Nasdaq futures worked higher during the globex session, with the bulk of the move occurring after 7:30am when we started hearing about earnings from a few banks as well as JNJ. The economic news from the UK and Europe was all soft overnight but the market appears more reactive to the earnings environment today.
The market worked back to an area of prior liquidity yesterday after failing to sustain trade at the prior high volume zone around 3890. The thin pocket we fell into offered prices little opportunity to sustain themselves. However, just below yesterday’s low was a spike of volume left behind when sellers previously defended this zone with rigor before ultimately giving way to higher prices. These are the places where we look for signs of demand—places where sellers previously played defense. Converting resistance into support is a characteristic the market often demonstrates. I have noted this level as well as the air pocket below it on the following daily bar chart:
The issue bulls have to contend with is the motivated manner by which the market is trading. Volume on the Nasdaq futures during the last three down days has been at the highest seen since around 2011. The market is a mechanism designed to facilitate as much trade as possible between as many parties as exist. Since the 9/19 failed auction high we have seen a clear pattern of lower highs and lows emerge on the intermediate term timeframe. At some point this selling exhausts itself, and perhaps this morning’s strong gap up is an early sign of exhaustion. However it would take something drastic to turn the course of our current intermediate term direction. I have noted key price levels I will be observing including a price level I consider “drastic” and also noted the granular detail of the HVN zone we are trading down into (see prior chart) on the following intermediate term profile:
