Quiet morning on the economic front, with our biggest scheduled event being premarket earnings announced by PCLN whose shares are currently trading over 2% lower on a weaker-than-expected Q3 forecast.  The calendar is relatively quiet until Wednesday, however we continue to be in an elevated headline risk environment associated with both Mid East and Russian tensions.

As we head into USA trade, the price of the Nasdaq is set to gap higher.

Turning our attention to the auction, long term participants are bullish to neutral.  Intermediate term players have been neutral-to-bearish since the end of July.  Last Monday we traded back up above 3900 and were unable to find sustained buyers.  Then several times last week, a responsive seller was found just above MCVPOC at 3886.  We are set to open above the 3886 responsive seller near 3900.   The intermediate term timeframe is in balance over 30 sessions after pulling back off the highs.  You can see the intermediate term commentary on the following composite profile:

Risk of a drive higher is elevated today give the gap up and away from a 4 day range.  The drive force becomes even more likely if we sustain trade above 3907, the nearest composite LVN to current prices.

On the contrary, if we open for trade and the market goes on SALE, with a large rejection seller who starts fading the gap, we are returning to a very ugly auction from Friday.  Caution if we sustain trade below 3882 it opens the door to an overnight gap fill down to 3873.75 which puts us on the mouth of a slide zone down to 3867 and Friday’s session had a poor low which too would be vulnerable.  It is context to keep in mind today, this poor structure, especially if we see an aggressive fade.

I have noted the short term levels I will be observing on the following market profile chart:

Friday’s Nasdaq auction took on an odd formation which in part was news driven.  The profile itself does not provide much short term signal, but it does provide many juicy opportunities if we auction through it early next week.

First off, both price extremes, the high and low, were poorly formed.  Thus if we open for trade inside this range Monday and price action begins pushing toward one the extremes, it is likely to break.  Second, when news of the Russians withdrawing troops they had postured along the Ukrainian border hit the wires price lurched higher leaving a series of single prints on the tape.  This thin area received no auction.  If you look to the left you can see we already spent a significant amount of time deliberating these prices, thus we may not need to auction them again.  However, if price pushes into this slider range from above or below, we are likely to sweep right through it fast.  Finally, all of the action took place inside of Thursday’s range, an inside day.

An inside day is often used to signal indecision because neither the buyers nor the sellers are able to push the price beyond the prior day range.  It may suggest the recent index weakness is coming to an end.

Be sure to tune in Monday morning, when we have more updated prices to template against this profile.

Nasdaq futures were very illiquid last night and with only slightly above average volume we managed to print over 40 points of range.  It started yesterday evening when a wave of sell flow pushed the market lower.  The timing of the selling loosely correlated with US President Obama approving the use of strategic air strike in Iraq.  There were also so big moves occurring across the Forex complex including the Aussie dollar.  Around 4:30am prices reversed course and quickly auctioned higher and the push managed to take prices up above yesterday’s midpoint.  As we approach US trade we are set to gap a bit higher however prices are on the move, and where we are in a half hour could materially change.

One of the questions we constantly ask ourselves as speculators is, “who is participating in this tape?”  There are day-timeframe and other short term participants or “locals”, intermediate term investors, and long term players, and believe it or not, longer term participants.  Think of locals like car dealers—they only hold inventory for a very short time with the intention of facilitating trade between the long term seller (the auto manufacturer) and the long term buyer (the consumer).  Locals do not have strong drive or commitment to prices, and do not drive directional moves.  Intermediate term participants may extend prices a bit with their position entry because they have a longer term horizon and do not observe short term price levels.  The long term participant will drive through many price levels, moved to act perhaps by a geopolitical event or macroeconomic theory.  When they act, our job as smaller players is to stay out of their way or join their order flow.

This is the essence of timeframe analysis.  The challenge is keeping it all straight in the heat of the trading day which is why I create these morning reports.  However there is always a possibility of a better looking glass or tool for observing the action.  I have been building this new volume profile chart for a few weeks, have a look.  You will notice three sets of volume profiles.  The black outline is the long term composite, the red and blue on the far right is the past six days of trade (the stalemate between a big buyer and a big seller), and finally each daily volume profile.  I have noted the key prices which likely determine the victor of this intermediate term battle, as well as other interesting short term levels:

I have noted short term observations and levels on the following market profile chart:

Some very specific price levels were mentioned earlier, price levels which without doubt “brought the action” if you will.  This tells you the methodology is effective.  Initially, I though losing such levels would be a reasonable indication that my longs should be reduced, and perhaps they should have.

