Yesterday the bulls showed up and defended the critical breakout level from the beginning of the year.  Their reaction to the lower prices can be seen in the profile as a single print of TPOs.  Just like a low volume zone, we can draw knowledge from this area.  The market spend very little time trading in the area as buyers snapped up the perceived discounted price.  We therefore can expect those same buyers to show up on any attempt to revisit these levels.  If they do not show up and defend the lows, it’s our cue something has changed, and we need to reevaluate the overall tenor of the market.

I’ve also marked 1457 as a key level.  Not only did the overnight session top out just below this level, there are multiple levels of confluence here.  Where we sustain trade as the week progresses will be a solid cue to the direction of the market in the swing term.

http://youtu.be/0UjsXo9l6I8

The pullback yesterday occurred in an orderly fashion with the market finding support at the first key level below Friday’s range.  It wasn’t important that we traded inside of Friday’s range. Had we done so that could have cued us to an impatient bull.  Instead we want to see now is price tighten and coil into a range.  This will give us a tight set of profile characteristics to cue from.

Below I’ve noted the chart and my expectations should we trade above/below certain price levels.  Should we enter the below “slip zone” it will be vital that bulls defend the support down at 1445.  The area is home to heavy initiative buying and losing the level puts many positions initiated into the New Year under water.

We mostly talk stocks in this surreal environment and occasionally the halls are overrun by bullshit politics.  You’ll toss off to hours of politics instead of spending your time with your children or contributing to society.  And this is perfectly fine.  It’s simply another time-waster that will result in me finding the next innovation b3fore the distracted masses.

Some people enter these halls with the proper intentions of managing real money and watching others manage real money live.  I believe enterprising up and comers should work diligently to develop multiple residual income sources.  We have no pensions.  Some of our best are rotting in corporate mediocrity or studying their asses off for a higher earning slave shift.  But others have thrown up a big middle finger to monotony.  If you’ve taken this route and intend to stay on it you must build businesses.  Businesses, so when one goes stale another one flows ensuring your continued freedom.

As a trader, you can create several businesses.  Maybe you call them strategies.  Mostly we manually trade stocks.  Even when following systematic trades like trading a particular ETF based on PPT scores, we enter the trade manually and follow a set of rules to set (again manually) our profits and stop losses.  We analyze indices but mostly to gauge the context we’re trading in.

Perhaps you haven’t been reading the market profile work I’ve been doing daily and I couldn’t care less if you’ve decided it isn’t suited for you.

“But won’t The Fly cast your charred caucus in the dumpster come March?”

Yes, that’s the deal I’ve made with Le Fly and blogging is a business.  But I’m telling you as sure as 2013 is my busting out year, that thrusting my game onto the interwebs have sharpened it.  To me the biggest disgrace would be to sully these halls with lackluster advice.  We’re here to bank coin.  The profile work is putting coin in my purse.  And soon it’s going to be putting much more.

Enter Hybrid Trading:

My biggest problem with day trading is the idle time staring at the computer waiting for my high probability setup to emerge.  The best setups vanish so fucking fast and most days only have three or four dips from the well to grab a drink.  But what if you could assess context, key off of critical levels, then turn on a robot to diligently hunt out an entry with a high probability of reaching your first scale point?  This dramatically reduces the time eyes must be glued to a chart.  Once your context presents itself you simply turn on your robot and continue your business until a fresh trade is fed to you.  Then you manage the trade manually. Voila!  Hybrid trading.

And that’s exactly what I intend to build this year.  A new business.  If you’ve ever built such a mechanism and care to chime in sage bits of advice please comment.  I’ll always trade and talk stocks.  Swinging for yachts, if you will.

The market has found support at the key level highlighted this morning and is now showing signs of stabilization.  Should we clear the pivot highlighted earlier, it would suggest we add long exposure.

Notice the TPOs making new highs and no new lows.  Stabilization, the bulls are up to bat:

First key support on the /ES at 1451 where Thursday’s single print buying tail starts and converges with Wednesday’s value area high.  Should trade sustain below this level we can expect a retest of the value area low and naked volume peak down at 1445-1446.

A rotation to these lows would represent a giveback of all last weeks gains and a blow to buyer confidence.  However I will remain constructive on my longs if we remain above this level.

Directing all our attention to Friday’s profile, you will notice three distinct peaks in the volume.  I’m giving the most weight to 1458.75 which is also the volume control point and the final settlement price of last week.  However, I’m pivoting from the lowest high volume node at 1456.25, which is where price has traded most during the globex premarket.

Today’s trade was looking very constructive early morning, taking out the important resistance I highlighted this morning and building value higher after a progression of TPOs marching higher.  Early AM longs were working and solar was ripping dicks, which is a highly speculative sector.  The charts were setup something perfect and the fact I didn’t even turn them an eye in this administration is somewhat disturbing.

Let’s be frank with each other, this market is overheated.  The dick ripping shorts received yesterday was not medieval torture, it was a 100 degree samurai sword simultaneously de-cocking and cauterizing the wound with surgical precision.  We may have to check with @HalfBloodPope but I don’t even think antibiotics are necessary.  And come on, The Fed had to pump the breaks into the fast approaching weekend.

I think this market “wants higher” but I also think people who want in are sidelined and ready—charts all marked the fuck up.  Lunchtime buyers are the bag holders until proven otherwise, here’s where the inventory is priced.  Good day to you:

The overnight session traded almost entirely in the low volume void of yesterday’s profile from 1452.50-1454.50.  Overnight digestion up at these levels tells me nothing occurring overnight throughout the rest of the world was of greater impact than our political theater.

Levels we can monitor and cue off of from yesterday include the high volume node at 1457 where the market squeezed up to into yesterday’s close to gauge as resistance and the reactionary aggression of the sellers.

Below, should price sustain trade below 1451 we could expect a quick trade back to the middle of value at 1448 then a test of the volume peak at 1445.75.

Seeing today’s price digest yesterday’s gains within the range (inside day) would be impressive.  More importantly, I want to see how today’s profile shapes.  I’m looking for cues of balance, seller aggression, or the coveted initiative buying.  Let’s see who wants to work these areas hardest.  I’ll play my positions accordingly.

The closing hour of Friday featured as adult a temper tantrum as you will ever see, sending the futures spiraling lower like wily coyote falling off a cliff, POOF!

The meat of the sale happened during TPO letter R or GYARRRR in pirate.  That TRO represents the 15 minutes after the cash market closed on Friday where futures remain open.

So when you’re seeing futures any shade of green, it’s green in relation to this mess, which wasn’t priced into stocks.

Today’s open is very likely the only fireworks I will see this New Year’s Eve.  Would anyone like a glass of champagne?  Perhaps a mimosa?

Sellers dominated the auction yesterday up until the late afternoon where we saw a vicious short squeeze.  The resulting candles for many charts look impressive, showing a long tail which suggests very aggressive responsive buying.  What is now vital for a constructive bull case is for the market to stabilize and work to build value higher.  This would involve initiative buying which is more confident than the gnarly reactionary buying we saw yesterday afternoon.

Although the buyers pulled off a heroic bout of buying, the market was successful in moving value significantly below where the markets traded last week.  The overnight market has a very large range and we’re set to gap lower as of 8:30am.

I consider 1399.50 on the e-mini S&P critical for the bull case today.  Losing that area could result in a quick revisit to yesterday’s lows.  Above I’ve boxed a low volume zone where price saw significant rejection by the market several times yesterday.  Should we see the market trade higher, seeing how the market behaves from 1408 – 1410.50 (also yesterday’s close) will be telling of the overall tenor of the tape.

When the market is trending lower, one of the characteristics of the profile to monitor is whether the TPOs can recapture the high of the previous half hour. Alas we’ve officially seen the first TPO to accomplish the task at the one o’clock hour. It’s a start toward stabilization: