and now I am in the woods where I have taken up living in my van which has been parked near a river.

But before I commence several days living in the woods, thinking, I connected to Mothership and updated IndexModel.  It flagged bullish but is not calling for a strong rally. Nope.  Just a drift sideways perhaps with a slight upside bias.

There are four weeks a year that I do not trade and the upcoming week is one of them.  Several of the algorithms I’ve build to augment my discretionary trading of NASDAQ 100 futures are volume dependent.  The issue is, despite most active traders moving ahead to the December contract last Thursday, there is still a significant amount of volume taking place on the September contract.  Also, lots of the activity taking place in this upcoming week involves ‘rolling forward’ large institutional positions that must be migrated from September to December.  It all sums up to a great bit of fuckery if you ask me.  The algorithims tend to fire off bad signals which forces me to cross-check their behavior.  This introduces a bit more on the fly judgement calls than I am comfortable with, especially as I become older.  Some of the worst scars on my trading career came from on the fly trades during OPEX.

So while I am bullish, I have taken to the woods to avoid my brain’s desire to make sense of institutional shenanigans, and my ego’s tendency to want to ‘beat’ these institutions.  In the book Zero to One, Peter Thiel writes, “All failed companies are the same; they failed to escape competition.”  On the surface that is annoying to me—because my business is trading futures and I will always have competition.  If there were no competition that would mean I had nobody to trade with.

But looking at it again, and thinking about it, it can be reframed.  The simplest way to ‘escape competition’ is to not trade at all.  If I know there is a high likelihood of me competing with participants that seriously outgun me or simply have different goals in their activity on the exchange, then I can succeed by waiting for them to do what they need to, then stepping back in when I have my proven edge.

And that is what I intend to do this week—photograph birds instead of forcing myself to behave inside Mothership where there is an almost ritualistic tendency to trade the opening bell.

To those of you trading this week, I share my robotic bias, it is bullish.  The model does not expect rambunctious upward movement.  Just a drift.  Given the OPEX context, I’d expect this ‘drift’ to be choppy and violent.  These could be good conditions of trading individual stocks but that is never my game.  Mostly next week is about sucking the theta out of trades taken with an overly ambitious expectancy of time being on your side.

Time flies when you options are 5% out of the money.

So stay alert out there.  If you need me send a smoke signal on Twitter.

Benito Moose-a-lean-kneee muh f u c ah

— RAUL (@IndexModel) September 16, 2018

mahalo

Exodus members, the 200th edition of Strategy Session is live, check out that semiconductor chart!

*Most active traders have moved on to trading the December /NQ_F futures contract, however the price levels in this report are for the September contract.  I will trade the September contract into end-of-week.

NASDAQ futures are coming into the second Friday in September gap up after an overnight session featuring normal range on elevated volume.  Price worked higher, probing beyond the Thursday high for several hours.  As we approach cash open price is hovering along the Thursday high.  At 8:30am advance retail sales data came out below expectations.

Also on the economic docket today we have industrial production at 9:15am then both business inventories and the primary reading of sentiment from the University of Michigan at 10am.

Yesterday we printed a normal variation up.  The day began with a gap up and drive higher.  Price peaked out by late morning and came into balance for a bit before pushing to a new daily high around lunchtime.  We then spent the rest of the session chopping along the daily midpoint.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 7567.50.  From here we continue lower, down through overnight low 7559.50.  Look for buyers down at 7556.50 and two way trade to ensue.

Hypo 2 buyers gap-and-go higher, up through overnight high 7598.75 setting up a move to target 7637 before two way trade ensues.

Hypo 3 stronger sellers trade down to 7623.25 before two way trade ensues.

Levels:

NASDAQ futures are coming into Thursday gap up after an overnight session featuring extreme range and volume.  Price worked higher overnight after spending a good portion of the evening globex session in balance.  As we approach cash open price is hovering above the Wednesday high and just below the weekly high.  At 8:30am consumer price index data came out worse than expected and initial/continuing jobless claims data came out better than expected.

Also on the economic agenda today we have a 30-year bond auction at 1pm and a monthly budget statement at 2pm.

Yesterday we printed a normal variation down.  The day began with a gap down and drive lower.  Sellers were unable to drive beyond the Tuesday low, instead encountering a strong responsive bid and printing a sharp bounce.  We then rotated to the 61.8% retracement of the bounce before a secondary buy ramp carried us into the close.

Heading into today my primary expectation is for buyers to gap-and-go higher, sustaining trade above 7550 setting up a move to target 7600 before two way trade ensues.

Hypo 2 sellers work into the overnight inventory and close the gap down to 7485.75 we then continue lower, down through overnight low 7470 before two way trade ensues.

Hypo 3 buyers trade up beyond the weekly high 7541 but cannot trade up beyond 7550 and two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Wednesday gap down after an overnight session featuring extreme volume on elevated range.  Price worked up beyond the Tuesday high overnight before falling back into the daily range around 7:30am New York.  As we approach cash open price is hovering in the upper quadrant of Tuesday range.

On the economic calendar today we have crude oil inventories at 10:30am, a 10-year note auction at 1pm, and the Fed’s beige book at 2pm.

Yesterday we printed a double distribution trend up.  The day began gap down and sellers probing lower but failing to take out last Friday’s low.  This set up the gap fill upward then a continued drive higher from the bulls up to the weekly ATR band and just beyond it before discovering responsive sellers.  Said sellers made a small rotation lower which stalled right along last Friday’s high setting up an afternoon ramp back up near the highs before two way trade ensued.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 7511.75.  Buyers continue higher, up through Tuesday high 7524.75 but stall ahead of the overnight high 7541 before two way trade ensues.

Hypo 2 sellers gap-and-go lower, trade down to 7469.25 before two way trade ensues.

Hypo 3 stronger buyers trade up through overnight high 7541 setting up a move to target 7544.75 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves: