There was plenty for the market to digest this week, and we started with paused action which eventually gave way to buying.  The week provided lots of high probability trades for the prepaired and patient morning trader, but the lunch hours and afternoon were much more challenging.  It begs one to question what there trading hours could be and reminds me of an ancient Chinese proverb:

If you must play, decide on three things at the start: the rules of the game, the stakes, and the quitting time.

Those are three point any trader should give serious thought to if they plan to take on the elite traders of the electronic markets.

Take a look at the opening swings, and see for yourself the affect they play as price walks along through time.

 

MONDAY:

TUESDAY:

WEDNESDAY:

 

THURSDAY:

FRIDAY:

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The Nasdaq 100 index houses the absolute finest in growth and risk stocks.  It includes the largest domestic and international non-financial securities listen on The Nasdaq Stock Market based on market capitalization.  Some of the big dogs are AAPL, FB, AMZN, BIDU, CSCO, MSFT, CMCSA, GILD, GMCR, QCOM, INTC, and YHOO.  For the full list of symbols involved, check out the link below:

http://www.nasdaq.com/quotes/nasdaq-100-stocks.aspx?col=4&dir=D

This index has some shades of value stocks in it, but for the most part these are massive, promising, growth companies.  When money flows into the index it suggests our market participants has a taste for popular, big timer, growth.  We could expect the lazy mutual fund managers to put down their cheese platters and stop schmoozing for a few minutes to enter their fresh AUM (assets under management) into the market at the start of the month, and as traders we sit around eagerly searching for these gluttonous flows of money.  The last few months they have been sort of weak, perhaps because people are either pulling some money away from the markets or not contributing their average allotment.

However, Thursday morning a huge unknown was removed from the market.  Everyone worries about the Euro-Zone and usually we make a big story about their odd economy.  However, they are taking the path of the United States, the path of free money and it has become very normal, almost an expectation of participants.  These actions are what EVERYONE is watching, and MOST OF THE TIME they lead to higher equity prices.  The employment data on Friday was a cherry on top, by no means a necessary to persuading the money into the market.

Anyhow, that is my view of the current investment conditions.  This is speculation based upon what I hear people who I consider wise to the game focusing most intently upon.  I like to focus intently on the auction.  And without further adieu, I want to show you what a strong auction with fresh buyers coming into the marketplace looks like.  See below:

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Nasdaq futures are trading higher after a very balanced session gave way to buying on a positive employment numbers.  This is not quite “pro gap” territory, so the possibility of playing the overnight gap fill is still in place.  However, taking that short trade may not be an easy endeavor in this environment.

Here’s a look at the short term auction, which is in buyer control:

I prefer trading inside the thick of volume profile, but when the contracts are trading at all time highs I must rely on measured moves.  Today’s upside targets are fibornacci extensions based upon the peak-to-trough of the contract.  It yield the following upside levels.   I have some prior composite support levels (quite a bit lower) noted as well:

I try not to do too much at these levels, instead enjoying the view and managing what I already have on.  Stay patient out there today folks.

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We never truly can say what the market should do, nor can we impose our will upon the market.  We can however, through the lens of market profile with a side of auction theory, gauge the likelihood of continuation.  This is why they keep me around, these guys.

I probably would have started locking in longs like many of you if I stayed at my trading terminal, the most aggrandized name for my bossed up PC.  After all, what a pungent thrust, certainly it would be prudent to raise cash.  I pulled a PTJ and headed to the gym an hour before the bell to avoid the angst.

If you have clicked my blog title with haste, insistent upon reason and logic without all the 80’s bravado and unpalatable verbiage, then look no further than the following market profile bits, which I will discuss a bit further below:

The P-shaped profile is known as a short squeeze.  This is a temporary phenomenon in some cases, and when they occur in the context of a downtrend they often mark the end of the countertrend.  The key is keeping your intermediate timeframe clear.  Is this a downtrend?

If you have ever been to a live auction then you have seen this action, or if you have been to a stingy charity event then you have seen the opposite action.  An item  is rolled out and the auctioneer begins their banter about starting bid.  If no one bites then they drop the initial bid.  Once we have interest the process begins.  At the tight-pocketed charity event, after two or three hands are raised everyone starts looking around, afraid to raise their hands.  The auctioneer starts using tons of filler noise, making it seem like the auction is still active when really it is dead.

The opposite is when higher prices actually bring NEW participants into the auction.  They have seen the activity and when it reached higher advertised prices it enticed them and they wanted to buy.  The auctioneer is saying very little filler, and the price continues climbing.

I see that rising VPOC as higher advertised prices generating buying interest.  And even through these are not quite trend day profiles, I am pressing my longs into tomorrow as these contracts trade at all time highs.

Sleep well my little butter cups 😉

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I went back live this week, trading the futures, and I wish I could tell you I was 100% plan compliant.  I deviated from my trading plan a few times and it resulted in some big losses.  Overall the week built confidence in my methodology and approach.  However, as always, there is significant room for mental improvement.  I avoided some past pitfalls and this week can be built upon with some serious homework and thinking.

It could have been a huge week in the books if only I could erase 1 or 2 missteps.  Tell me, isn’t it worth it to dissect and process and formulate rules based on your outliers?  It’s the difference between mediocrity and champion performance.  I intend to come out the other side of this game a champion.

Enough jawboning, below is my performance chart for the week.  I will be trading very light tomorrow in preparation for another marvelous water filled weekend in pure Michigan.

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The big economic news overnight, or rather early this morning was out of the Euro-Zone, where their central bank pushed their lending rates up a bit higher than was expected.  The initial reaction was some fast selling on the Nasdaq which found responsive buyers just one tick above the overnight low at 3740.  3740 also was Monday’s opening swing high (hmm…) and you will see a very sharp ledge has formed at this level when we observe the 24 hour profile.  The economic docket is jam-packed this morning as I type, with a Draghi presser at 8:30 along with USA Jobless claims.  In short, prices could really be on the move premarket today.

If we take a look at the 24-hour profile, you can see we broke out from intermediate term balance yesterday and as a result, we began printing a new profile.  The most notable piece of context on our current profile is the sharp ledge at 3740.  You can see how unnatural this shape is, relative to our beautiful and symmetrical bell-curves.  This tells us one of two things—it is likely to break and price spill over the ledge, BUT if it does not, buyers are unusually strong and we should heed their power.  See below:

I have marked up the regular trading hour profile to denote significant price levels.  The question I was debating with myself at the end of yesterday was whether yesterday was in fact a trend day.  This is the classic, “If it looks like a duck, quacks like a duck, and walks like a duck, then it probably isn’t a chicken” scenario.  Breadth was weak and the afternoon showed indecision, likely due to the overnight Euro-Zone news.  With that headline out of the way the markets seem more comfortable heading higher, at least early on.  We have levels which will act as warning signs, should this big upward move be faded.  I have noted these levels below on the RTH chart and also the intermediate term charts below:

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Nasdaq futures are trading lower overnight after a busy European session.  Prices were sliding lower into a slew of Euro-Zone economic data which turned out to be inline-to-better than expected.  Prices reversed higher shortly after but again sold off on a sour ADP number early in the USA morning.  We have a busy economic calendar today.  At 9:45 there are some PMI stats coming out and at 10am we have a Bank of Canada rate decision and ISM Non-manufacturing composite.  We also have the Fed Beige Book at 2pm.

The steady selling overnight methodically auctioned the entire vale area of this large distribution forming on the 24-hour profile, have a look:

When I see this type of action, wholly emerged within my well established profile, I compress it into my existing profile.  This does two things—it tells me the context has not yet changed and better defines the relevant price levels.  With all the economic information being created 24-hours a day in our global economy, it makes sense to keep these 24 hour profiles in mind as we go about our trading day.  Here is the merged profile, along with the profiles that exist behind it:

Turning our attention to the RTH market profile, you can see the compression taking place as the short term comes into balance.  Yesterday we printed a SECOND normal day, with a close in the upper quadrant, which was also an INSIDE day.  That is some serious compression, and the eventual move away from this value zone will likely have some power.  I have marked up the profiles below:

Breaks from this type of serious compression can sometimes be FAKES…gut wrenching moves out of balance with equally gut wrenching reversals.  I could see this happening to shorts here, only because we have the “unfinished business” of a naked VPOC at 3703.75.  Should that level receive a hotplate reaction via responsive buying, then we very likely could launch back into our balance.

The selling is accelerating a bit as I complete my post.  We are now priced to open very much on the low end of intermediate term balance.  However, this balance is still in play until we see sustained trade below 3709.  Sustained is the key, because as mentioned before, we have unfinished business, a naked VPOC at 3703.75.  It should be an interesting session.  Here is the intermediate term picture:

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Futures are sliding lower into the opening bell here in the USA.  The selling waves began shortly after the Euro-Zone announced their CPI data and unemployment rate.  CPI was worse than expected and they had a slight downtick in unemployment and the markets sold off.  We have factory orders at 10 am but an otherwise quiet docket for our session.

The overnight profile is toothy and printing value down near the low of the globex session.  However, what I find most interesting is the large profiles we have built over the last 5-6 days.  When observing the 24-hour profiles, which encompass all tradable hours of the contract, we can redistribute the market action not based on time, but instead on relevance to each distribution.  By chopping up the price action into the relevant distributions we obtain a transparent view of the current auction.  See below:

Some similar observations, as well as the relevant value zones can be seen on the regular trading hours market profiles.  Interesting context to note, the poor high still exists on the regular trading hours chart.  It was eliminated on the globex profiles.  A poor high is where two or more TPOs print at the swing high.  This is uncommon and often settled before abandoning a swing high.  As is always the case with market profile context, it is not a timing tool, but only a contextual caveat as you go about your trading.  See below:

Taking our attention to a higher level, we can see the market coming into balance on the intermediate timeframe after yesterday’s price action.  The balance spans nearly 5 days and the action has a near-perfect symmetry.  The VPOC is about 1.75 points below the midpoint at 3723.875.  There is a well defined LVN at 3727.25, just below yesterday’s close.  The two price levels just above yesterday’s close are of huge importance.  Essentially, if the Nasdaq goes red-to-green today, pay very close attention to the price action at these levels as the volume/market profile context is big:

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We are coming into the month with a slight gap higher.  We are currently priced to open inside of range and balance from our previous trading day (Friday) which suggests we are in a lower risk/reward environment.  We have some manufacturing data coming out at 10am and a few treasury bill auctions at 11am.

The long term timeframe left the balance bracket behind as buyers took the reins of control last week.  The question now is the impact we will see from the above supply we are pricing into.  See below:

Turning our attention to the June contract, our front month contract for the next few weeks of futures trading, we are trading just a touch below all time contract high.  Buyers sustained control of the intermediate timeframe into the close of last week.  It will be interesting to see if they continue controlling the tape or whether we come into balance.  See below:

The short term auction has some interesting market profile context.  You can see a ledge formed overnight and the potential for us to trade lower and rotate through Friday’s balance.  Whether this ledge gives way or not early on will be a key component of early trade.  We also have a “poor high” from last week, where two TPOs printed at the high, this lines up with the overnight high of 3740.50 and overall looks vulnerable.  See below:

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With summer warming up in the northeast the trading week had a feeling of emptiness.  The fine weather may beckon otherwise retail participants to instead explore outside activities, leaving only the most hardened and skilled participants around to do battle in the electronic futures performance arena.

Drone strikes can be particularly effective in this environment, and we saw a few midweek.  Overall, my algos were quiet, only triggering once into the bell and late into Friday’s trade.  With the market thin, it paid to be patient and really allow the market to come into the thick midpoint of trade before attempting entry.  You will see all of this, and more, on the following opening swing charts.

Note: Monday trade is not included as it was an USA holiday.

TUESDAY:

WEDNESDAY:

THURSDAY:

FRIDAY:

 

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