But there were a few observations which kept me in-

1.  We printed an excess low on the /NQ_F. Excess is a tail, it is price going too far and snapping back in the other direction, it is touching your hand to the lid of a charcoal grill because you are drunk.  A strong reaction occurs.
2.  Although SPY and QQQ made new lows on the week, Russell diverged
3. Momentum stocks, creatures of wonder as they are, were way off their lows all over the place
4. Our VPOC is above yesterday’s, see below:

When faced with these observations, there was little choice but to stick with the course I have plotted.  My TNA long sits unchanged, how bad is it out there, really?

The negative news cycle is as pronounced as we have seen in months, maybe years.  I remember a wave of selling hitting the tape at any mention of Euro Zone weakness, how soon it was all forgotten?  Now we lose 9 Nasdaq points on a Russia/Ukraine piece, any piece, yet a bid remains in growth.  Observe, and mind you perceptions.

How many of you, with your own eyes, have observed the Russian troops amassed on the Ukrainian border?  With your own eyes, not stock frottage from CNN of fucking tanks driving around.  Imagine a big group of Russian men, tenting out in the wilderness with combat gear and vodka, being Russian.  Who are they even threatening besides themselves and the local wildlife?

We have a seller.  The seller has conviction and shows up every time we press over our composite VPOC.  If this seller is put on their heels it would be a massive amount of fuel for upside.  If they drive lower, they can take profits and reload on the next rip.  They have not had much of an opportunity to book gains yet, just as the bulls haven’t.  The two forces are very much clashing until we have a victor.

Until the market goes decidedly red, dragging bull carcasses around the ring while a mariachi band plays, there is a bid in this market.

Nasdaq futures caught a bit of a pop this morning right around the time European Central Bank released their rate decision which continues to be in line with expectation.  About half of the fast gains have since been given back, and the sell flow began at 8:30am when ECB’s Draghi began his press conference.  At the same time US Continuing and Initial Jobless Claims were released.  Continuing Claims were worse than expected and Initial Claims better.  The rest of the economic docket is open today aside from a 10:30am Natural Gas report energy traders will want to keep an eye on and Consumer Credit at 3pm.

The intermediate term timeframe is flirting with the idea of going seller controlled.  We are almost developing a pattern of lower highs and lower lows.  To negate this developing process, buyers need to step up and establish a higher high very soon.  If they can hold the LVN at 3865.25 it would be a productive start to the process.  Even if they cannot press up and out today or tomorrow, by simply slowing the action down they would fortify the idea that intermediate term balance is still in place.  I have highlighted key intermediate term price levels below:

Buyers are still on their heels, and without stabilization soon we risk another acceleration of price discovery lower.  The question I constantly ask when the market is working on building a swing low is, “Is the market done finding buyers?”  We saw a sharp responsive buyer off the open yesterday morning and the action saw continuation into the afternoon—initiative buying coming in after the fact.  Once a strong bid is established, this is what we see, the action process goes in the other direction until it is done searching out a seller.  The process forms value.  If the conviction buyer does not show up to defend her responsive buying yesterday morning, that could be a shift in short term sentiment.  I have highlighted the key price levels I will be monitoring early on the following market profile chart:

Futures are lower overnight on above average volume.  The largest impulse rotation occurred around six AM and futures have since shown little bounce.  The price action was able to take out prior swing lows from August 1^st.  Swing highs and lows are rarely set during the globex market, thus we might expect these overnight lows to be tested once the cash market opens.

The economic calendar is quiet for US trade mostly, however we do have Crude Oil inventory data out around 10:30am.

Prices are currently trading outside of yesterday’s range which suggests participants rejected the aggressive balance formed on Monday and Tuesday.  The question we must be asking ourselves throughout today is, “Is the market done finding buyers?”  If we do not see any strong reaction from buyers today, then the market is likely to continue exploring lower until it finds such a demand.

I have marked up the intermediate term prices on the following volume profile chart.  We are trading down in the thin tail of an intermediate term balance dating back to the start of July.  With prices making news lows early today, the argument can be made for a shift into intermediate term seller control.  However, we should first observe how we open, see below:

Finally, I have marked the short term levels I will be observing on the following market profile chart:

The buyers got a bit ahead of themselves early yesterday afternoon when they pressed prices up through the highs. Once doing so, they uncovered a strong responsive seller who patiently let price come to her and then erased over 20 points of progress in the final 30 minutes of trade lasting from 3:45-4:15pm.  That pulse of selling carried over into the overnight session where the brief pop in prices after weaker-than-expected Chinese PMI data was faded and prices continued drifting lower.  On our economic radar for today’s trade is ISM Non-manufacturing composite at 10am as well as Factory orders at the same time.

