Quick note on last Sunday’s bearish call

Unlike some folks, I do not want to be bearish.  I do not have a cognitive bias that constantly reassures me the world is fucked and so is everyone in it.  I do not seek out headlines to affirm a morose disposition [though RAUL’s inner masochist does].

I think people, in general, are good.  And I believe we are in the midst of an economic expansion phase the likes of which no living human has ever seen.  The internet has removed all the roadblocks that served to oppress ambitious souls for 100s of years.  We have the tools readily available to become great at whatever we choose.  I think our planet is in trouble environmentally, but I also believe good people are working to create solutions.

But the model is the model is the model and if it signals bearish, by golly I have to formulate a plan for betting against the stock market.  Fortunately the signals generated by IndexModel only last one week.  Also, the weekly ATR brackets are a mandatory checkpoint.  They mark a fork in the road.  A place to stand up and stretch your legs and reassess.  If we blow past them and keep discovering new prices, we are likely experiencing something more than a methodical price gyration.  Last week all four major indices tagged their lower ATR band by 10am Wednesday. Then a strong bid stepped in.  Orderly behavior.

I held my proxy SQQQ trade overnight Wednesday and into Thursday but by Wednesday afternoon I had already begun doubting the short bias.

now it becomes tricky

we're off the lows

the market did what the algo said it would

and now we're in uncharted waters

low-of-week could be in$WMT earnings on deck with $NVDA in the hole

hmm…

— RAUL (@IndexModel) August 15, 2018

The lower bands were tagged so in terms of model mechanics and one of the ways the model measures its effectiveness, the model was statistically proven right.  From Wednesday afternoon onward I had to improvise, sort of.  I wrote a plan last Sunday that discussed what I should do midweek.

Anyways I deviated from the plan and screwed up:

Sunday RAUL was way more woke than Thursday morning RAUL pic.twitter.com/nIwaDmFmzE

— RAUL (@IndexModel) August 16, 2018

I top-ticked the NASDAQ on Thursday morning when we went range extension up.  I attribute the error in part to a lack of clarity in my written plan.  The thing is, the farther out I look when forecasting, the more murky it becomes.  There may not be a way to address this shortcoming.

Those Thursday morning Walmart numbers were so strong I felt them.  A vibration in my bones.  I may have given them too much importance.  It was not a career ending mistake.  I had a solid week inside the #nq_f arena, bagging multiple 40 point moves.  The thing is, the ingredient that I cannot share with you no matter how many blogs or Youtubes or tweets I create, is that I want to be the best NASDAQ 100 trader in the world.  Wanting…needing to be better then everyone else including billion dollar institutions is my edge.

The last thing I’ll mention about this error is that messiness is never the god.  I need to put out cleaner trading plans when my forecasting models (Exodus and IndexModel) hand out a statistical advantage.

Alright, I’m diving back into this week’s Exodus Strategy Session.

NASDAQ futures are coming into Friday gap down after an overnight session featuring elevated range and volume.  Price worked lower overnight and as we approach cash open prices are hovering just below the Thursday low.

On the economic calendar today we have the primary August reading of University of Michigan sentiment.

Yesterday we printed a neutral extreme down.  The day began with a gap up and choppy morning that briefly went range extension up before lunchtime.  Then the rest of the day was spent traversing the entire daily range to eventually push below IB low and go neutral.  Price continued lower to close the overnight gap.  We ended the day in the lower quadrant despite finding a responsive bid near the end of the day.

Heading into today my primary expectation is for sellers to gap-and-go lower, down through overnight low 7356.75 to target 7330.25 before two way trade ensues.

Hypo 2 stronger sellers take out the weekly low 7316.50 setting up a move to target 7300 before two way trade ensues.

Hypo 3 buyers work into the overnight inventory and close the gap up to 7391.  Buyers continue higher, up through overnight high 7397.75.  Look for sellers at 7404.25 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Thursday gap up after an overnight session featuring extreme range and volume.  Price worked higher overnight, pausing briefly near the Wednesday high before briefly pressing above it early morning.  At 8:30am a bunch of economic data were released.  Initial/continuing jobless claims data came out strong, building permits/housing starts came out mixed, and Philadelphia Fed business outlook came out below expectations.

Walmart reported better-than-expected earnings Thursday morning, shares have traded up more than +10% on the numbers:

Wal-Mart Stores Q2 EPS $1.29 Beats $1.22 Estimate, Sales $128B Beat $126.04B  
Estimate

There are no other economic events scheduled for today. Nvidia reports earnings after the bell, a major semiconductor and NASDAQ component.

Yesterday we printed a normal variation down.  The day began with a gap down to the Wednesday low.  After a two-way auction on the open sellers stepped in and drove price lower, down-and-away from the Wednesday range.  We tagged the weekly lower ATR band just after 10:30am New York.  This price level aligned with a market profile level as well.  This would mark session low.  Responsive buyers stepped in here, and on an afternoon attempt to take out session low responsive buyers stepped in again and eventually drove price back up over the session midpoint.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 7375.  Look for buyers down at 7369.75 and two way trade to ensue.

Hypo 2 stronger sellers trade down through overnight low 7363.25 and tag 7357.50 before two way trade ensues.

Hypo 3 buyers gap-and-go higher, trading up through overnight high 7431.25 to target the open gap at 7458.25 before 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 range and volume.  Price worked lower overnight after sellers broke down through a tight mini-balance that formed Tuesday afternoon.  As we approach cash open price is hovering near Sunday’s globex lows.  At 8:30am Advance Retail sales data came out better-than-expected.

However, investors are more likely waiting to hear from Walmart (Aug 16th, before-market-open) for a sense of the retail landscape heading into the holiday season.

Also on the economic agenda today we have industrial/manufacturing production at 9:15ma, business inventories at 10am, NAHB housing market index at 10am, crude oil inventories at 10:30am, and net long-term TIC flows at 4pm.

Yesterday we printed a normal variation up.  The day began gap up and sellers quickly worked the 40 point gap shut.  Just a touch below the gap fill a responsive bid stepped up and jerked the market back higher, back up 40 points.  But buyers never became initiative.  Instead we formed a tight mini-balance into the close.

Heading into today my primary expectation is for sellers to reject a move back into Tuesday’s low 7397 setting up a move to target 7374.50 before two way trade ensues.

Hypo 2 stronger sellers sustain trade below 7374.50 setting up a move to target 7334.25 before two way trade ensues.

Hypo 3 buyers work into overnight inventory, reclaim Tuesday low 7397 and sustain trade above it setting up a move to target 7444.50 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Tuesday gap up after an overnight session featuring elevated range and volume.  Price worked higher overnight, trading up into Monday’s upper quadrant before settling into balance.  As we approach cash open price is hovering near Monday’s midpoint.

On the economic calendar today we have the NY Fed’s q2 household credit/debt report at 11am followed by the US Treasury auctioning off 4- and 52-week T-bills at 11:30am.

Yesterday we printed a normal variation down.  The day began flat and with buyers driving off the open.  The buying stalled out within the first hour of cash trade and we began working lower, eventually pushing range extension down but finding bidders ahead of last Friday’s low.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 7416.25 before two way trade ensues.

Hypo 2 stronger sellers continue down through overnight low 7406.25 setting up a move to target 7400.

Hypo 3 buyers step in ahead of 7435 setting up a move to take out overnight high 7465.  Look for sellers up at 7481 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Monday flat after an overnight session featuring extreme range and volume.  Price worked lower overnight, taking out last Friday’s low before a strong responsive bid came in.  The market rallied more than 60 points off its low.  As we approach cash open prices are hovering above last Friday’s midpoint.

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

Last week we marked time.  There was a rally Monday-Thursday then we gave it back Friday.  The Russell demonstrated divergent strength.  The last week performance of each major index is shown below:

On Friday the NASDAQ printed a normal variation down after coming into the day with a gap down.  Sellers spent most of the session working into Monday’s range but a responsive bid stepped in before Monday’s low was taken out.

Heading into today my primary expectation is for sellers to work into the overnight inventory and trade down to 7400.  From here we stabilize before eventually taking out overnight low 7378.25.  Look for buyers down at 7374 and two way trade to ensue.

Hypo 2 buyers defend ahead of 7400 setting up a move to take out overnight high 7443.75.  Look for sellers up at 7450 and two way trade to ensue.

Hypo 3 buyers gap-and-go higher, trading up to 7460.25 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

Last week I mentioned in the comments that I would do a post describing why I rely on IndexModel for directional bias instead of a coin toss.  I did not forget.  I will write about the statistics soon and explain where the trading edge exists and why I use thorough auction research to drive my decision instead of flipping a coin like Harvey Dent.

But for now you can rest assured that last week’s call for a calm, sideways drift was bang on.  We drifted last week.  Now the model is flagging bearish.  It flipped from bullish-to-bearish, skipping over a neutral reading.

I will be shorting NASDAQ futures any time we gap up overnight and are inside the prior day’s range.  I will be playing for range extension down after the first hour of trade.  I will be a sellers at the logical price levels highlighted during the morning trading reports.  I will also use SQQQ as a proxy position trade starting Monday.

I may close SQQQ before Thursday because we have a wildcard Thursday.  But maybe I won’t.  Nvidia reports Thursday.  The company has been an absolute success and anyone shorting NVDA has been made to look like an imbecile.  But much of the company’s recent success has been tied to crypto mining.  Cryptocurrency has been in the doghouse all 2018.  That could impact Nvidia’s recent growth trajectory.

If Nvidia reports soft revenues and guides lower on earnings, how will the markets react?

We don’t know.

But we do know that there is a wildcard Thursday.  And we know the IndexModel is bearish.  You don’t know whether or not the IndexModel is any more useful than a coin toss.  But I do.

That’s everything we know.

Walmart report this week and so does Home Depot.  The quarterly earnings from these two companies are much more indicative of the state of the overall economy than any government statistic.  Pay close attention to them as well, but NVIDIA is the name I am watching the most.

The RAUL blog is bearish until otherwise noted.

Trade accordingly.

a’dios muchachos

Exodus members, the 195th edition of Strategy Session is live, go check it out!

NASDAQ futures are coming into Friday gap down after an overnight session featuirng elevated range and volume.  Price worked lower overnight, trading back down into Monday prices.  As we approach cash open price is hovering around Monday’s midpoint.  At 8:30am Consumer Price Index data came out slightly better-than-expected.

There is a monthly budget statement at 2pm and no other economic events.

Yesterday we printed a normal variation up.  The day began flat and after a two-way morning auction price worked higher.  We tagged the upper ATR band from the Sunday Strategy session 7505.25 nearly to the tick then began to drift lower.

Heading into today my primary expectation is for buyers to work into the overnight inventory and test up to 7460.25.  Sellers reject a move back into Thursday’s range and two-way trade ensues.

Hypo 2 stronger buyers work a full gap fill up to 7475.75 and take out overnight high 7477.50.  Look for sellers up at 7481.25 and two way trade to ensue.

Hypo 3 sellers gap-and-go lower.  Look for buyers down at 7415.75 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Thursday with a slight gap up after an overnight session featuring normal range and volume.  Price worked sideways overnight, holding inside the Wednesday range.  At 8:30am initial/continuing jobless claims data came out mixed.

There is a 30-year bond auction at 1pm.  There are no other major economic events.

Yesterday we printed a normal variation up.  The day began gap down and after a choppy open buyers worked the overnight gap shut then continued higher, to a new weekly high before two way trade ensued.

Heading into today my primary expectation is for little movement.  Buyers work up through overnight high 7486.25 setting up a move to target 7505 before two way trade ensues.

Hypo 2 sellers work into overnight inventory and close gap down to 7469.25 then take out overnight low 7458.75.  Look for buyers down at 7450 and two way trade to ensue.

Hypo 3 strong buyers sustain trade above 7505.25 setting up a  run for all-time-highs 7530.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Wednesday gap down after an overnight session featuring normal range and volume.  Price was balanced overnight but as we approach cash open a bit of selling pressure has pushed us near Tuesday’s low.

On the economic calendar today we have crude oil inventories at 10:30am and a 10 year Note auction at 1pm.

Yesterday we printed a normal variation down.  The day began with a gap up and wide open auction.  Buyers stalled just before putting us RE up and we traversed the daily range to go RE down by a few ticks.  Sellers were not, however, unable to close the Monday gap.  Instead we closed near session high.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the overnight gap up to 7477.75.  From here we continue higher up through overnight high 7481.75.  Look for sellers up at 7494.25 and two way trade to ensue.

Hypo 2 sellers gap and go lower, down to close the gap at 7444 then look for buyers down at 7438 before two way trade ensues.

Hypo 3 stronger buyers trade up to 7505.25 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves: