Strong bounce thus far this morning in the S&P, pumping hard off of a key support level. Financials continue to behave very bullish although the session is still early. We’re into the back-and-fill range I highlighted this morning after getting a telegraphed bounce off of Monday’s value area high:
Although I’m down over 1.5% today and counting, I used this morning’s pop to clean out all the degenerate positions from my portfolio. All except one, BGMD. I can’t let this position go unless it gets seriously weak. It flagged hybrid oversold yesterday with an impressive dataset and look at this chart:
I’m not finding much information this morning on the Greek banks merger situation but it appears bullish. Taking to the charts, we can see that NBG has been playing along with the strength in the financial sector, the strong tenor of the Euro dollar, and the overall easing of tensions in Euroland. Shares are currently halted:
It will be interesting to see where we’re at when trading continues. A continued advance in the Greek bank’s share price is a key piece of confidence for the entire equity space.
The last time we checked in on the Euro dollar contract was at the beginning of the month. At the time it was suggesting bullish undertones pared with a slice of healthy auction. Since then bulls have moved the price much higher, nearly five percent, to achieve a significant land grab and target destination of the composite high volume node. This price level, 1.3160, represents the price where the highest volume of transactions has occurred on data dating back to January 2010. The matter in which the price target was achieved is most impressive. A thrust, if you will, that even the V.King would appreciate.
Since then price has auctioned in a manner that suggests mild profit taking, and a healthy rotation lower to revisit some low volume pockets left behind during the aggressive mid-September pump. Taking to the daily bar chart we can see the composite volume on your right along with some annotations:
Going forward, the psychological barrier of big round 1.3000 paired with it being the range high of this very low volume pocket makes the price level my bias line. I’m have a bullish bias above, and bearish below, for the unwashed until further notice.
So far this evening the Euro has bounced back into the highs of last Friday. Midway into Friday, around 11am EST, sellers reacted to the new swing highs and faded price lower. Therefore it will be interesting to see if the Euro bulls can hold onto and press the gains they’ve earned while Americans were grilling oversized cuts of beef on the grill. For now, the tail is wagging the dog.
What is most constructive about the push higher in the Euro is the health of the price auction taking place. If we look at the most recent profile, we see a well shaped distribution, suggesting a healthy auction occurred and resulted in higher prices. The opposite would be a volume profile that looks jagged with deep peaks and valleys.
Going into tomorrow, I’m looking for the Euro dollar bulls to advance their gains at best or build value higher at the least. Either way, I have a bullish bias in the contract unless we see aggressive selling dictating price back into the long consolidation.
Potential areas of resistance for the bulls are:
1.2640 immediate term. The price bars printed since late Thursday resemble a head and shoulders pattern with the head topping out in this area.
1.2670 comes from the June micro composite and would be a constructive accomplishment from the bulls.
Potential support levels:
1.2595 also from the June micro composite- volume point of control
1.2585 composite HVN
Buyers are strong this evening, but how price behaves when our markets come online could dictate what we can expect this week.
Just as technicians define recurring chart patterns on their price charts, so too profilers attempt to gain insight by spotting a picture. However, they’re not as clever it seems, opting to name the following setup to define exactly what they interpret the activity to mean. Behold, the long liquidation:
A long liquidation resembles a lowercase “b”. Where the setup occurs in the context of prior profiles gives additional meaning. Observing the current market on a pulled back chart we see the Euro has been trending higher since working through a long consolidation of annual lows July-August. We put in a higher low on 08/27 but are yet to make new highs which would add significant conviction to the long trade:
The idea behind the long liquidation is the same as a short squeeze; they’re a short term phenomena/reaction. The long liquidation can happen when the market gets “too long” and needs to rebalance the inventory. Once complete, one could expect price to continue in the direction of the trend.
A little bullying if you will, but without the beef to back it up. Get’em bulls. You could play a break of the bracket high and set your stop below the volume point of control on the long liquidation profile.
UPDATE: The move did indeed go higher. However, placing a stop below the VPOC of the LL profile would have resulted in a stop out prior to the move:
Last night I suggested bulls stepping up and defending 1.2475 as constructive price action. Well the price area indeed turned off the selling spigot and ushered in a rally back up to recent swing highs:
If buyers are able to build value near these highs, the constructive price behavior suggests we could see the swing high taken out. As much as I would like tomorrow (today) to be Friday, we can carefully watch where the next value is established and if positioning into this week’s news events is supported by the volume footprint being established:
Overhead resistance bulls need to clear: 1.2572 and things could really get moving above of 1.2585.
This evening the Euro dollar is exploring last Tuesday’s large distribution. The price range was left in the dust as accumulation pushed price higher. By the end of the week the buying pressure receded and gave way to sellers. Since Thursday afternoon we have seen sellers controlling this tape. They were able to push price near the initial breakout and then put in a lower high.
Now this evening the selling pressure has ratcheted up and the breakout has been negated. If buyer don’t show up soon they may lose much of their hard fought gains.
1.2475 would be a healthy level for bulls to defend, however this evening the bears have smashed into that level with a head of steam. 1.2460 would be the next target (08/21 value are low) and ultimately the interesting confluence of price and volume at 1.2425.
It looks like selling pressure if you look at the delta starting after lunch on Friday:
Market profile is an enjoyable way of assessing price and volume activity on a futures contract. When interpreting market profile, it’s interesting to look at the shape of the profiles.
Looking at a bar chart of the EUR/USD will show you price has come a long way in a short period of time. Viewing the action through the lens of market profile I see a bit more.
Pull your eyes in a bit closer on the most recent profile activity:
1.26 was a significant price level for many reasons. It’s a big round number, it was a “high volume node” on the volume composite of the prior range, and price slowed in the area in the past. After coming within seven ticks of touching the price level, we see sellers entering the market, and responding to the higher prices and resistance with selling. To put it blunt, buyers were slapped the fuck down, back into their prior range, or value area.
What we now want to see, should we be speculating on further downside, is our volume delta (see last night’s post) show a steady red, indicating sellers hitting the bid. This pressure should also show sellers dictating price (driving price lower).
Should we see the selling be absorbed by the market while a more time-based correction occurs, it could signal patient buyers in the market confidently absorbing the sell flow.
Starting around noon of yesterday’s session, we can see the sell flow entering the market.
Up unto this point however, price has been relatively stable. The bears appear to have slightly gained the initiative and now need to dictate more direction into the tape or else get run over again by the breakout market.
One of the interesting characteristics tracked in futures contracts is volume breakdown. Very quickly it’s calculated as follows:
Delta = Buy Volume – Sell Volume Buy Volume (Ask Volume) = volume that traded at or above the ask price. Sell Volume (Bid Volume) = volume that traded at or below the bid price.
The above volume analysis can be applied to any timeframe or range to get a feel for the type of trading activity occurring. Buy delta (buying the offer) can be interpreted as more aggressive, accumulative type buying. It could also be shorts getting squeezed and hitting the big red “panic” sell button. I believe the former (accumulation) has been occurring in the $6e (EUR/USD).
Tracking along the bottom of the following chart is a moving average dating back to 8/15, when the contract was trading near the midrange its recent consolidation after making new annual lows in July:
Ignore the rest of the hubris on this zoomed back chart and focus on the bottom line. It’s a nine period moving average of the volume breakdown. It appears smooth calm-handed accumulation has occurred throughout the entire breakout, with most red delta only resulting in mild price consolidations. This aggressive buying continued throughout today’s (yesterday’s?) day session.
The move has already covered much ground but unless we see sellers aggressively entering the tape, I see more upside in the currency. Another puzzle piece to the risk appetite of the market.