A Different Way of Correcting

We hear the word correction often in the stock market, and as prices become elevated we here more participants expressing their reluctance to increase exposure before a correction occurs.  It is important to keep in mind however that corrections are not only price going down.

There are time corrections.  These are the juicy consolidation patterns we often hunt.  We see price basing out of several periods and we get an established zone to trade within.  We experienced a rare form of correction yesterday when the market profile printed a normal day.

Although the NASDAQ traded higher than last week’s closing prices, when you peer into the structure of the day session you can see the correction taking place.  We had a large gap higher to start the week, and when the RTH bell rang we saw a long initial balance form when reactive sellers began taking profits.  The first hour of trade was dynamic selling.  This was a form of correction.  We did not reenter yesterday’s value, though.  Instead, fresh initiating buys came in and back-and-forth auction ensued.

Overnight the back-and-forth continued and on the bar chart we can see the familiar consolidation pattern we know and love occurring since trade opened Sunday.  We are correcting, even though the prices on the teevee may suggest otherwise.  It is important to monitor the consolidation, and which party can successfully drive price away from it.  You can see the pattern here:

I have split open the RTH profile on the following chart to more easily display the normal day and I have also listed key price levels: