Algo Futures - Trending Now - Issue 4 - | October 27th, 2013 | STRATEGIES FOR TRADING IN HIGH...

7/27/2019 Algo Futures - Trending Now - Issue 4 - | October 27th, 2013 | STRATEGIES FOR TRADING IN HIGH FREQUENCY MA

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Analysis Prepared By:www.FollowTheBots.com

Algorithms Powered By:www.sceeto.com

Published By:www.AlgoFutures.com

INSIDE THIS ISSUE

How to Incorporate our 3-Step CheckList into Trading Market Turns

If you were to view a market turn underan electronic microscope you wouldsee a set ofbehavioralpatterns thatcould becategorized,readilyidentied,andtradeable.

Thebehavioral

patternsfall into 3categories:

1) Market Structure

2) Price Action

3) Order Flow

Each category has a few distinct patternsand nuances, that once learned by atrader, can be readily applied, over andover again, to Follow The Bots.

3 Steps Checklist TapeReadingLesson

Lets drill down into each category andshow you what to look for.

Step 1 | Market StructureKnowing Market Structure allows traders

Read More...

Weekly Recap | Mondays Market Structure

Tape Reading Lesson of The Week

3 Step Checklist

Algo FuturesSTRATEGIES FOR TRADING IN HIGH FREQUENCY MARKETS

STRATEGIES FOR TRADING INHIGH FREQUENCY MARKETS

FOR PROFESSIONAL TRADER USE ONLYWEEKLY NEWSLETTER

Trending Now

Electronic footprints left fromSmart Money & High FrequencyTrading Bots are readable and arequantiable.

Algorithmically generated buyingand selling will frequently determinethe path of least resistance.

This newsletter is focused on continually demonstrating that:

SUNDAY, OCTOBER 27TH, 2013

THIS WEEK IN TRADES

MONDAY .......................................................4

Mondays Market Fundamentals ..........................4Mondays Morning Briefng .................................4

TUESDAY .......................................................5

Mondays Recap | Tuesdays Market Structure ......5Tuesdays Morning Briefng .................................9Tuesdays Intra-day Market Commentary .......... 10

WEDNESDAY ...............................................10

Tuesdays Recap | Wednesdays Market Structure10

Wednesdays Daily Morning Briefng ................. 13Wednesdays Opening Range Commentary ....... 14

THURSDAY ..................................................14

Wednsesdays Recap | Thursdays Market Structure14Thursdays Daily Morning Briefng..................... 17Thursdays Opening Range Commentary ........... 18

FRIDAY .......................................................19

Thursdays Recap | Fridays Market Structure ..... 19Fridays Daily Morning Briefng ......................... 21

ASIAN MARKET RECAP ...............................22

Mondays Asian Market .................................... 22Tuesdays Asian Market .................................... 23Wednesdays Asian Market ............................... 24

Thursdays Asian Market ................................... 25Fridays Asian Market ................................. ...... 26

EUROPEAN MARKET RECAP ........................28

Mondays European Market .............................. 28Tuesdays European Market .............................. 28Wednesdays European Market......................... 29Thursdays European Market ............................ 29Fridays European Market ................................. 30

DAILY MARKET RECAP VIDEOS .................... 31

Hello Traders,

Welcome to theWeekly Review

Since the climaxselling occurred onOctober 9th, whenthe S&P auctioningdown to 1640 andretested support

at the September9th low (1638), thebroad benchmark S&P 500 has been inrecovery mode.

On Monday (10-14-13), S&P futures

pulled sold down to 1680, duringSundays Globex session.

Read More...
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Algo Futures | Trending Now Weekly Edition

Sunday, October 27th, 20132

Market InsightsTrending Now

S&P futures failed to test theGlobex low at Mondays open.Price pulled back to 1684 andauctioned back up to ll the gapat Fridays close.

The rally continued into the closewith S&P futures trading up to1706.

Mondays rally continued in theovernight session and the S&Pauctioned up to 1709.

However, on Tuesday the S&Pfailed to sustain its upwardmomentum. Price auctioned upto 1708 and encountered a lackof buying interest (computerized

buy programs waning). A secondattempt failed at the 1706.

Overnight, selling pressure (computerized high-frequency sellsurges) auctioned the S&P back down to 1689-1690.

By Wednesdays open, S&P futures had auctioned above theovernight low and traded back to 1706.

Thus, a series of fractal highs developed between 1709- 1705.

Overnight, the S&P traded above Tuesdays high (1709) andextended the rally up to 1717.

On Thursday, S&P futures sold below theovernight high (1717). Price pulled back to1706 and retested support at the prior fractalhighs.

The selling pressure ended and computerizedbuy programs initiated trade. S&P futuresrallied up to retest the prior September 19thmultiyear high at 1727.

The rally that began on Thursday continued inthe overnight session. S&P futures auctionedup to a new multiyear high at 1734.

On Friday, the minor selling pressure auctionedthe S&P down to Thursdays close.

After pulling back to 1728, the computerizedbuy programs initiated another buy side run. S&P futuresextended the trading range up to 1740, before pulling backmodestly to close the week at 1736.

Trade Opportunities

This week trading opportunities were primarily on the buy-side.

Each of the numbered levels on the Weekly Market Developmentchart indicate price levels where high volume computerizedtrade occurred.

Along with the Daily Market Structures commentary posted onthe website, you will note a chart gallery is included.

Each day the charts we post indicate where

the computerized buy programs and selprograms have been active in the market.

The purpose of the Weekly MarketDevelopment chart is to alert our membersas to the price structure indicates theareas within the trading range that holdthe greatest potential for support andresistance.

1.) The pull-back to 1680 during theresulted was the ideal price level to entera long position. However, as is often the

case, S&P futures pulled back to 1680during the Globex session.

During the regular trading hours, the bestopportunity to go long was at 1684-1685

2.) Similarly, the rally up to 1709 occurredin the after-hours session. The subsequent retracements tothe overnight high encountered resistance at 1707 and 1705

This is referred to as a fractal high. Markets do not always

Weekly Recap(cont. from page 1)
http://followthebots.com/registration


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auction back to the exact price level where previous supportand resistance occurred.

Market participants may be eager to sell a high and or by thelow and therefore willing to enter positions early. Indeed thiswas the case with the rally at or near 1709.

3.) The sell-off and the subsequent pullback to 1690 formed aseries of fractal lows.

At each of these lows the order ow events indicated thecomputerized trading programs ceased executing to the sell

side.

4.) The retracement up to 1705 met with a lack of buyinginterest in the S&P pulled back to 1698.

The intraday price discovery clearly indicates computerizedtrading programs ceased executing to the sell side (sellprograms waning).

Wendy initiated buying occurred, S&P futures auctioned abovethe prior high at 1709 and traded up to 1717.

5.) The rally up to 1717-1715 mark by a lack of buying interest

(buy programs waning), resulting in the S&P pulling back to1706.

6.) During the pullback to 1706, selling pressure decreased theorder ow events indicated initiated buying.

The buy-side run remains exponential until the S&P auctionedup to the prior multiyear high at 1727 and made most higherhigh (1729).

7.) The rally continued overnight and on the pullback to the

prior days close (Thursday), once again the sell programswaning and high frequency initiated buying auctioned the S&Pback to the prior overnight high. The buy-side computerizedtrade continued into the close and the S&P auctioned up to1740.

The Kalman Filter Model

The Kalman digital lter, along with the Gaussian regressionlters are key components in the Follow the Bots computationamodel.

While they appear on the chart as simple moving averages, theKalman and the Gaussian lters are algorithms.

The Kalman lter is used to indicate the longer term directionof the price structure.

As seen on the chart titled Kalman Filter Model, following theclimax selling out 1640, the directional slope of the Kalmanlter turned up [+].

The Kalman lter turned neutral [0] during the pullback to1675 and then continued to indicate the direction was highe[+] as the S&P auctioned up to 1700.

During the pullback to 1680, the Kalman lter 16 and turnedneutral [0], before sloping up [+] as S&P futures auctioned upto 1709.

On October 15th, while the market consolidated between1709 and 1690, the lter indicated the market was at tomodestly lower.

However, on October 16th, as the S&P auctioned above 1700the slope of the Kalman lter once more advanced [+], as the


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Good morning Traders,

US futures traded relative at in the overnight session.

After trading above the previous multiyear high at 1727, onFriday, S&P futures held support at Thursdays close (1729)and rallied up to a new multiyear high at 1740.

Following Fridays

rally, S&P futuresmaintained theirgains, extending thetrading range by 1point, up to 1741and maintainingsupport at 1735.

The NASDAQ 100broke-out andclosed the week3.7% higher.

New money owed

into equities andbonds.

The US Dollardeclined.

In commodities: Gold gained 3.8%, while Crude declined(-1.1%), nishing the week at key support.

Overnight, US market participants appear to have adopted acautious stance ahead of the highly-anticipated U.S. nonfarm-payrolls report due on Tuesday.

The September jobs report along with a batch of U.S. datadue out this week may provide further clues about how longthe U.S. Federal Reserve will maintain its easy monetary policy

Fed Policy

Market participants are likely to focus on the two-day Fed OpenMarket Committees

meeting, whichstarts on Oct. 29,the rst since U.Sgovernment endeda 16-day partiashutdown caused bya scal impasse.

The Fed is expectedto delay a reductionin its $85 billionof monthly bondpurchases untilafter Chairman Ben

Bernankes secondterm ends on Jan.31, economistssaid. Policy makerswill pare the pace of

asset buying to $70 billion at their March 18-19 meeting,

The shutdown slowed fourth-quarter growth of the worldslargest economy by 0.3 percentage point, economists said.The release of data was also delayed, affecting the Feds abilityto decide on tapering stimulus, they said.

Mondays Morning Brieng

S&P rallied to 1717.

Finally, following the minor pullback to 1705, the slope ofthe Kalman lter continued to point higher [+] as the S&P

continue to auction up to 1740.

Market Fundamentals

Markets are expected to continue to rally is based on improvingeconomic data and a potential delay in the tapering of theFederal Reserve stimulus.

While the US government will need to do more work onresolving its current budget crisis, markets are heading into theend of the year with the likelihood of a synchronized recoveryin Europe, Asia and the US.

The Federal Reserve is not likely to taper its bond purchasing

program until next year because the shutdown of the

government has likely slowed US fourth quarter US economicgrowth.

The government shutdown has also interrupted the ow ofdata required for the Fed to analyze economic development.

Payroll data due on Monday will probably show employersadded 180, 000 workers in September, the strongest gainsince April.

At Mondays open (Sundays overnight session ), Asian stocksrose, with the regional benchmark index extending its advance

from a ve-month high.

MONDAY

Mondays Market Fundamentals


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Data tomorrow is likely to show American employers added180,000 workers in September, the most since April, after a169,000 gain in August.

Additional data released today includes existing home sales.

Earnings

McDonalds and Halliburton are scheduled to release earningsdata.

Hello Traders,

US stock indexes traded mixed on Monday.

The broad benchmark S&P 500 closed at 1744: () up +0.16points (0.01%).

The Dow 30 closed at 15,392: () down -7 points (0.05%).The NASDAQ 100 closed at 3920: () up + 5points (0.15%).Trading Opportunities

Mondays market development is characterized asconsolidation.

A period of consolidation typically occurs after a directionalmove. The market development pauses, as participantsdecide what course of action is in their best interest.

During a period of consolidation the trade opportunities are to

buy the low of the range and sell the high.

The question arises how does the trader determine the highand low of the consolidation range?

The market structure provides the best indicator as to wherethe buying interest and selling pressure has developed withinthe trading range.

In the context of Mondays session, on Friday S&P futurestraded up to a new multiyear high at 1740.

On Fridays, S&P futures held support at Thursdays close 1729,at or near the previous multiyear high (1727). During Fridaysopen, S&P futures traded up to 1735.

S&P futures sold down and pulled back to 1730, retestingsupport.

Thus, coming into Mondays session there were three primaryreference points: Fridays low (1729), the opening range high(1735) and the closing range high at 1740.

During Sundays Globex session, S&P futures retested Fridays

high and extended the trading range by approximately 1 point(1741).

Prior to Mondays open, S&P futures had pulled back at ornear Fridays opening range high (1735), before auctioningup to 1741.

In addition to the market structure, the Follow the Botscomputational model includes the polynomial regressionchannel.

The term polynomial means many numbers.

The formal description of a polynomial regression model canbe somewhat complicated.

There are many research papers available on the web fothose who are interested in a formal description of polynomiaregression.

However, it will sufce to say that polynomial regression isa mathematical formula commonly employed to describenonlinear phenomena such as a nancial price series, in termsof the progression of the price sequence.

When we plot market generated data (a price series) on chart,the data is plotted on a graph formally referred to as the XYaxis.

The horizontal axis is called the X-axis and vertical is called they-axis.

In chart applications, price is plotted on the vertical (y) axis andtime is plotted on the horizontal (x) axis.

Each bar (column) is located at specic points on the graph.

Polynomial regression can be used to plot the general dispersionof the price series data on the chart (graph), otherwise knownas the trading range.

In the Follow the Bots computational model polynomiaregression is used to determine the relationship between the

TUESDAY

Mondays Recap | Tuesdays Market Structure


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variables, the highs and lows of the bars (columns) and todisplay the corresponding conditional mean of the developingprice series.

Polynomial regression model is tted using the method ofleast squares.

The least-squares method minimizes the variance of theunbiased estimators of the coefcients, under the conditionsof the GaussMarkov theorem.

The GaussMarkov theorem states that in a linear regressionmodel in which the errors have expectation zero and areuncorrelated and have equal variances, the best linear unbiasedestimator (BLUE) of the coefcients is given by the ordinaryleast squares (OLS) estimator.

Here best means giving the lowest variance of the estimate.

This somewhat complex explanation of polynomial regression

can be summed up as follows.

The mathematical formula calculates the highs and lowsof the bars (columns) over an extended period of time anddetermines the general direction of the overall trading range.

Approximately, two standard deviations (86%) of the tradeactivity will be contained within the parameters of thepolynomial regression channel.

The slope of the channel provides the best estimate of thegeneral direction of the developing trading range: the morevertical the slope of the channel, stronger the directional bias.

When the upper and lower band of the channel correspond withprevious reference points, the combination of the polynomial

channel and the previous market structure provide the bestestimate of the developing trading range parameters.

As price auctions through the regression channel, variousorder ow of events dictate its rotation.

When the order ow events correspond to the key referencepoints the likelihood that the developing auction will encountera specic response increases.

In the context of Mondays session these specic responsescan be observed occurring at the prior reference points.

1.) Sell Resistance | The lack of buying interest (buy programswaning) which occurred as the S&P auctioned up to retestthe new multiyear high (1741) corresponded with a similarresponse encountered when S&P futures traded up to 1740.

2.) Buy Support |The lack of selling pressure (sell programswaning) which occurred when the S&P sold down to 1735,

Fridays opening range high, corresponded with a similarresponse, which occurred when S&P futures initially auctionedup to 1640 during Friday session.

3.) Sell Resistance |The retest of the overnight high (1641)elicited a similar response. The computerized buy programsdecreased. The micro 5 tick range series overlap. The digitalters, which calculate the up-tick, down-tick ratio interestturned down and price through the trading range.

4.) Buy Support |During the retest of the low (1736) thecomputerized sell programs decreased. The downwardmomentum paused. The slope of the digital lters turned

up and price traded up through the trading range.


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The outcomes at # 5 and # 6 are similar.

The combination of the Follow the Bots computational model,including the market structure, the polynomial regressionchannel, the digital lters and turning point sequence indicatedby the order ow of events provide a comprehensive tool set.

The model is a mathematical tool that a self-directed(discretionary) trader can use improve their ability to determinethe market direction and infer the probable outcome of therotational sequence.

Mondays Market Structure

S&P futures traded in a narrow range during Mondays session.

On Friday, S&P future broke-out above the previous multiyearhigh at 1727 and traded up to new high at 1740.

During Sundays globex session, S&P futures made a minor

higher high, auctioning up to 1741.

At Mondays open, S&P futures sold down to 1735, the minoropening range high from Friday, which the S&P traded aboveinto Fridays close.

There was no selling pressure below Mondays opening rangelow (1735).

Computerized programs initiated buy-side trades and S&Pfutures auctioned up to the overnight high and made a higherhigh (1742).

However, the buy programs waned, selling pressure returnedand S&P futures sold back down to the low.

The broad benchmark index made a lower low and tradingdown to 1734. The sell-programs waned and price auctionedback to the mid-point of Mondays narrow trading range.

S&P futures ended Mondays session relatively unchanged.

215 (43%) of the S&P 500 components advanced aboveFridays close, while 278 (55%) declined.

The Current Reference Points

Key support and resistance levels for the developing tradingrange from September 3rd through October 21th.

Note a stopping point is not classied as resistance untilprice has sold below the stopping points price the distanceof a daily range.

Market Fundamentals

U.S. Stock-Index Futures were Little Changed Amid Earnings

Stocks nished narrowly mixed in lackluster trading Monday,after the S&P 500 hit another record high and as investorswere reluctant to add to positions ahead of the Septembergovernment jobs report.

AT&T Inc. advanced 1.8 percent after agreeing to sell or lease9,700 wireless towers to Crown Castle International Corp.

McDonalds Corp. slipped 1.6 percent after sales trailedestimates as gains slowed in the U.S.

Halliburton dropped 1.3 percent as revenue fell short offorecasts.

JPMorgan Chase declined 0.6 percent after it was said to agreeto pay $13 billion to end U.S. civil probes of its mortgage-bond sales.

Investors will sooner rather than later start to wonder howlong the exuberant mood can last.

Certainly, there are big prots available from the October rallyabove 1640 low.


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The S&P 500 had its best weekly gain since July last week asresults from Google topped estimates and speculation grewthat the Federal Reserve will delay cutting monetary stimulus.

The measure has gained 3.7 percent so far in October asCongress agreed on a new federal budget that avoided adefault and ended the rst partial government shutdown in17 years.

The benchmark index has advanced 22 percent this year as FedChairman Ben S. Bernanke refrained from reducing $85 billionof monthly bond purchases to stimulate the economy.

Jobs Data

The Labor Department will tomorrow release the Septemberjobs report, which was delayed from its original Oct. 4 datebecause of the 16-day partial federal shutdown that endedOct. 17.

The data will probably show employers added 180,000 workers

in September, the most since April, after a 169,000 gain inAugust, according to the median estimate of 93 economistssurveyed by Bloomberg.

Today, a report at 10 a.m. in Washington may show sales ofexisting homes fell to a 5.3 million annual pace last month,from 5.48 million in August.

Investment Flow

Money has been owing in and out of nancial markets morerapidly than ever before this year, a bullish signal as the threatof a U.S. sovereign default fades.

Since Sept. 1, about $47 billion has gone to exchange-traded funds that track everything from stocks to bonds tocommodities.

That followed $18 billion pulled in August, $40 billion addedin July and $11 billion pulled in June, making it the mostvolatile period on record for capital ows. Almost $7 billionwent to ETFs on Oct. 17 alone.

US Treasuries

The $11.6 trillion U.S. government bond market is losing someof its luster.

Americas borrowing costs are on the cusp of exceeding therest of the world for the rst time since 2010.

The political stalemate over public funding triggered a 16-daygovernment shutdown has jeopardized the nations ability topay its debt.

Yields on Treasuries, which averaged less than 1 percent asrecently as May, are now within 0.2 percentage point of the1.57 percent for sovereign debt outside the U.S.

While lawmakers reached an agreement last week to avert thecountrys rst default in its 237-year history, overseas investorswho own almost half the Treasuries outstanding have reducedholdings for four straight months, the longest stretch since2001.

Their growing reluctance to nance the worlds biggest debtonation may lift borrowing costs further and harm an economythat has yet to fully recover from the deepest recession sincethe 1930s.

Each percentage point increase in Treasuries would boostannual U.S. funding costs by $20 billion, based on the amount

of debt issued in the year ended Sept. 30.

Default or no default, the damage is already done. What hasbecome clear is that US politicians are kicking the can downthe road when the world needs a longer-term solution. Thissort of political brinkmanship undermines condence.

Primary dealers of U.S. government securities says that whilethe Federal Reserve will keep suppressing borrowing costs tobuffer the economy, lingering doubts wrought by the politicadiscord will likely cause bondholders to demand more to ownthe longest-dated Treasuries.

Fed Policy

Market participants are likely to focus on the two-day Fed OpenMarket Committees meeting, which starts on Oct. 29, therst since U.S. government ended a 16-day partial shutdowncaused by a scal impasse.

The Fed is expected to delay a reduction in its $85 billion ofmonthly bond purchases until after Chairman Ben Bernankessecond term ends on Jan. 31, economists said. Policy makerswill pare the pace of asset buying to $70 billion at their March18-19 meeting,

The shutdown slowed fourth-quarter growth of the worldslargest economy by 0.3 percentage point, economists saidThe release of data was also delayed, affecting the Feds abilityto decide on tapering stimulus.


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Good Morning Traders,

U.S. stocks futures were unchanged overnight.

Following the break-out to a new record high, marketparticipants have adopted a wait and see approach ahead ofthe U.S. jobs report for September due out later in the day.

Economists expectU.S. nonfarm payrollsto have increasedby 185,000 jobscompared to theaddition of 169,000

jobs in August, withthe jobless rate seensteady at 7.3 percent.

The jobs report alongwith other economicdata due out of theU.S. this week maygive clues on whenthe Federal Reservewill begin scalingback its stimulus.

S&P futures continued to trade within the parameters of Mondaysnarrow range session.

On Friday, the S&P futures rallied above their previous multiyearhigh, trading up to 1740 into the close.

At Fridays open, S&P futures pulled back to 1729, attempting

to test support at Thursdays close.

Price structure consolidated between the low at 1729 and thehigh at 1736. Late in the day, S&P futures rallied to 1740 intothe close.

During Mondays session, after holding support at 1736-1735,S&P futures extended the trading range up to 1742.

Thus, 1742 is the upside parameter of the minor consolidationrange that developed during Mondays session.

1742 is the continuation point, above which the rally is likelyto extend the maximum likelihood expectation price estimate

at 1750.

In the context of Mondays low, range extension could exceed1750, and S&P futures auction up to 1758.

Accordance with scale parameters of the Gaussian model,Mondays low is the most vulnerable reference point.

1735 is not classied as support.

Support is located at Fridays low 1729, and the prior multiyearhigh at 1727.

The combined trading ranges, of Friday and Mondays sessionare viewed as a single distribution.

1735 is approximately the mid-point of the two day tradingrange.

Therefore, we wouldnot be surprisedshould the S&P tradebelow 1735 andretest support atFridays low.

Fridays low is thecritical support level,in as much as theprior multiyear high,the breakout point,above which thebroad benchmark S&P500, has transitionedinto a new tradingrange.

A breach of support,initiated selling of

Fridays low indicates the new multiyear high has been soldinto. And therefore, the rally has come to an end: price hasauctioned back into the previous trading range.

Thus, it would indicate no gains for those who accumulatedpositions (bought) at the new multiyear high.

Instead, if (when) the broad benchmark index sells belowthe previous high (1727), the new multiyear high will thanbecome that price level where the informed traders tookprot, following the October rally above the 1640 low.

Tuesdays Morning Brieng
http://sceeto.com/user/register/


10/35




Hello Traders,

S&P futures rallied up to a new multiyear high at/or near 1755at Tuesdays open.

During the rally up to 1755, price discovery encountered high

volume responsive selling, which capped the up move.

Initiated selling (HFT sell surge) accompanied the reversal offthe high. Statistical high volume during the sell-off entered theorder ow at/or near 1751.

S&P futures sold down from 1755 and pulled back to theprevious fractal highs at/or near 1742-1741.

The selling pressure (sell programs waning) ended as priceretested support at the previous high.

S&P futures consolidated, auctioned up off the low and

retraced to 1750.

The statistical high volume (high frequency sell surge), initiatedselling that accompanied the sell-off from the opening rangehigh, indicates S&P futures encountered minor resistance onthe retracement back to 1750-1751.

Therefore, we would expect to see the initial retracement backto 1750-1751 down-tick back into the developing tradingrange.

In the event, previous sellers (shorts) at 1750-1751 cover theipositions on a second retracement, the likelihood of a retesof the high (1754) and continuation up to the extreme priceexcursion level at 1758 is within the scope of todays marketdevelopments.

Tuesdays Intra-day Market Commentary

Hello Traders,

US stock indexes traded mixed on Tuesday.

The broad benchmark S&P 500 closed at 1754: () up +10points (0.57%).

The Dow 30 closed at 15,467: () up + 75 points (0.49%).The NASDAQ 100 closed at 3929: () up + 9points (0.24%).381 (76%) of the S&P 500 stocks advanced above theirprevious close, while 115 (23%) declined.

Tuesdays Market Sturcture

S&P futures broke out above Tuesdays high, at Tuesdays openand rallied up to a new multiyear high at 1754.

During the overnight session, S&P futures had modestlyextended the trading range two points above Mondays high(1742).

After the release of the October jobless claims marketparticipants, speculating that the disappointing jobs numberswould result in the Federal Reverse extending its extraordinary,unconventional, accommodative monetary policy through theend of the year.

Following the rally to the new multiyear high, S&P futuresreversed direction and sold down below the high (1754) andpulled back to 1742.

During this weeks market development, S&P futures haveauctioned up to a series of fractal highs. Each new highexceeded the previous one by a minor two points.

Statistical data proling indicates that two points above the

previous high is the approximate location of stop loss orders inthe S&P 500 E-mini.

The Anatomy of a Break-out and Pull-back

On the charts posted in todays gallery we highlight theanatomy of a break-out and pulled back.

Buying the break-out is one of the Follow the Bots tradingstrategies

However, our computations modeling of the marketstructure indicates that markets spend more time trading inconsolidation, within the parameters of an established tradingrange, then they do trending.

A trend is a directional move. In the case of todays marketdevelopment the directional move was higher.

Directional price sequences are typically followed by secondaryresponses, referred to as pullbacks and retracements.

The dual auction nature of nancial markets is the cause of the

WEDNESDAY

Tuesdays Recap | Wednesdays Market Structure


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non-linear market development.

As described in the Chicago Board of Trade market prolehandbook markets will move directionally until price hasauctioned to a stopping point, where in price discovery willelicited the opposite response.

Therefore, an alternative strategy to buying the break-out is to

buy the pullback.

The rationale (Bayesian logic) which supports the tradingstrategy is as follows.

At the break-out-point, the market structure indicates theauction has transitioned from its previous state.

The transition creates a decision point.

This point represents the heart of decision theory. Theprocedure now referred to as expected value was known fromthe 17th century.

Pascal invoked the decision point in his famous wager,published in 1670.

The idea of expected value is that, when faced with a numberof actions, each of which could give rise to more than onepossible outcome with different probabilities, the rationalprocedure is to identify all possible outcomes, determine theirvalues (positive or negative) and the probabilities that willresult from each course of action.

As the concept of a decision point applies to a break-out

above a prior high, the rst step is to consider the possibleoutcomes and the actions (values) that may arise.

Market generated data clearly indicates that a fty percentageof market participants were sellers (short) at the prior high.

When the market breaks out, those sellers are disadvantagedinasmuch as there trade positions are now negative.

The other half of the market participants at the prior high, i.e

they buyers, have beneted from the break-out, inasmuch astheir positions are positive.

In a study of strategic decision making (game theory) whereinthe participants (traders) has equal access to information (price

just broke-out above the prior high), each participants at eachdecision point, must consider the outcome (prot & loss) oftheir individual decision (situation).

Game theory is widely used in economics, political, andpsychology, as well as logic and biology.

A game theorist typically uses these elements (rational self-inters) to deduce a set of strategies for each participants.

Mathematical models of intelligent rational decision-makerssuggested a high probability that each participant will behavein a manner consist with their self-interest.

Thus, witnessing the market break-out above the prior high(1741) and auctioning up to a new high (1754), the likelihood(Bayesian logic) applicable to todays break-out was that onthe pull-back to the prior high (1741) prior selling would exit(buy back) their short positions.

Additionally, buyers on the break-out would potential add totheir long positions.


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Thus, at the decision point: the pullback to the prior high, theexpected response was that the order ow events wouldindicate sell programs waning followed by initiated buying(HFT buy surge).

S&P futures sold down from 1755 and pulled back to theprevious fractal highs at or near 1742-1741.

The selling pressure (sell programs waning) ended as priceretested support at the previous high.

S&P futures consolidated, auctioned up off the low andretraced his 1753.


Key support and resistance levels for the developing tradingrange from September 3rd through October 22th.

Market Fundamentals

Speculation that slower growth in hiring will extend FederaReserve stimulus rallied U.S. stocks and pushed the annuaadvance in the Standard & Poors 500 Index within a percentagepoint of the best yearly gain in a decade.

The board benchmark index would have to reach 1,761 tosurpass the 23.5 percent surge in 2009 and be poised for thelargest annual rise since 2003 (26.45).

Treasury 10-year note yields fell to a three-month low after aLabor Department report showed the economy added fewer

jobs than forecast, a sign economic growth continued to lag,prior to the governments partial shutdown began.

The economy has yet to produce a meaningful improvementin the US jobs market, despite the Feds continuedaccommodative monetary policy, which amount to printingmoney and devaluating the currency.

The data added to speculation that Federal Reserve willcontinue printing money and buying $85 billion of bonds intonext year.

These were much weaker payrolls than expected -- theresreally no bright spot in the data you can point to.

Todays job data makes the Feds decision not to taper lookinsightful.

The market will have to wait till the November data comes outin December to get a clear picture of whats going on in the

economy.

Fed Outlook

Traders are pricing in a 29.1 percent probability that the Fedwill raise its benchmark overnight rate by its January 2015meeting, down from a 70% likelihood on Sept. 5, the daybefore the August payroll data was released.

Economists predict the Fed will maintain bond purchases atthe current pace until March.


13/35





S&P futures sold off inthe overnight session.

After trading up to1754 on Tuesday,amid speculationthat the negative

jobs report wouldresult in the FederalReserve maintainingits unconventionalaccommodativemonetary policy (QE)into the end of theyear.

Following Tuesdaysrally up to 1754,S&P futures quicklyreversed direction andsold down to 1743.

The pull-back was met with a buy response and over the courseof Tuesdays session, S&P futures traded back to Tuesdays highauctioning up to 1753.

The overnight sell-off has breached minor support at Tuesdaysday session low.

However, the selling pressure paused, as S&P futures tradeddown to 1737: 20 points (1.1%) below Tuesdays high.

On Mondays S&P futures held support at 1735-1736, beforeauctioning back up to 1744 in the overnight session.

Therefore, we would expect to see S&P futures hold supporton the initial pullback to Mondays low and attempt to auctionback to ll the gap at Tuesdays close (1748).

There is the possibility that the overnight sell-off could raiseconcerns that the current rally to 1754, as overextended US

equities.

Therefore, the sell-off may trigger prot-taking.

Thus, in the event S&P futures pulled back to the overnightlow (1738), and initiated selling (HFT sell surge) occurs duringthe pullback (price discovery phase), S&P futures are likely tobreach support at Mondays low (1735-1736).

Currently, as noted in Tuesdays daily recap, the key supportlevel is 1727, the prior multiyear high.

In the context that the prior multiyear high is 27 points (1.5%below Tuesdays record high (1754), we would expect to seean initial buy reaction accompanying a pullback to the 1727price level.

Tuesdays high (1754) 17 points (average daily range) abovethe overnight low is now classied as resistance.

In the event the S&P auctioned back to Tuesdays high we wouldexpect to see a sell response during the initial retracement.

Wednesdays Daily Morning Brieng


14/35




Hello Traders,

Overnight S&P futures sold-off below Tuesdays close (1749)and traded down to 1737, at/or near the lows that developedduring Mondays session.

At Wednesdays open, S&P futures traded up to 1744, thelow from Tuesdays session.

The retracement back to Tuesdays low represented adecision point, similar to the situation discussed inTuesdays Market Structure commentary.

In the context of theovernight sell-off, thedecision facing buyersat yesterdays low was:what to do with theirlong positions?

As noted in todaysmorning brieng,the overnight sell-off (pull-back) wasthe rst daily rangedecline seen since therally above the priormultiyear high (1727).

The Follow the Botscomputational modelplaces importance on daily range pull-backs, as the dailyrange conforms to the scale parameters of the Gaussian

distribution (market prole).

Hence, coming into Wednesdays session, the Bayesian

inference (forecast) was that probability favored S&P futuresencountering support at/or near Mondays lows (1735).

The expectation was that during the initial price discovery, theselling programs would diminish and buying interest would

enter the market.

The minimum up-side potential was a rotation back toTuesdays low (1742-1744).

In the event that support at/or near 1735 holds throughWednesday session, the longer term potential of the gap at

Tuesdays close willll and/or price willre-test Tuesdays high(1754).

A breach of supportat Mondays low

would indicate prottaking and increasethe likelihood thatS&P futures will selldown to the priormultiyear high at1727.

Sellers at Tuesdayslows, Mondaysopening range high1743-1744 are

advised to be cautious. It is not recommended to defend(hold on to) a short position at Wednesdays opening range

high, should price auction above the minor resistance level.

Wednesdays Opening Range Commentary

Hello Traders,

US stock indexes traded mixed on Tuesday.

The broad benchmark S&P 500 closed at 1746: () down -8points (0.47%).

The Dow 30 closed at 15,413: () down -54 points (0.35%).

The NASDAQ 100 closed at 3907: () down -22 points(0.57%).

152 (30%) of the S&P 500 stocks advanced above their

previous close, while 343 (68%) declined.

Wednesday Market Structure

On Tuesdays S&P futures rallied up to a new multiyear highat 1754.

Overnight, S&P futures sold off below the multiyear high, soldbelow Tuesdays low (1743) and pull-back to Mondays low at1735: () -19 points (-1.1%).

The sell-off is just the most recent evidence supporting theconclusion of the Follow the Bots computational model: it is

THURSDAY

Wednsesdays Recap | Thursdays Market Structure


15/35




not possible to outperform the market by being nave enough

to buy the high.

If your portfolio or your retirement account is underperformingthe market, we suggest you investigation the Follow the Botsauction market approach to analyzing the Market Structure.

Market Structure is collection of factors that determine howbuyers and sellers interact in a market, how prices change, andhow different levels of support (demand = buying interest) andresistance (supply = selling pressing) inuence the nancialauction process.

Market structure is dened as the characteristics of the

market. It can be organizational characteristics or competitivecharacteristics or any other features that can best describehow the market operates.

The major characteristic that describes the market structures isthe nature of competition and themode of pricing in that market.

The market structure has greatinuence on the behavior ofindividual participants.

In trading, the value of

understanding the marketstructure lies in the role of theprice discovery process.

The price discovery process (alsocalled price discovery mechanism)is the process of determining theprice of an asset in the marketplacethrough the interactions of buyersand sellers.

In a dynamic market, the pricediscovery takes place continuously

The price will sometimes falbelow the (duration) daily volumeweighted average and sometimesprice will exceed the (VWAP) dailyaverage.

As price is a continuous variablethe task of determining whereprice will trade within a givenrange is fraught uncertainties.

Herein lays the benet ofunderstanding the marketstructure. At key levels of support(previous buying interest) andresistance (previous sellingpressure) the likelihood of

inferring the expected response and or determining theopposite response is more favorable then at a random locationwithin the trading range.

Case in points

In the context of Wednesdays market development there weretwo key price levels where in the market participants would beforced to make decisions.

1.) The retracement back to Tuesdays low at or near 17431744, the previous support level (demand = buying interest)during yesterday session.

2.) The pullback to Mondays low at or near 1736-1735, theprevious support level (demand = buying interest) duringMondays session.


16/35




The signicance of these price levels are as follows.

1.) The overnight sell-off breached support at Tuesdays low.During yesterday session there was no better trade locationfrom the buy side perspective than 1744-1743.

The breach of support placed the buyers at Tuesdays low ata disadvantage. What were the buyers at Tuesdays low to dotheir longs positions?

When price retraced back to 1744-1743, the buyers atyesterdays low had the option to exit their long positions andor risk the market selling back down to the overnight low andpotentially trading lower.

The logic (Bayesian) is straightforward. The expectedresponse is that a percentage of the buyers at Tuesdays lowwould choose to exit (sell) their long positions.

Additionally, a percentage of the sellers in the overnight

session, seeing that price auctioned down below support,might consider adding to their short positions.

Thus, IF on the retracement back to 1744- 1743 eight couldbe determined that the buying interest (computerized buyprograms) diminished, probability would favor S&P futureswould sell back down and retest the low.

2.) On Monday, S&P futures held support at or near 1736-1735. All market participants observed that the S&P rallied upto a new multiyear high.

It should be noted that in every transaction there is a buyer

and a seller. Thus, the possibility that there might be off-sidesellers at Mondays low cannot be ruled out.

Thus, during the initial pullback to prior support (1736-1735)there exist the possibility that price discovery would encounterdemand (buying interest).

IF, it could be determined that during the pullback sellingpressure decreased (sell programs waning) and buying interestreturned (high frequency buy surge) probability would favorS&P futures would auction up off the low and retest resistanceat 1743-1744.

Therefore, during Wednesday session the two high probabilitytrades were:

1. Sell the retracement to previous support at 1743-1744.

2.) Buy the pullbackto previous support at 1736- 1735.

In Tuesdays daily market recap we noted that in the eventS&P futures breached support at Tuesdays low the likelihoodwould be that price would auction down to Mondays low.

Furthermore, we inferred that the probability was favorableS&P futures would encounter support.

The market development described above is not an isolatedcircumstance. Indeed, the pattern of market developmentdiscussed in todays commentary, as well as in our livestreaming broadcast, are we occurring characteristics of theall auction markets.

These characteristics illustrate the role of the price discoveryin determining the value of an asset in the marketplacethrough the interactions of buyers and sellers.


Key support and resistance levels for the developing tradingrange from September 3rd through October 23rd.

Market Fundamentals

U.S. stocks declined below yesterday multiyear high, asvaluations reached an almost four-year high.

Eight out of 10 main industries in the S&P 500 declined,with energy, consumer-discretionary and nancial companiesdropping at least 0.8 percent to lead the retreat.

Trading in S&P 500 stocks was 27% above the 30-day averageduring this time of day.

The S&P 500 advanced 23% this year, trading within apercentage point of its 23.5 percent surge in 2009.


17/35




Equity Valuations

The S&P 500 was valued at 15.9 times estimated earningsyesterday, the highest since December 2009.

About 87 percent of stocks in the S&P 500 traded above theiraverage prices from the past 50 days, the most since May 21.

The index and all its 10 main industries traded more than twostandard deviations above their respective 50-day movingaverage.

The momentum strength has occurred on only two other dayssince 1990.

Of the 162 S&P 500 companies that have reported results thisseason, 76 percent exceeded analysts predictions for prot,while 54 percent beat sales estimates.

Chinas biggest banks tripled the amount of bad loans written

off.

Industrial & Commercial Bank of China, the worlds most

protable lender, and its four largest rivals expunged in therst six months 22.1 billion of debt that couldnt be collected

Chinas debt-to-GDP ratio, excluding central governmentand nancial debt, widened to 207 percent as credit growthcontinued to outpace productivity gains.

Worries about economic slowdown persisted even afterexpansion of Chinas gross domestic product rebounded to7.8 percent in the third quarter. Growth may slow to 7.6percent this year, the weakest pace since 1999.

Copper futures fell the most in 12 weeks after surging interestrates eroded the outlook for demand in China, the worldsbiggest user of industrial metals.

Chiles peso fell the most in emerging markets after copperplunged as surging interest rates in China, the nations biggesttrading partner, eroded the outlook for the metals demand.

Copper accounts for more than half of Chiles exports andChina is the main buyer of Chiles copper.


S&P futures traded aboveWednesdays high at 1743-1744holding support at Mondayslow (1735) during Wednesdaysession.

In the overnight session, S&Pfutures auctioned up to 1752, butfailed to extend the trading rangeabove the current multiyear high

(1754).

Market sentiment remains riskon, as speculation persists thatthe rally will continue amid signsof an improving global economy.

The broad benchmark S&P 500index has gained 3.9% this month, extending the 2013advance to 22%.

The S&P 500 is trading at 15.8 times its companies estimatedearnings, near the highest valuation since the end of 2009.

Thursdays Daily Morning Brieng


18/35




The index fell 0.5 percent from a record yesterday, halting vedays of gains, as forecasts at companies from Caterpillar Inc.to Broadcom Corp. disappointed investors.

Investors may have to look beyond this earnings season tocorporate outlooks for 2014, if they expect to see the growthrise.

However, the central bankers have indicated the era of easymoney is likely to continue into 2014.

The Bank of Canadas dropping of language about the needfor future interest-rate increases and todays decisions bycentral banks in Norway and Sweden to leave their rates onhold unite them with counterparts in reinforcing rather thanretracting loose monetary policy.

The Federal Reserve delayed a pullback in asset purchases,while emerging markets from Hungary to Chile cut borrowingcosts in the past two months.

Coming into Thursday session trade opportunities are likely tobe:

Buy the pull-back to minor support is located at 1744-1743,with the exepcation of a re-test of the overnight high (multiyearhigh).

The risk is a breach of minor support is likley to resutl in a sell-off to Wednesdays low.

Support is located at 1735-1736.

Break-out above Wednesdays high (1743-1744) suggestslikelihood that S&P futures will retest the multiyear high duringThursdays session.

A break-down below (1744-1743) resulted in a retest ofWednesdays low.

In the event S&P futures auctioned back to retest the multiyearhigh failed to extend the trading range above 1754 asubsequent pullback to Wednesdays high is likely to breachsupport.

Resistance is located at 1752-1754.

Range extension above the multiyear high see S&P futuresauction up to 1760.

Hello Traders,

Overnight S&P futures traded up to 1752, at or near thecurrent multiyear high.

Prior to Thursdays open S&P futures sold off fromthe overnight high and pull-back to re-test support atWednesdays close (1739-1740).

The selling pressure (sell-side programs) end as price tradedown to 1740-1741 and price auctioned up off the low,trading up to 1746.

The rate of trade (trade frequency) and or the rate of changehad been below normal, similar to the pattern observedduring Wednesdays session.

