Nasdaq futures sold off 10 points just after the 8:30am release of stronger than expected Consumer Price Index numbers. The futures had initially drifted higher overnight to take out yesterday’s high and the action made sense when you view our price action in yesterday’s regular trading hours. There is not much else on today’s economic agenda. We have headline sensitivity to issues surrounding Iraq, the World Cup is in full swing after the USA narrowly escaped with a victory over Ghana, and we have FOMC announcements up tomorrow.
Yesterday we printed a Normal Variation Day which structurally has a wide initial balance followed by a range extension from the initial balance. It is as if the other timeframe participant has watched the early action of the auction and decided with conviction to make an aggressive entrance into the market. Yesterday, we traded higher for the first hour of trade until responsive sellers made an aggressive entrance into the market which subsequently extended our range lower.
The quirk of yesterday’s Normal Variation print is these types of profiles usually establish value lower. That was not the case however yesterday, as the remainder of the day behaved more like a neutral day, where we saw the selling move faded back to the midpoint of the session. After that occurred, the market returned to a one timeframe, local-to-local chop. Logically, we drifted higher overnight, pressing into the other timeframe seller (OTF) from yesterday.
If we take a look at the intermediate term, we can see the overhead supply which we bumped into, which makes the responsive selling make much more sense. We traded into our uppermost balance region and finding sellers up there was a very logical expectation. As the market continues trading in balance, we may test lower to see if buyers in the lower balance/base possess the same conviction they had prior to lifting prices. Overall, we are in balance with well defined regions to trade/form intermediate term bias from, see below:
Bringing our eyes in a bit closer, we can see there was no clear value area yesterday during trade. It almost suggests imbalance. And although we saw the aggressive entrance from an OTF seller, we expect their behavior to press balance lower. The net effect of yesterday’s action was higher prices and a higher VPOC, although the lack of value suggests an imbalance exists on the short term. If the sellers do not take control early on, we could set up a squeeze.
Hypo 1: test lower to VAL 3764, find responsive buyers, close overnight gap to 3772.25 and stall above shelf at 3774, then take out Friday low to test HVN at 3751.75
Hypo 2: test higher to selling wick at 3777.50, find responsive selling and balance out above VAL 3764
Hypo 3: test lower to buying tail, 3758.50, find responsive buying and press to VAL 3764 where pressure holds prices down, continue testing lower through Friday low 3753.25, HVN 3751.75 and down to 3749
Hypo 4: press higher, close overnight gap and through selling wick at 3777.50, target overnight high at 3786
Raul – love reading the technical action you post. You have a great read of price action. Thanks very much for your posts.