Envisioning a Selloff

Taking time to map out a scenario that would press into my long book allows me to stay calm in the heat of the action.  I prepare this every morning to envision what I will do in these situations.  Then, when the time comes to execute, all I do is click the mouse.  This morning, the market presents a unique set of circumstances that provide us clear visions on how the day may progress.

Equity futures were quiet overnight and held the gains attributed to an improvement to the situation with Russia.  Buyers will look to build on their progress today while sellers shoot at some well defined targets below.

Our long term auction in the NASDAQ is controlled by the buyer.  This can be seen as a series of higher highs and lows on the daily and weekly charts of the COMPQ.  The character of the auction has changed slightly, with increased velocity to vertical moves.  As we press the upper extremes of the Keltner channel I plot, we would be remiss to not question the age of the current thrust.  Bulls want to see tighter range grind trade, where we slowly progress higher.  Any excess range in either direction, and the sellers will look to press.

The intermediate term has been in balance since 02/13.  Yesterday we built a distribution outside of the intermediate balance for the first time.  This is bracket extreme, a position we were in last Friday.  The more times a resistance is tested, the more likely it is to break.  The same goes for support.  The buyers may take control of the intermediate term, especially if they can avoid the Panic at The Disco (PTD) reversion trade.

The short term auction is controlled by the buyer.  This can be seen as a series of value distributions drifting higher through time.  We also have printed several buying tails, suggesting strong buyer response to lower prices which are being perceived as discounted.

The current distribution we are developing this morning has a slight imbalance to the upside.  I envision us settling this early on via an upward move.  I have highlighted this scenario, as well as the PTD trade on the following market profile chart: