June 9, 2014

Monday’s Grind Tradable & Tweak Strategies – Monday’s Chart, $NQ_F

The bears have been circling the ring for a long time now watching all these fat and getting fatter bulls chowing down on an increasingly capitulating food supply while they go looking for a weak link to pull out and eat.  It totally feels like, the entire market is still in the “Twilight Zone” as if it is that part of the day when objects are not as clear and mistakes are often crushing.


contraiansbearpicinicIn case you haven’t heard the call has gone out, contrarians unite – the perfect set up came on Monday – the e-mini future is trading at a premium, (high enough) to attract premium sellers.  There is hope that the roll will drive momentum down as fair value adjusts back to the -$1 area on the June contract and -$10 on the September contract.  The futures spread was  $7 at $7.50 at the close, the pot odds favor a return to the mean, which is -$10 (future/cash) currently, and may come as a swift smack and spike.  The waiting for it has worn thin the most ironclad patience as the markets keep serving up giant capitulation sundaes with whipped cream and a cherry on top!  If you are all in at the moment – life sucked!  If you aren’t and are day trading the $NQ was a good place to be on Monday.  Check out today’s  NQ chart for trades and discussion.


6-9-2014 1-59-50 PM_NQ_FALCON


The big decision needs to come from interest rates.  Yeah, I hate to be the bearer of bad news bond traders – but the balance of direction rests in your ‘bearish’ hands.  Volatility traders saw what could be signs of bias swing in favor of buying premium – selling it this cheap will cease to be favorable.  For how long though remains the 64K question.

long termThere are no changes to the longer term pictures in that the markets have been expected to rally to new all time highs based on negative input – check – that is an accurate description of trading action – while a final run for the roses would not be totally ruled out the markets are likely to rest up and regroup before setting out on such a conquest.  Short term then, the odds continue to favor a correction before an additional surge.


Hear-No-Evil-See-No-Evil-Speak-No-EvilInstead of being one of the “hear no, see, no, speak no” evil monkeys, I prefer being a monkey playing for the day with 75% of available cash and leaving 25% in options with a July or August expiration.  Currently I continue to favor a rally in volatility as the futures roll brings some downside relief to equity prices.  Individual equity plays have kept the broader indexes skewed at unexpected times.  I suppose this adds a touch of gambling to the process because the odds don’t always pay off.  In any case I intend to remain primarily a day trader in futures and some ETFs and equities and a directional position trader in volatility using options. 

The strategy becomes staying in the now, to being aware of what is given or taken and of where the supply or demand is leaning.  The nature of fair value changes daily and levels of premium or discount often produce pockets of where the markets become oversold or overbought.  As a day trader and algorithmic trader when an oversold or overbought condition develops and progresses it would be safe to assume you are not the only one who sees it.  While being early has it’s drawdowns and strategies don’t always produce instantaneous results – unless you are trading off of an unfiltered tick chart. I continue to recommend trading often and trading small. 


Trading the number remains key to being able to reduce and separate the “noise” from opportunity.  This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them. 


opportunityOpportunity continues to knock on our doors.  While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.