Typically, a below normal rate of trade indicates a lack ofparticipation in the market. It is not uncommon to observe apause in the price action during the mid-day session.

However, the lack to normal trade activity has characterizedthe session since the open.

While the trade dispersion has been modestly skewed towardthe up-side, periods of no change can easily reversedirection.

The long (buy) opportunity was during the opening rangeprice discovery and the pull-back to Wednesdays close(1739-1740).

The short opportunity has been on the retracement backto 1746-1745, the price level where the initiated sellingoccurred prior to and at Thursdays open.

The trade dispersion suggests S&P futures will re-test theovernight high (1751-1752).

However, the lack to interests, as indicated by the rate ofchange, makes the forecast less reliable.

Thursdays Opening Range Commentary


19/35




Hello Traders,

US stock indexes traded higher on Thurssday.

The broad benchmark S&P 500 closed at 1752: () up +5points (0.33%).

The Dow 30 closed at 15,509: () up 95 points (0.62%).

The NASDAQ 100 closed at 3928: () up + 21 points (0.56%).

323 (64%) of the S&P 500 stocks advanced above theirprevious close, while 174 (34%) declined.

Thursdays Market Structure

On Thursday, S&P futures traded up to 1752 during theovernight session.

On Wednesday, S&P futures had similarly sold down to re-testsupport at Mondays low (1736-1735).

Overnight S&P futures traded above Wednesdays close(1739-1740) and auctioned up to 1752, at or near the currentmultiyear high.

Prior to Thursdays open, S&P futures sold-off below theovernight high (1751) and pulled back to re-test support at

Wednesdays close (1739-1740).

During the pull-back to 1740-1741, the computerized sellingprograms decreased. S&P futures held support and pricetraded up to 1747.

The retracements of 1747 market a temporary pause in theprice action. S&P futures auctioned in a narrow trading rangebetween 1746 and 1744.

A below normal rate of trade, typically indicates a lack ofparticipation in the market.

However, during the pause phase, trade dispersion remainedskewed to the buy-side.

Despite the below average rate of trader, the Kalman Filtermaintained up advancing slope and S&P futures traded highinto the close.

Trading Opportunities

1.) The best short opportunity occurred doing the overnightsession, when S&P futures auctioned up to re-test the high,after selling down 19 points to 1735.

2.) The opening range short at 1744, with the expectation thatprice would auctioned down and ll the gap at Wednesdays

FRIDAY

Thursdays Recap | Fridays Market Structure


20/35




close was support by the high frequency selling, the exponentialslope of the digitallters and thedownward bias ofthe Kalman lter.

3.) The ideal(best) long wasto buy the pull-back during thegap ll at ornear Wednesdaysclose (1740-1741).

The order owevents indicatedthe computerizedselling programshad decreased.

The digital ltersturned up and initiated buying (HFT buy surge) was presentin the order ow.

The reaming trade opportunities were minor scalps, with theexpectation of # 6.

HFT initiated buying developed during the down-tick to 1644.There was no selling pressure and S&P futures rallied up to1750 into the close.


Key support and resistance levels for the developing tradingrange from September 3rd through October 23rd.

Market Fundamentals

U.S. stocks rallied toward another record.

Gold advanced while the dollar weakened. Corporate earnings

topped estimates and signs of slower economic growthfueled bets theFederal Reservewill maintainstimulus.

The U.S. tradedecit waslittle changedin August asimports andexports stalled.

U.S. factoryoutputexpanded inOctober at aslower pacethan forecastand the euro-

area servicesand manufacturing grew less than estimated.

47 companies in the S&P 500 were scheduled to post resultstoday, the busiest day of the third-quarter reporting season.

Of the 212 companies that have released earnings so far, 76percent exceeded analysts predictions for prot, while 53percent beat sales estimates.

Better-than-expected earnings and monetary stimulus fromthe Fed have driven the S&P 500 (SPX) up 23 percent this year

Heres where the monetary stimulus has been going.

Top banking regulators in the U.S. are recommending lendersstrengthen underwriting standards for leveraged corporateloans as borrowing of the high-risk debt approaches levels notseen since before the nancial crisis, according to nine peoplewith knowledge of the matter.

The Federal Reserve and the Ofce of the Comptroller of theCurrency sent letters to some of the biggest banks askingthem to avoid originating loans where the debt is classied byregulatory agencies as decient.

Top banking regulators in the U.S. are recommending lendersstrengthen underwriting standards for leveraged corporateloans as borrowing of the high-risk debt approaches levels notseen since before the nancial crisis.

Lenders contacted included all the too big to fail; Barclays,Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan Chase &Co., Morgan Stanley and UBS.


21/35





S&P futures sold for down belowthe overnight high at 1750and pulled back to 1743 in theovernight session.

Despite holding support at 1735trading above the mid-point(1744) of the trading range, S&Pfutures have not been able to

retest the multiyear high (1754)and extend the trading rangehigher.

During Thursdays session, whilesentiment remains positive: i.e.323 (64%) of the S&P 500 stocksadvanced, the broad benchmarkindex languished in a narrowtrading range for the majority ofthe session.

After selling below the multiyear high and pulling back toWednesdays close, there was little dynamic price actionduring the Thursdays session.

The failure to range extension above the previous multiyearhigh indicates a lack of buying interest at the current historicmultiples.

Earnings season is thus far been in line with expectations.

Of the 212 companies that have released earnings so far, 76percent exceeded analysts predictions for prot, while 53percent beat sales estimates.

Better-than-expected earnings and monetary stimulus fromthe Fed have driven the S&P 500 up 23% this year.

However, while up to this point there has been no indicationof prot taking at the multiyear high, up- side momentumappears to be lacking.

In the event S&P futures auctioned above the overnight highduring Friday session and attempts to extend the tradingrange above 1754, we would expect to see extend thetrading range above 1760.

IF, during a retest of the high momentum stalls and S&Pfutures failed to trader above 1756, the approximate locationwhere stop loss orders are estimated to be located, a sell-offback through the trading range would conrm the rally has

likely run its course.

Thus far, we have not observed a sell-off (prot-taking)during the day session.

Currently support is located at this weeks low (1735-1736).

Key support remains at 1727, the previous multiyear high.

Fridays Daily Morning Brieng
http://followthebots.com/registrationhttp://sceeto.com/user/register/


22/35




Hello Traders,

S&P futures auctioned up to retest the multiyear high at ornear 1754 during Fridays open.

Lack of buying interest accompanied retest of the high andS&P futures pulled back into the trading range auctioning

down to 1747.

While there is no immediate indication of institutional sellingpressure, the lack of buying interest suggests the rally tothe new multiyear high is struggling to maintain upwardmomentum.

Prolonged periods of lacking participation: characterized bythe narrow recursive market maker sequences: up 2 points,down 2 down, have been dominant during the last threetrading sessions.

The lack of buying interest will at some point give way toincreased selling pressure. Thus far institutional traders have

done in excellent job to maintaining price at the minor supportlevels, just sufcient on not enough to hold the S&P at or near

the multiyear high.

The failure to extend the trading range above 1754 indicatesthe market state has transitioned to consolidation.

Despite this weeks pullback to Mondays low (1735-1736buyers have been unwilling to auction the market higher.

Minor pullbacks, as observed during Fridays open (1747) havelimited the prot potential available to those inclined to selthe rally.

The current narrow range development may continue untinext weeks FOMC announcement.

Earnings season remains upbeat, for the most part in line withexpectations.

Fridays Opening Range Commentary

to have a heads up to where tradable turns are likely to takeplace.

We provide 2 easy approaches to anlaysing Market Structureso that you can always be aware of were the like marketturning points are.

The rst is our documented daily Market Structure. OurMarket Structure provides you with up-to-date insights on thekey Support & Resistance levels:

Near Term Support\ResistanceMinor Support\ResistanceMicro Support\ResistanceMajor Support\ResistanceMaximum Likely Expectation

The second approach to determining support and resistanceis to use our Polynomial Regression to determine the normalmarket rotation from sellers to buyers (and vice versa). Whenprice travels outside of our Polynomial Regression channels, itstime to look towards Step 2.

Step 2 | Price Action

The second step in our methodology is Price Action. We lookto clues in the behavior of Price to see if the activity in Step 3will be relevant.

There are 2 basic behavioral patterns to look for in Price Action

For long setups:

Phase 1 | Overlapping Range Bars - Following the pullback to theknown support price level or to the price extension beyond thelower Polynomial Regression channel (See Step 1), we look forange bars that overlap each other. The number of overlappingrange bars can vary from 2-5 bars...but are generally 3-4 rangebars in a row.

Phase 2 | Digital Filters - Look for the slope of the Digital Filters

should turn up. This upturn in the Digital Filters indicatethat price is not longer being executed to the sell side. Thesignicance of this to traders is that the market is now ripeto be impacted from the buy thrusts of the High FrequencyTrading Bots....which takes us to Step 3.

For short setups:

Phase 1 | Overalapping Range Bars - Following the retracemento the known resistance price level or to the price extensionabove the upper Polynomial Regression channel (See Step 1)we look for range bars that overlap each other. The numbe

Tape Reading Lesson of the Week(cont. from page 1)


23/35




of overlapping range bars can vary from 2-5 bars...but aregenerally 3-4 range bars in a row.

Phase 2 | Digital Filters - Look for the slope of the Digital Filtersshould turn down. This downturn in the Digital Filters indicatesthat price is not longer being executed to the buy side. Thesignicance of this to traders is that the market is now ripeto be impacted from the sell thrusts of the High FrequencyTrading Bots....which takes us to Step 3.

Step 3 | Follow The BotsSince Supply & Demand is the key determinant in changes inprice, we look for key moments when the Supply & Demandbalance is highly susceptible to be knocked off-kilter by theactivities of the High Frequency Trading Bots. Once you haveobserved Step 1 and Step 2, the market is now ripe to be runby the bots.

For long setups:

Once Steps 1 and 2 are in place, we use ...sceeto to surfacereal-time indications of High Frequency Trading Buy Bots.When the High Frequency Bots surface at these points, theirbuying is more likely to tip the scales of the Supply & Demandbalance and thereby invoke an immediate price move. This iswhen we enter a trade and Follow The Bots.

For short setups:

Once Steps 1 and 2 are in place, we use ...sceeto to surfacereal-time indications of High Frequency Trading Sell Bots.When the High Frequency Bots surface at these points, theirselling is more likely to tip the scales of the Supply & Demandbalance and thereby invoke an immediate price move. This iswhen we enter a trade and Follow The Bots.


24/35




Asian stocks rose broadly on Monday.

Solid Chinese growth data released last week and continued

expectations that the U.S. Federal Reserve will keep stimulusmeasures going for longer contributed to improving investorsentiment.

Chinas Shanghai Composite index rallied 1.6%, to trade at2,229.24.

The Chinese Cabinet urged the local governments and statedepartments to implement the planned economic reforms andrestructuring measures to help the economy recover from therecent lull.

Hong Kongs Hang Seng closed 0.4% higher, to trade at23,438.

The foundation for Chinas economic rebound is not yet strongand there are still a number of deep-seated problems thatmay create more risks and challenges for future economicdevelopment, the State Council said in a statement releasedafter a meeting called by Premier Li Keqiang on Friday.

The government expects China to attain this years economicgrowth targets, despite many downside risks, the council said.

Japanese shares gained ground on expectations that export-oriented companies will post robust earnings growth whenthey report earnings results later this month.

The benchmark Nikkei average rallied 0.9%, to trade at 14,694,its highest level since September 27.

The broader Topix index ended 0.6 %higher.

Suzuki Motor added 2.4 percent on a report that theautomakers group operating prot for the six months endedSeptember would rise more than 30 percent to a record.

Yokogawa Electric declined 4.4% after reporting that the rmlikely posted a modest 3 percent rise in group operating protto around 9 billion yen in the six months ended September.

According to data from the Ministry of Finance, Japan posted a

merchandise trade decit of 932.149 billion yen in September,sliding into the red for the 14th consecutive month and missingforecasts for a shortfall of 918.6 billion yen.

Exports gained 11.5 percent from a year earlier, while importsjumped 16.5 percent.

Australian shares hit a fresh ve-year high, buoyed by signsof revival in the Chinese economy and upbeat earnings resultsfrom some U.S. companies.

The benchmark S&P/ASX 200 rose 0.6%, to trade at 5,352, its

highest close since June 19, 2008.

Mining stocks led the market rally, with BHP Billiton rising 1.3

% and Fortescue Metals Group gaining 2.8%.

Qantas Airways slumped 5.6 percent, extending losses for asecond consecutive session, after the national carrier aggeda decline in yields for passenger ights in the coming monthdue to soft underlying demand and competitive pressures.

Seoul shares ended little changed despite renewed buying byoverseas investors for the 37th consecutive session.

The benchmark Kospi average ended up 0.03% higher at afresh 26-month high.

Economy-sensitive shipbuilding stocks ended in the red, with

Daewoo Shipbuilding, Samsung Heavy Industries and HyundaHeavy Industries losing 1-3%.

New Zealand shares rose sharply to a record high.

Metlifecare shares soared 7.8%, after Australian propertyinvestment group FPK Property said it has hired GoldmanSachs to sell its 37.7 percent stake in the NZX-listed retiremenvillage operator.

The benchmark NZX-50 index advanced 0.9%, to trade at4,803.

According to the latest data released by the Reserve Bank of

New Zealand, credit card spending in New Zealand fell 0.1percent month-over-month in September following a 1.4percent rise in the preceding month. Card spending grew 5.2percent on an annual basis.

A report from Statistics New Zealand showed that the countrysaw a seasonally adjusted net gain of 2,700 migrants inSeptember, touching a 10-year high.

Indonesias Jakarta Composite index was up 0.4%.

Malaysias KLSE Composite was up 0.2% and SingaporesStraits Times was gaining 0.1%.

The Taiwan Weighted average dropped 0.3% and IndiasSensex was losing 0.4%.

U.S. stocks rallied on Friday as investors cheered encouragingGDP data out of China and earnings from big-name companieslike Google Inc., General Electric and Morgan Stanley.

The tech-heavy NASDAQ rallied 1.4% to a fresh thirteen-yearhigh and the S&P 500 advanced 0.7% to a record high.

The Dow underperformed, but still posted a modest gain of0.2%.

Mondays Asian Market

ASIAN MARKET RECAP


25/35




Asian stocks turned in a mixed performance on Tuesday.

Japanese shares ended little changed as investors moved tothe sidelines awaiting the September jobs report, which wasdelayed by more than two weeks due to the partial governmentshutdown.

The Nikkei average moved in a narrow range before closing up0.1%, to trade at 14,713.

The broader Topix index added 0.2%.

Positive earnings reports from Japanese companies and aweaker yen, helped improve investor sentiment.

Exporters turned in a mixed performance with Canon rising0.6% and Toyota Motor adding 1.1%.

According to a survey of senior loan ofcers by the Bank ofJapan demand for business loans increased slightly in the third

quarter. The indicator showing loan demand of companiesincreased to 4 in the September quarter from -2 recorded inthe previous survey period.

Chinas Shanghai Composite index dropped 0.8%.

The Peoples Bank of China held back from liquidity operationsfor the second day running, signaling a tightening bias.

Hong Kongs Hang Seng index declined 0.50%, with ChinaMobile pacing the decliners after its earnings missed analystestimates.

According to data released by the National Bureau of Statistics,

house prices in China rose the most in nearly three years inSeptember, supported by expectations that the governmentwill abstain from introducing any fresh nationwide propertycurbs in the coming months, showed.

Prices increased in 69 out of 70 cities surveyed by thegovernment, spurred by price gains in major cities such asGuangzhou, Shenzhen, Shanghai and Beijing.

A report from the Conference Board revealed that the leadingeconomic index increased 0.9 percent to 271.8 in Septemberfollowing a 0.8 percent increase in August, supported by creditgrowth and real estate activity.

The coincident economic index, which measures currenteconomic activity, increased 0.2 percent to 248.9, slower thanthe 1.2 percent increase in August.

Australian shares hit a fresh ve-year high after BHP Billitonannounced solid production results.

The benchmark S&P/ASX 200 rallied 0.4%, to trade at 5,373its highest close since June 2008, extending gains for the sixth

straight session.

BHP Billiton rallied 2.4% after the mining giant reported recordoutput from its expanding mining hub in Australias resourcerich Pilbara region and upgraded its iron ore productionguidance for the scal year.

Oil Search posted a modest 0.1% gain as it reported higher oiand gas production in the third quarter of 2013.

South Koreas Kospi average erased early losses to end 0.2percent higher at a 26-month high, supported by renewedbuying from foreign investors.

Overseas investors bought shares worth a net 210.7 billionwon on Tuesday, extending their buying streak for a 38thconsecutive session, data showed.

Hyundai Motor, the nations largest automaker, rose 0.6%while tech stocks LG Electronics and Samsung Electronicsslipped about half a percent each ahead of Apples iPad launchevent.

New Zealand shares extended recent gains.

The benchmark NZX-50 index rallied 0.6% to trade at a recordhigh.

Xero, which announced an enhancement to its onlineaccounting software, soared 6.8% to a record high.

Heavyweight Fletcher Building rose 1.4% after a discussiondocument showed government agencies plan to increase theiannual spending on building supplies to $3.3 billion from aprevious base of $1.5 billion a year in the next ve to eightyears.

Singapores Straits Times was moving up 0.4% and MalaysiaKLSE Composite was marginally higher, while the TaiwanWeighted average ended little changed with a negative bias.

Indias Sensex was down 0.1% and Indonesias Jakarta

Composite was losing 1.4%.

Taiwans seasonally adjusted jobless rate fell to 4.18 percent in

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September from 4.19 percent in August, ofcial data showed.The unadjusted jobless rate stood at 4.24 percent, down from4.33 percent in August.

U.S. stocks closed largely unchanged overnight.

Earnings reports from prominent companies such asMcDonalds Corp. and Halliburton came in below expectation

The National Association of Realtors, which showed that salesof existing homes pulled back in September from an almostfour-year high.

Market participants may also be adopting a cautious approachahead of the U.S. jobs report for September due out later inthe day.

Economists expect U.S. nonfarm payrolls to have increased by185,000 jobs compared to the addition of 169,000 jobs inAugust, with the jobless rate seen steady at 7.3 percent.

The jobs report along with other economic data due out of theU.S. this week may give clues on when the Federal Reserve wilbegin scaling back its stimulus.

Asian stocks erased early gains to end broadly lower onWednesday.

The Nikkei average tumbled nearly 2%, on heavy tradingvolumes.

The broader Topix index shed 1.5%,

Component supplier Murata Manufacturing declined 3.3percent on prot taking after Apple on Tuesday unveiled aslimmer version of its top-selling full-size tablet, dubbed theiPad Air, and a revamped iPad Mini with an improved high-denition display.

Chinas Shanghai Composite index dropped 1.3% after short-term money-market rates spiked and reports said regulatorsare weighing moves to tighten liquidity in a bid to curb risinghousing prices and ination.

Adding to the selling pressure, Chinas biggest banks have

reportedly tripled the amount of bad loans written off in therst half.

Hong Kongs Hang Seng retreated 1.4% to close at 23,000points, its lowest level in nearly two weeks.

Australian shares snapped a six-day winning streak as higher-than-expected ination data reduced expectations of furtherinterest rate cuts from the central bank.

The benchmark S&P/ASX 200 slipped 0.3% after hitting a freshve-year high early in the session on expectations of sustainedbond buying by the Federal Reserve.

According to the Australian Bureau of Statistics, consumerprices in Australia climbed 1.2 percent in the third quarterof 2013 compared to the previous three months, exceedingforecasts for an increase of 0.8 percent following the 0.4percent gain in the second quarter.

On a yearly basis, consumer prices rose 2.2 percent, raisingexpectations that the Reserve Bank of Australia may keep cashrates on hold in the near future.

AGL Energy dropped 1.8 percent after the company warned

that a fall in energy demand due to a warmer than usual winterwill reduce its underlying prot in the current nancial year.

South Koreas Kospi average reversed early gains to end apercent lower after Chinese shares tumbled amid a jump inmoney-market rates.

New Zealand shares extended gains for a third straight session,lifting the benchmark NZX-50 index

Indias Sensex was losing 0.9%. Singapores Straits Times wasdown 0.2% and the Taiwan Weighted average dropped 0.3%.

Indonesias Jakarta Composite was adding 0.9% and MalaysiasKLSE Composite was gaining 0.6%.

According to ofcial data, Singapores annual inationweakened unexpectedly to 1.6 percent in September from ayear earlier, after recording a 2 percent gain in the previousmonth.

U.S. Index declined overnight.

In the previous session stock indexes posted modest gainsas solid earnings reports and weak jobs data encouragespeculation that the Federal Reserve to hold off any reductionin its stimulus efforts until at least early next year.

The Dow rallied 0.50%, the tech-heavy NASDAQ gained 0.2%and the S&P 500 gained 0.6% to a fresh record high.

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Asian stocks recover most of their early losses to end broadlyhigher on Thursday.

Better-than-expected China October manufacturing PMI datahelped drive stocks higher as the day progressed.

According to an ofcial survey of Chinese manufacturingthe worlds second-largest economy is picking up steamfollowing last years slowdown.

Chinas manufacturing growth hit a seven-month high inOctober, adding to evidence that the recovery is gainingstrength after the slowdown witnessed in the rst half of theyear.

The ash manufacturing Purchasing Managers Index rosemore-than-expected to 50.9 in the month from 50.2 inSeptember, reecting faster growth of both output and neworders, a survey conducted by HSBC and Markit Economicsshowed.

Chinas Shanghai Composite index declined 0.9% in volatiletrading on concerns the economy may grow at a slightlyslower pace in the fourth quarter amid a further hike inmoney-market rates.

Hong Kongs Hang Seng dropped 0.7%.

Japanese shares reversed early losses, with a stronger dollarand better-than-expected Chinese manufacturing datasupporting sentiment.

The Nikkei average rose 0.4%, to trade at 14,486. Thebroader Topix index added 0.6%.

Yen-sensitive shares edged higher.

Panasonic gained 1.5% on a report that the consumerelectronics giant will slash its 14,000-strong chip makingworkforce by half and possibly sell some of its plant.

Hitachi shares soared 8.4%. The companys operating protrose 5.7 percent to 173 billion yen in the rst half, beating itsown forecasts issued in July.

Seoul shares gained ground. Shipbuilding and chemicalrms pacing the gainers after manufacturing data out ofChina indicated that Chinas growth recovery is becoming

consolidated into the fourth quarter following the bottomingout in the third quarter.

The benchmark Kospi reversed early losses to close half apercent higher at 2,047.

Australian shares rose modestly, led by banks ahead ofearnings reports.

The benchmark S&P/ASX 200 closed 0.3%higher, to tradeat 5,373 after hitting an intraday high of 5384 early in thesession.

Mining stocks weakened on concerns about Chinaseconomic outlook after Chinese money-market rates hitthree-month highs on signs that regulators are tighteningliquidity to curb inationary pressures.

According to the Reserve Bank of Australia, the economy islikely to return to trend growth driven by a pick-up in non-mining investment,

The realignment of the value of the Australian dollar wouldbe a boom for mining investment in Australia and thedeveloped economies picks up.

New Zealand shares fell notably on prot taking following athree-day rally.

The benchmark NZX-50 dropped 0.9%, to trade at 4,835,with 27 of its components retreating.

Investors also digested the outcome of the Meridian sharesale, which was priced at the bottom of the target rangesuggested by the government.

Sky Network Television declined 2.9 percent despiteforecasting strong prot growth for the 2014 nancial yearand Xero lost 1.9 percent on prot taking after recent stronggains.

According to Statistics New Zealand, merchandise

Posted a trade decit of NZ$199 million in September, Theheadline gure beat estimates for a shortfall of NZ$680million following the NZ$1.191 billion decit in August.

Key benchmark indexes in India, Indonesia, Malaysia,Singapore and Taiwan were up between 0.2% and 0.8%.

According to latest data from the Ministry of EconomicAffairs, Taiwans industrial production increased at a faster-than-expected pace in September, after dropping modestly amonth earlier.

Output increased 1.06 percent on an annual basis, reversingthe 0.57 percent decrease seen in August.

U.S. stock indexes advanced overnight. However, they wereunable to extend gain above the previous record highs.

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Asian stocks recover most of their early losses to end broadlyhigher on Thursday.

Better-than-expected China October manufacturing PMI datahelped drive stocks higher as the day progressed.

According to an ofcial survey of Chinese manufacturingthe worlds second-largest economy is picking up steamfollowing last years slowdown.

Chinas manufacturing growth hit a seven-month high inOctober, adding to evidence that the recovery is gainingstrength after the slowdown witnessed in the rst half of theyear.

The ash manufacturing Purchasing Managers Index rosemore-than-expected to 50.9 in the month from 50.2 inSeptember, reecting faster growth of both output and neworders, a survey conducted by HSBC and Markit Economicsshowed.

Chinas Shanghai Composite index declined 0.9% in volatiletrading on concerns the economy may grow at a slightlyslower pace in the fourth quarter amid a further hike inmoney-market rates.

Hong Kongs Hang Seng dropped 0.7%.

Japanese shares reversed early

Algo Futures - Trending Now - Issue 4 - | October 27th, 2013 | STRATEGIES FOR TRADING IN HIGH...

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Transcript of Algo Futures - Trending Now - Issue 4 - | October 27th, 2013 | STRATEGIES FOR TRADING IN HIGH...