Friday featured a blunt shaped profile as the S&P resisted the urge to sell off instead opting to properly auction the toothy area from Thursday’s afternoon thrust.  However it sustained the level on the lowest volume since starting the year. Sustaining those levels was telling of the demand for equity exposure.  However we want to be aware of price levels that could signal a change in risk appetite.

Given the progress we saw last week, the risk range below has increased significantly.  I’ve noted in blue our first key area of support.  Coming into the US morning we’re seeing the Globex session off nearly six handles after making new highs at 1471.25 overnight.  As of 8am, we’re set to open near this first level of support.  Thus how we open will be very informative of the early tenor of market participants.

Should we break the Friday VAL (noted below in blue) it will be a quick trip to the naked volume control point.  If buyers aren’t present here we could see a quick rotation through Thursday’s value area and a test of our major support for the week noted in green.  Seeing us back in the 1450’s should not be a cause for closing out all long exposure, but we should closely observe the markets behavior at these levels should they trade.

The morning trade in the S&P played out in the constructive manner I suggested in my morning posting.  We’ve seen a thorough auction of yesterday’s upper range.  The market has sustained these levels even with the overall weakness from the financials.  I think that adds a layer of constructive bullishness to this mild mannered auction.

There are only three scenarios as we wind down into the close of the week:

1. Close within the auctioned range from today
2. Upside breakout
3. Downside breakdown

Scenario one and two are both bullish.  However, should scenario one occur, I will be more apt to scale long exposure off.  I would consider such a move a bit euphoric.  Scenario three isn’t damning to the bull case unless we lose the key support I referenced this morning.

http://youtu.be/V8rZWw9HE7o

There are times when the profile formed by a day session doesn’t look quite right.  Often this is a result of price being jerked around by the indecisive participants jostling their books.  Specifically, the upper range yesterday looks poorly auctioned.  It looks toothy, with no clear distribution of TPOs or volume.  One of the most constructive things the market could do today is properly auction the upper range from yesterday.

Overnight the S&P found support at 1465 but to my eye what’s most important today is where we sustain trade relative to the upper volume distribution noted below in blue.  Notice the very Gaussian form of the distribution, with a high volume node (point of control on the day) residing near the middle of the distribution.  This is a healthy auction.

One last note, the aforementioned distribution makes up the upper half of yesterday’s value area.  I’m giving yesterday’s value area a bit less significance since the lower distribution isn’t as uniform.  However, if we begin trading below the VPOC at 1462 a slip down to the value area low becomes very likely.  If we visit the value area low and whether the bulls show up at that level will speak volumes to the conviction of longs going into the weekend.

We’re starting to get several layers of profiles building upon one another.  Seeing this tight consolidation after the monster run we had to start the year is impressive. It suggests a strong bid is present in the market.  Support levels are holding.  I’m always on the lookout for a rug pull, but I continue to give upside the benefit of the doubt.

First level I want to draw attention to is 1456-1457.  I highlighted the price level yesterday morning for its confluence of multiple reference points.  Yesterday added another reference point to the mix after trading above the level for most of the day only to give it up going into the afternoon.  The result was a very low volume “slip” zone.  I won’t look too far into the level except to say interesting activity has occurred at the level and where we sustain trade relative to this price is our tell going into the weekend.

Key overhead resistance for reference today is the VAH from 01/04 which also was the globex high as of this writing.

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.

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.