The intermediate timeframe is spreading out like discovery is taking place, but as a pile of volume-at-price it still resembles balance.  The balance we can observe dates back to the start of July, has a low slung VPOC just below our current prices, and we are currently muddling through the thick value zone.  I have highlighted the key price levels below which will serve as sign posts as the story unfolds:

You can see the intense indecision on yesterday’s market profile which has long tails on both sides of value.  This is the nature of a neutral day which has a real lack of directional conviction.  I have noted the price levels I will be watching early on below:

The economic calendar is quiet to start the week and many of the headline companies have already reported earnings.  Thus much of what has been made known is public to the market and the market is tasked with establishing value according to these facts.

The Nasdaq has gone lower for two sessions after balancing out near annual highs.  It carried some major speed to the downside and the selling managed to recapture nearly all of the progress made in July.  Around lunchtime we saw our first signs of responsive buying significant enough to stick around for a few hours.  Futures continued drifting higher overnight and as we approach cash open we are set to gap higher by just about 9 points.

I carefully reviewed the current intermediate term balance and highlighted the key prices levels within this balance below:

Furthermore, I have highlighted the prices levels I consider in play early on using the following market profile chart:

See the below comments for hypothetical trading scenarios as well as intraday updates.

Nasdaq futures were down over 40 points early this morning but are paring back some of their losses after a weaker than expected jobs report which seems to be easing the expectation of a rise in interest rates sooner by The Fed.  As we approach cash open Nasdaq futures are trading down about 20 points but are moving fast.

We have the final July read on manufacturing from data firm Markit at 9:45 a.m. and the final July read on consumer sentiment from the Thomson Reuters/University of Michigan Surveys of Consumers at 9:55 and we are expecting a rise to 82 from 81.3.  Most sensitive of the economic news comes at 10:00 a.m. when the Institute for Supply Management’s read on July manufacturing is due and is seen rising slightly, while June construction spending is seen rising 0.5 percent.

The market also is digesting a default from Argentina after they did so 12 years ago.  This country is not fiscally responsible, to say the least.  There are also rising tensions in the Gaza Strip, and Russia is in a tiff with Europe and the USA.

This is also the first of the month, typically today and the following three trading sessions have a bullish skew for equities.  It is also Friday meaning new longs would have to sit through the weekend which may create some hesitance.

The intermediate term profile is in many ways out of balance and very active.  Yesterday’s gap-and-go trend day down is seeing some continuation today.  The speed will be telling, and I have highlighted two low volume nodes below yesterday’s close which will be the tell for me.  I do not want to see the market rush to test these levels (3870.50 & 3865.25).  If we are testing these levels before lunchtime, that in and of itself says the velocity in the market has changed.  Remember, bears can take back a month of gains in one week.  I will be most keen on these intermediate term prices to dictate my actions today:

However, should pace shift and back to slow, I will be watching the following market profile levels intraday:

Index futures are down quite a bit across the board as we approach the final day of US trade in the month of July.  The major news overnight came from Argentina, who in a few hour may default, an event which would “plunge the country into turmoil.”  Worsening tensions with Russia seem to be weighing in on the eurozone where some are speculating the external shock may be enough to push them into a deflation trap.  We are off the overnight lows a bit but saw a fresh wave of selling roll in after the 8:30am US Continuing Claims and Initial Jobless Claims.  We have Chicago Purchasing Manager at 9:45am, a Natural Gas Storage report at 10:30am, and Chinese Manufacturing PMI out after hours today at 9pm.  We are also in the thick of earnings season which has been mixed but positive for social media, a hot spot of discussion after being singled out by Fed Chair Yellen.

We can rack our minds with all of this macro economic news, or we can focus our energy and attention on the auction taking place, and use our objective eye to perceive who is participating in this market, what they are trying to do, how good of a job they are doing, and what they are likely to do from here.

It is the end of the month, equity inflows typically take place at the start of a new month, and we are wrapping up the first month of Q3. The first half of the year was a challenge for growth performance, especially after many of the marquee high beta stocks were cut in half.  Thus starting the second half of the year strong was important to many participants.  With that in mind, we know the intermediate term is very likely to be active in this environment.

On the month, we formed a rather balanced profile until launching higher.  The final footprint left a big volume pocket which we have slid through overnight.  There was a second volume pocket up higher, but we filled it in this week.  Now it appears we are backing and filling this region.  See below:

If I bring our eyes in a bit closer we can see the key price levels on the intermediate term, the levels we are likely to see respected during today’s trade:

I will also be keying off the following market profile levels to start the morning: