The Joy of Price Discovery

The discovery process is ongoing in the Nasdaq futures, where contracts are currently trading a bit higher verse the close of Monday trade.  The lack of consensus can be seen on the 24 hour market profile which is not coming into balance.  The imbalance can also be seen on the intermediate term volume composite, where our current action resembles the toothy peaks and valleys of a ridged mountain range.  As we approach the open of US cash trade there is only the Case-Shiller Home Price index to anticipate.  After the open at 10am is the Consumer Confidence report.  Twitter is set to report earnings after the bell.

With three trading days left in the month of July, let us take a look at the monthly volume profile print:

07292014_Monthly_NQ

We can see the longer term trend being controlled by buyers who, after slugging it out for the first five months of the year, have pressed prices higher.  Bringing our attention in closer, we observe the intermediate term trend.  This is where the real battle has been taking place for the past 5-6 days.  The local, or day trader/dealer, is not the only participant in our current conditions.  Instead we are seeing day-timeframe levels ignored and instead the intermediate term levels being honored.  This behavior can shift any moment, but for now the price levels on the intermediate term timeframe are the most relevant, see below:

07292014_IntTerm_NQ

Finally, we can observe the following market profile levels, and how we interact with them, to determine if we re-enter a local-to-local chop-like environment.  If we see these short term levels as well as today’s developing value area honored and disputed, then we can assume longer timeframe participants have backed off until they again are motivated into action.  See below:

07292014_marketprofile_NQ

Intermediate Term Players Making a Mess of The Field

Nasdaq futures are up a few points on the globex session after a quiet morning on the economic front.  Whether or not Hari Raya Puasa sees lower volume than a normal session is something to consider today.  We also have PMI Service flash at 9:45, Pending Home Sales Index at 10, and Dallas Fed at 10:30.

The overnight session saw a few large rotations in both directions, but the brunt of the action was seen pushing higher.  The index put in a fairly durable low around 7pm before exploring higher into the early morning.  We are now lingering up near the high of the session as the USA comes online.   The net globex profile has a slight skew which could resolve itself in a few ways, see below:

07282014_ONmarketprofile_NQ

We started to break intermediate term balance last week and explore higher.  However it seems the market is trying to not allow this, and as a result the intermediate term has become a bit of a mess.  This is actually a good thing, it affirms the idea of an out of balance marketplace and provides some very prominent low volume nodes as signposts as we trade.  However, if the intermediate term participants continue their activity this week, then we might see an uptick in volatility.  I have highlighted the key nodes below:

07282014_IntTerm_NQ

On the below market profile chart, I present the levels I will be watching as we start the week:

07282014_marketprofile_NQ

Watching The Intermediate Term Players

Nasdaq futures are down as we head into Friday trade, with the bulk of the selling taking place just after market close yesterday on the heels of earnings from AMZN, BIDU, and SBUX.  Since then we had some decent economic data from the UK which brought in a bit more selling, a minor extension, and at 8:30am we saw USA Durable Goods Orders release slightly better than consensus.  The latest data received a somewhat muted response.

The intermediate term timeframe participants have been very active this week.  Their behavior shows up in the day types we have been seeing—normal days and neutral days.  The normal days suggest they like to make their move early and then they do little else for the rest of the day.  The neutral day on Monday was the only session we saw activity throughout the entire session.  With that in mind, and the weekend edging closer, it makes sense to not rush nor force many trades today because the order flow may simply dry up—leaving you to be pushed around by big algos who eat ticks.  Also, since the intermediate term is active, it makes sense to observe the intermediate term timeframe closely.  We have some very prominent low volume nodes in the wake of our most recent advance, and any one of these might be a candidate for testing today.  Also note the large acceptance forming up near the highs.  Will this volume overhang become supply left behind or will we use it as a base for another leg?  See below:

07252014_IntTerm_NQ

Had I been trading yesterday, then I would have been looking for an afternoon short.  The profile yesterday shows an excess high or selling wick.  Since the day never range extended, one might have hypothesized some selling would come in toward the end of the day.  However, balance held and we printed value inside of Wednesday’s value.  We are set to gap well below Wednesday/Thursday value, and it will be interesting to see if we poke back up into the area or not.  I have highlighted these prices, as well as other prices I will be observing on the following market profile chart:
07252014_marketprofile_NQ

Intermediate Term Control

We have been observing the intermediate term closely this week after seeing a mini balance form within a larger balance thus forming the compression and potential for price discovery.  This all took place near the top end of the larger balance making the opportunity for a discovery higher distinct.  Yesterday we pressed right to the edge of the stratosphere (around 3974.25 according to balance analysis) and overnight more buying came in which is pushing us to new swing highs.  The timing of the buy flow lines up with the Euro Zone releasing their PMI data at 4am however we are seeing action based upon earnings as well as speculative heat in Chinese burritos and biotech.

I have noted very little on the intermediate term chart.  We are climbing a wonderful wall of worry one gap at a time.  The overnight gaps are a bit unsettling to say the least, however the foundation formed prior to this advance is as well-structured as we have seen since April.  See below:

07262014_Monthly_NQ

You can see the buyer control on the intermediate term as a series of higher highs and lows:

07242014_IntTerm_NQ

The question today is will we sustain a third gap higher, or will we discover a responsive seller strong enough to begin the process of backing and filling?  I have highlighted the key price levels I will be observing on the following market profile chart:

07242014_marketprofile_NQ

Another Gap to Swing High

The globex markets are the setting for bullish progress this week and early this morning we saw another wave of buying roll through the market.  As we enter the thick of earnings for major tech companies, the index teeters at annual highs.

The intermediate term is showing signs of coming out of balance.  Below yesterday we have a volume pocket separating us from the balance formation.  However, we could still explore a bit higher to settle out the imbalance existing from bottom tail-to-mid verses top tail-to mid.  I have highlighted this level as well as the pocket and key LVNs below:

07232014_IntTerm_NQ

Yesterday we printed a very clean “normal” day.  This type of day is characterized as having no range extension from initial balance and suggests an aggressive early entry by the buyers was following by balanced, two-way trade.  The placement at new swing highs suggests acceptance of these higher prices.  The late-afternoon selling was widely expected to continue but instead the dip was bought.  The one unique quirk that had so many day traders expecting a new LOD yesterday was the triple-bottom at initial balance low paired with the big gap.  These traders were stopped out but will be hunting a break of 3942.25 on any weakness.  I have highlighted this level and a few other observations on the following market profile chart

07232014_marketprofile_NQ

Gapping into A New Swing High

Nasdaq futures are up to new swing highs overnight in a session that was predominantly buyer controlled.  I am preparing this analysis just after the core CPI information has been released.  Most of the data came out in line with expectations and the initial reaction to these in-line numbers is more buying, putting the Nasdaq futures up to a new high on the session.  The move did however find a responsive seller, and as we come into USA cash open we are just shy of pro gap territory.

Coming up today, we have House Price Index at 9am and Existing Home Sales at 10am.  We will here from the Richmond Fed Manufacturing index both at 10am and after hours.  We also have major earnings out after the bells coming from AAPL and MSFT to name a few.

There were a few clues about the bullish undertone yesterday if you were watching market/volume profile.  On the intermediate term timeframe I noted a balance had formed last week.  This balance was inside a larger balance spanning the entire month of July.  The balance inside the balance was forming along the highs.  Then yesterday the VPOC shifted higher, right toward the end of the session.  This threw the entire 5 day (now 6 day) balance out of whack, thus requiring some upward discovery to restore balance.  See below:

07222014_IntTerm_NQ

Here’s the slightly larger intermediate term balance, a profile spanning the entire month of July (presented yesterday in relation to all monthly profiles):

07222014_IntTermBIGGER_NQ

Finally I present the levels I will be observing today on the following market profile chart:

07222014_marketprofile_NQ

Nasdaq Round Up Heading into The Week

Nasdsaq futures are trading a touch lower overnight in a balanced session of trade.  We are quiet on the economic from this morning.  The Chicago Fed National Activity index came out at 8:30am a bit below forecast but the response was low in the Nasdaq.  Looming in the minds of many participants are the rising tensions across the Atlantic, where the Israelites are waging battle in Gaza and finger pointing over the Malaysian airline crash continues.

The balance I have been tracking on the intermediate term has grown to encompass the entire month of July.  Thus I present the intermediate term balance below in the context of 2014:

07212014_Monthly_NQ

The weekly chart shows the long term timeframe where responsive buying formed two tails recently, suggesting an excess low was presented to participants—prices perceived as discounts.  This activity requires a significant amount of energy, thus we will need to see buyers muster up additional strength if they are to build upon their response.  Also note the still-open 14 year gap above:

07212014_Weekly_NQ
Last week our five sessions aggressively formed a bit of balance.  This balance is taking place within the balance of the month, to overall form a solid, thick, state of balance on the intermediate term.  The intermediate term timeframe was very active last week, thus I am consolidating my eye to 5 days to view the intermediate term timeframe:

07212014_IntTerm_NQ

Finally, I have presented the relevant prices levels I will be watching today on the following market profile chart:

07212014_marketprofile_NQ

OPEX Battle Royal

As an intermediate term balance ages more and more fine lines begin to show on the face of the distribution.  The more crowded the profile becomes with lines, the more likely we are to see the profile left to explore for new, youthful prices.  Such is the case with our current intermediate term profile which is becoming rather crowded with relevant prints.

Don’t assume I mark this chart up all willy-nilly with lines simply to obfuscate my own job.  These levels have proven significant both via price action and the resulting volume footprint.

We are currently priced to open just below the VPOC of our intermediate term balance.  Whether buyers respond to these prices like they are a sweet discount or hold off will telling as we close out the week.

Nasdaq futures are pricing in a gap higher overnight after a liquidation trade took hold yesterday.  With U of M Confidence data out at 9:55am and the gap higher, we may see some murky trade early in the session before finding direction.  Google is gapping higher after announcing earnings yesterday after the bell.  Today is also OPEX for monthly stock options.  Earnings are just around the bend for most stocks and we are heading into an uncertain weekend according to the news cycle.  This is a challenging environment to possess conviction, however the reward for either side is great.  With that in mind, we pay see other time frame (OTF) participants active today, jockeying for position ahead of the weekend.  That means larger intraday rotations and stronger conviction then the fickle day trader or local.

I have highlighted the key characteristics of the intermediate term balance profile, as well as the key market profile levels on the below charts.  Note yesterday’s profile is split in two.  When a catalyst (news, Fed) hits the tape and creates a change I will split the profile the better see how participants are behaving the new environment:

07182014_IntTerm_NQ

07182014_marketprofile_NQ

Island Trade

Nasdaq futures are clawing back some of their losses this morning but are still priced to gap down at the open of US trade.  One of the bigger headlines overnight was a press release from President Obama.  This hit the wires around 5:45pm yesterday, however the real sell flow did not kick in until early this morning.  On the net we printed a 30 point range during the globex session.  On today’s economic docket we have the Philadelphia Fed at 10am and Google and IBM reporting their earnings after hours.

The interesting feature of price action coming into today is the “island” of prices left behind by this gap lower today.  We gapped up yesterday and held the gap in a rather blasé round of summer grind.  Under the surface momentum names were mixed but certainly not advancing.  By gapping lower today we have completely abandoned the prices we printed yesterday, including a fresh swing high early in the day.  The result is a day of trade with gaps on both sides, an island, a somewhat uncommon feature.

On the intermediate term timeframe, we can see trade clearly continues to be balanced.  We have a clean bell curve with a solid VPOC right near the mid.  We are currently priced to open somewhere near the upper half of value and we have some interesting price levels in play early on.  Sellers may want to press down into the other side of value to search for a quality bid, to make sure the buyers are still possess the conviction to perceive prices below our VPOC as discounted and an opportunity to make some money.  It would also flush out some weak hands.  However, if the lower boundary of value gives way, we may be in store for a full on liquidation.  I have highlighted these levels and others below:

07172014_IntTerm_NQ_noon
When you zoom into the market profile, we can see prices are trading inside of Tuesday’s range, a WIDE range established during Fed Chair Janet Yellen’s semiannual Senate hearing.  This value area is fairly established, thus I consider its levels significant.  If we spent more than an hour trading inside this range, then my expectation is for us to traverse the entire value area.  Otherwise, we may reject out of it with some responsive buying back to yesterday’s range.  Either way, it is a great piece of context to monitor today.  I have highlighted the key levels I will be watching on the following market profile chart:

07172014_marketprofile_NQ

Methodical Story Unfolding Live

The intermediate term timeframe continues to tell the story at the Nasdaq, as the developing region of balance hits its marks methodically like the German soccer club.  Yesterday’s action played right into the thesis of intermediate term balance but also added a piece of credence to the expectation for additional upside.  If you recall the intermediate term chart from yesterday, we had nearly symmetrical “tails” on either end of the Gaussian volume distribution, the bell curve.  I suggested our upper tail needed just about five points to mark pure symmetry and balance.  This mark happened to line up with a Fibonacci extension, which is not magic—I use the level to see if we are merely running stops before reversing or if the move is an authentic departure from balance.  Yesterday it was running stops before we settled out the troubling overnight gaps, beautiful.  Even more beautiful was the test of our well-established VPOC.  Price tends to overshoot VPOCs a bit, especially when we are coming in HOT like yesterday.  Nevertheless, buyers responded to the midpoint of balance with a force equivalent to the sellers and buying took hold.  Late into the session was saw initiating buyers coming in, pressing us above WHAT WAS the boundary between intermediate term value and the upper tail.  WAS, because all the volume transacted yesterday morphed value higher and created an intermediate term imbalance—an imbalance we seem to be settling premarket.  This very long paragraph settles the question, “What has the market done?”  See below:

07162014_IntTerm_NQ_noon

On the economic front, PPI stats came in better than expected across the board and we are seeing a muted response from the equity indices, however gold hit new highs on the session with the news.  Fed Chair Yellen was speaking to the Senate yesterday, a semi-annual ritual where the head of USA’s central bank must withstand a barrage of questioning from a panel of Senators.  She did not flinch, and toward the end had to go to bat for big banks and they must be pleased with how well she defended against the stern spoken final two Senators.  These two tough-guys (they were actually women) were clearly saved for the end, and came in with very aggressive “bad-cop” tones, battering the likes of JPM and GS.  Yellen crushed the entire situation with poise.  Today at 10am she is back in the hot seat, this time to face the more simpleton House Committee.  We also have Industrial Production at 9:15, but the market moves more on the Fed than anything else.

Early on I will likely be selling some of the leverage I put into my book during yesterday’s dip.  Otherwise I will be keen on the price action at the following price levels to guide my trade into the second half of this week:

07162014_marketprofile_NQ

The Joy of Price Discovery

The discovery process is ongoing in the Nasdaq futures, where contracts are currently trading a bit higher verse the close of Monday trade.  The lack of consensus can be seen on the 24 hour market profile which is not coming into balance.  The imbalance can also be seen on the intermediate term volume composite, where our current action resembles the toothy peaks and valleys of a ridged mountain range.  As we approach the open of US cash trade there is only the Case-Shiller Home Price index to anticipate.  After the open at 10am is the Consumer Confidence report.  Twitter is set to report earnings after the bell.

With three trading days left in the month of July, let us take a look at the monthly volume profile print:

07292014_Monthly_NQ

We can see the longer term trend being controlled by buyers who, after slugging it out for the first five months of the year, have pressed prices higher.  Bringing our attention in closer, we observe the intermediate term trend.  This is where the real battle has been taking place for the past 5-6 days.  The local, or day trader/dealer, is not the only participant in our current conditions.  Instead we are seeing day-timeframe levels ignored and instead the intermediate term levels being honored.  This behavior can shift any moment, but for now the price levels on the intermediate term timeframe are the most relevant, see below:

07292014_IntTerm_NQ

Finally, we can observe the following market profile levels, and how we interact with them, to determine if we re-enter a local-to-local chop-like environment.  If we see these short term levels as well as today’s developing value area honored and disputed, then we can assume longer timeframe participants have backed off until they again are motivated into action.  See below:

07292014_marketprofile_NQ

Intermediate Term Players Making a Mess of The Field

Nasdaq futures are up a few points on the globex session after a quiet morning on the economic front.  Whether or not Hari Raya Puasa sees lower volume than a normal session is something to consider today.  We also have PMI Service flash at 9:45, Pending Home Sales Index at 10, and Dallas Fed at 10:30.

The overnight session saw a few large rotations in both directions, but the brunt of the action was seen pushing higher.  The index put in a fairly durable low around 7pm before exploring higher into the early morning.  We are now lingering up near the high of the session as the USA comes online.   The net globex profile has a slight skew which could resolve itself in a few ways, see below:

07282014_ONmarketprofile_NQ

We started to break intermediate term balance last week and explore higher.  However it seems the market is trying to not allow this, and as a result the intermediate term has become a bit of a mess.  This is actually a good thing, it affirms the idea of an out of balance marketplace and provides some very prominent low volume nodes as signposts as we trade.  However, if the intermediate term participants continue their activity this week, then we might see an uptick in volatility.  I have highlighted the key nodes below:

07282014_IntTerm_NQ

On the below market profile chart, I present the levels I will be watching as we start the week:

07282014_marketprofile_NQ

Watching The Intermediate Term Players

Nasdaq futures are down as we head into Friday trade, with the bulk of the selling taking place just after market close yesterday on the heels of earnings from AMZN, BIDU, and SBUX.  Since then we had some decent economic data from the UK which brought in a bit more selling, a minor extension, and at 8:30am we saw USA Durable Goods Orders release slightly better than consensus.  The latest data received a somewhat muted response.

The intermediate term timeframe participants have been very active this week.  Their behavior shows up in the day types we have been seeing—normal days and neutral days.  The normal days suggest they like to make their move early and then they do little else for the rest of the day.  The neutral day on Monday was the only session we saw activity throughout the entire session.  With that in mind, and the weekend edging closer, it makes sense to not rush nor force many trades today because the order flow may simply dry up—leaving you to be pushed around by big algos who eat ticks.  Also, since the intermediate term is active, it makes sense to observe the intermediate term timeframe closely.  We have some very prominent low volume nodes in the wake of our most recent advance, and any one of these might be a candidate for testing today.  Also note the large acceptance forming up near the highs.  Will this volume overhang become supply left behind or will we use it as a base for another leg?  See below:

07252014_IntTerm_NQ

Had I been trading yesterday, then I would have been looking for an afternoon short.  The profile yesterday shows an excess high or selling wick.  Since the day never range extended, one might have hypothesized some selling would come in toward the end of the day.  However, balance held and we printed value inside of Wednesday’s value.  We are set to gap well below Wednesday/Thursday value, and it will be interesting to see if we poke back up into the area or not.  I have highlighted these prices, as well as other prices I will be observing on the following market profile chart:
07252014_marketprofile_NQ

Intermediate Term Control

We have been observing the intermediate term closely this week after seeing a mini balance form within a larger balance thus forming the compression and potential for price discovery.  This all took place near the top end of the larger balance making the opportunity for a discovery higher distinct.  Yesterday we pressed right to the edge of the stratosphere (around 3974.25 according to balance analysis) and overnight more buying came in which is pushing us to new swing highs.  The timing of the buy flow lines up with the Euro Zone releasing their PMI data at 4am however we are seeing action based upon earnings as well as speculative heat in Chinese burritos and biotech.

I have noted very little on the intermediate term chart.  We are climbing a wonderful wall of worry one gap at a time.  The overnight gaps are a bit unsettling to say the least, however the foundation formed prior to this advance is as well-structured as we have seen since April.  See below:

07262014_Monthly_NQ

You can see the buyer control on the intermediate term as a series of higher highs and lows:

07242014_IntTerm_NQ

The question today is will we sustain a third gap higher, or will we discover a responsive seller strong enough to begin the process of backing and filling?  I have highlighted the key price levels I will be observing on the following market profile chart:

07242014_marketprofile_NQ

Another Gap to Swing High

The globex markets are the setting for bullish progress this week and early this morning we saw another wave of buying roll through the market.  As we enter the thick of earnings for major tech companies, the index teeters at annual highs.

The intermediate term is showing signs of coming out of balance.  Below yesterday we have a volume pocket separating us from the balance formation.  However, we could still explore a bit higher to settle out the imbalance existing from bottom tail-to-mid verses top tail-to mid.  I have highlighted this level as well as the pocket and key LVNs below:

07232014_IntTerm_NQ

Yesterday we printed a very clean “normal” day.  This type of day is characterized as having no range extension from initial balance and suggests an aggressive early entry by the buyers was following by balanced, two-way trade.  The placement at new swing highs suggests acceptance of these higher prices.  The late-afternoon selling was widely expected to continue but instead the dip was bought.  The one unique quirk that had so many day traders expecting a new LOD yesterday was the triple-bottom at initial balance low paired with the big gap.  These traders were stopped out but will be hunting a break of 3942.25 on any weakness.  I have highlighted this level and a few other observations on the following market profile chart

07232014_marketprofile_NQ

Gapping into A New Swing High

Nasdaq futures are up to new swing highs overnight in a session that was predominantly buyer controlled.  I am preparing this analysis just after the core CPI information has been released.  Most of the data came out in line with expectations and the initial reaction to these in-line numbers is more buying, putting the Nasdaq futures up to a new high on the session.  The move did however find a responsive seller, and as we come into USA cash open we are just shy of pro gap territory.

Coming up today, we have House Price Index at 9am and Existing Home Sales at 10am.  We will here from the Richmond Fed Manufacturing index both at 10am and after hours.  We also have major earnings out after the bells coming from AAPL and MSFT to name a few.

There were a few clues about the bullish undertone yesterday if you were watching market/volume profile.  On the intermediate term timeframe I noted a balance had formed last week.  This balance was inside a larger balance spanning the entire month of July.  The balance inside the balance was forming along the highs.  Then yesterday the VPOC shifted higher, right toward the end of the session.  This threw the entire 5 day (now 6 day) balance out of whack, thus requiring some upward discovery to restore balance.  See below:

07222014_IntTerm_NQ

Here’s the slightly larger intermediate term balance, a profile spanning the entire month of July (presented yesterday in relation to all monthly profiles):

07222014_IntTermBIGGER_NQ

Finally I present the levels I will be observing today on the following market profile chart:

07222014_marketprofile_NQ

Nasdaq Round Up Heading into The Week

Nasdsaq futures are trading a touch lower overnight in a balanced session of trade.  We are quiet on the economic from this morning.  The Chicago Fed National Activity index came out at 8:30am a bit below forecast but the response was low in the Nasdaq.  Looming in the minds of many participants are the rising tensions across the Atlantic, where the Israelites are waging battle in Gaza and finger pointing over the Malaysian airline crash continues.

The balance I have been tracking on the intermediate term has grown to encompass the entire month of July.  Thus I present the intermediate term balance below in the context of 2014:

07212014_Monthly_NQ

The weekly chart shows the long term timeframe where responsive buying formed two tails recently, suggesting an excess low was presented to participants—prices perceived as discounts.  This activity requires a significant amount of energy, thus we will need to see buyers muster up additional strength if they are to build upon their response.  Also note the still-open 14 year gap above:

07212014_Weekly_NQ
Last week our five sessions aggressively formed a bit of balance.  This balance is taking place within the balance of the month, to overall form a solid, thick, state of balance on the intermediate term.  The intermediate term timeframe was very active last week, thus I am consolidating my eye to 5 days to view the intermediate term timeframe:

07212014_IntTerm_NQ

Finally, I have presented the relevant prices levels I will be watching today on the following market profile chart:

07212014_marketprofile_NQ

OPEX Battle Royal

As an intermediate term balance ages more and more fine lines begin to show on the face of the distribution.  The more crowded the profile becomes with lines, the more likely we are to see the profile left to explore for new, youthful prices.  Such is the case with our current intermediate term profile which is becoming rather crowded with relevant prints.

Don’t assume I mark this chart up all willy-nilly with lines simply to obfuscate my own job.  These levels have proven significant both via price action and the resulting volume footprint.

We are currently priced to open just below the VPOC of our intermediate term balance.  Whether buyers respond to these prices like they are a sweet discount or hold off will telling as we close out the week.

Nasdaq futures are pricing in a gap higher overnight after a liquidation trade took hold yesterday.  With U of M Confidence data out at 9:55am and the gap higher, we may see some murky trade early in the session before finding direction.  Google is gapping higher after announcing earnings yesterday after the bell.  Today is also OPEX for monthly stock options.  Earnings are just around the bend for most stocks and we are heading into an uncertain weekend according to the news cycle.  This is a challenging environment to possess conviction, however the reward for either side is great.  With that in mind, we pay see other time frame (OTF) participants active today, jockeying for position ahead of the weekend.  That means larger intraday rotations and stronger conviction then the fickle day trader or local.

I have highlighted the key characteristics of the intermediate term balance profile, as well as the key market profile levels on the below charts.  Note yesterday’s profile is split in two.  When a catalyst (news, Fed) hits the tape and creates a change I will split the profile the better see how participants are behaving the new environment:

07182014_IntTerm_NQ

07182014_marketprofile_NQ

Island Trade

Nasdaq futures are clawing back some of their losses this morning but are still priced to gap down at the open of US trade.  One of the bigger headlines overnight was a press release from President Obama.  This hit the wires around 5:45pm yesterday, however the real sell flow did not kick in until early this morning.  On the net we printed a 30 point range during the globex session.  On today’s economic docket we have the Philadelphia Fed at 10am and Google and IBM reporting their earnings after hours.

The interesting feature of price action coming into today is the “island” of prices left behind by this gap lower today.  We gapped up yesterday and held the gap in a rather blasé round of summer grind.  Under the surface momentum names were mixed but certainly not advancing.  By gapping lower today we have completely abandoned the prices we printed yesterday, including a fresh swing high early in the day.  The result is a day of trade with gaps on both sides, an island, a somewhat uncommon feature.

On the intermediate term timeframe, we can see trade clearly continues to be balanced.  We have a clean bell curve with a solid VPOC right near the mid.  We are currently priced to open somewhere near the upper half of value and we have some interesting price levels in play early on.  Sellers may want to press down into the other side of value to search for a quality bid, to make sure the buyers are still possess the conviction to perceive prices below our VPOC as discounted and an opportunity to make some money.  It would also flush out some weak hands.  However, if the lower boundary of value gives way, we may be in store for a full on liquidation.  I have highlighted these levels and others below:

07172014_IntTerm_NQ_noon
When you zoom into the market profile, we can see prices are trading inside of Tuesday’s range, a WIDE range established during Fed Chair Janet Yellen’s semiannual Senate hearing.  This value area is fairly established, thus I consider its levels significant.  If we spent more than an hour trading inside this range, then my expectation is for us to traverse the entire value area.  Otherwise, we may reject out of it with some responsive buying back to yesterday’s range.  Either way, it is a great piece of context to monitor today.  I have highlighted the key levels I will be watching on the following market profile chart:

07172014_marketprofile_NQ

Methodical Story Unfolding Live

The intermediate term timeframe continues to tell the story at the Nasdaq, as the developing region of balance hits its marks methodically like the German soccer club.  Yesterday’s action played right into the thesis of intermediate term balance but also added a piece of credence to the expectation for additional upside.  If you recall the intermediate term chart from yesterday, we had nearly symmetrical “tails” on either end of the Gaussian volume distribution, the bell curve.  I suggested our upper tail needed just about five points to mark pure symmetry and balance.  This mark happened to line up with a Fibonacci extension, which is not magic—I use the level to see if we are merely running stops before reversing or if the move is an authentic departure from balance.  Yesterday it was running stops before we settled out the troubling overnight gaps, beautiful.  Even more beautiful was the test of our well-established VPOC.  Price tends to overshoot VPOCs a bit, especially when we are coming in HOT like yesterday.  Nevertheless, buyers responded to the midpoint of balance with a force equivalent to the sellers and buying took hold.  Late into the session was saw initiating buyers coming in, pressing us above WHAT WAS the boundary between intermediate term value and the upper tail.  WAS, because all the volume transacted yesterday morphed value higher and created an intermediate term imbalance—an imbalance we seem to be settling premarket.  This very long paragraph settles the question, “What has the market done?”  See below:

07162014_IntTerm_NQ_noon

On the economic front, PPI stats came in better than expected across the board and we are seeing a muted response from the equity indices, however gold hit new highs on the session with the news.  Fed Chair Yellen was speaking to the Senate yesterday, a semi-annual ritual where the head of USA’s central bank must withstand a barrage of questioning from a panel of Senators.  She did not flinch, and toward the end had to go to bat for big banks and they must be pleased with how well she defended against the stern spoken final two Senators.  These two tough-guys (they were actually women) were clearly saved for the end, and came in with very aggressive “bad-cop” tones, battering the likes of JPM and GS.  Yellen crushed the entire situation with poise.  Today at 10am she is back in the hot seat, this time to face the more simpleton House Committee.  We also have Industrial Production at 9:15, but the market moves more on the Fed than anything else.

Early on I will likely be selling some of the leverage I put into my book during yesterday’s dip.  Otherwise I will be keen on the price action at the following price levels to guide my trade into the second half of this week:

07162014_marketprofile_NQ

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