Yesterday we printed an interesting session in the NASDAQ futures. We took out Friday’s high and inside the Pelican Room I was commenting on how I had never seen sellers push as hard on the bid as they were. It was odd however, because they were making little-to-no-progress. A huge amount of aggressive selling was absorbed up at the highs before we finally gave way and liquidated down.
All of that volume was so heavy near at the high that value never was able to shift lower and catch up with price. This is a huge piece of context today, where we can observe whether value migrates down or price reverts back to value. A huge gap between the two exists.
If you pull up a daily chart you can see the long term auction is still firmly in control by the buyers. There continues to be higher lows and higher highs. Intermediate term, we are positioned on the cusp of balance, the extreme and thin tail where we hunt for reactive forces to press us back to the middle of balance. This price zone presents the greatest amount of reward for the trader, also the greatest amount of risk.
We saw a buying tail print near the end of the day and if we are staying in intermediate term balance then it will hold. The force buyers exerted into the bell carried into the overnight session where price was first pinned sideways for many hours following the US markets closing before buy flow pressed prices a bit higher.
We have a potential gap trade down early on if sellers can push down to 3509.25. Caution on the short side if the open exhibits strong driving action upward. Likewise, caution on long exposure or new buys on a drive lower. If we see two way auction early on, we will have a better opportunity to slowly assess control on the day.
I have highlighted a few key levels on the following NASDAQ volume profile chart:
