Low Volume Stop Run

Nasdaq futures worked lower overnight after yesterday’s action which featured a low volume advance to new highs on the year.  The nature of the move yesterday suggests prices were driven by the shorter timeframe, perhaps a mix of day traders and 2-6 day intermediate term traders, who pressed beyond the highs a bit to run stops.  The question as we head into the tail end of the week is whether buyers can sustain trade above the VPOC of our current balance or if instead we will break through the formation and fill the gap left behind when Japan announced their stimulus package.

A brief spike higher and subsequent fade occurred around 5:30am when the Bank of England released their inflation report, and ahead on the docket for today we have ECB President Draghi speaking at 9am in Rome, and US Wholesale Inventories at 10am.  We are entering the thick of retail earnings today and tomorrow with M, JCP, WMT, and many others set to report their performance over the next two days.

The below daily chart of the Nasdaq shows how prices entered a grinding phase after a strong v-shape bounce.  The slow pace suggests the market accepting higher prices at best and waiting for additional information at the least.  The drift achieved the initial measured move target of 4186.25 to the tick before the close yesterday.  These levels are Fibonacci in nature and serve as guides to whether moves are algorithmically driven stop runs or real progress.  If we see strong selling taking us below our upper HVN at 4149.50 then sellers are opening the opportunity to trade into the air pocket below.  I have noted these observations on the following daily bar chart of the Nasdaq:

As cautious as the above statements may seem, the market has several traits supporting the buyers.  Value has migrated higher during the last four sessions, there is no sign of excess on the highs (a wick), and the longer term trend is up.  What buyers lack is strong volume during the advance.  On the below chart I have noted the key price levels I will be observing during today’s session: