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.

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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:

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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:

 

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Nasdaq futures extended their overnight gains this morning when US GDP came in better than expected for the second quarter.  The price action took us just above yesterday’s high on the session before finding some responsive selling.  As we roll into US trade keep in mind the FOMC Meeting Announcement at 2pm today.

The intermediate term auction is just a mess, and as we close out the first month of Q3 it is apparent the OTF is jockeying for position and performance.  What this means is moves possess more conviction, go further than you might expect, and will often times ignore “day-timeframe” or local price levels.  This is a huge concept to understand, and one that causes many system traders to struggle.  The conditions changed around 07/22 and have become even more pronounced as of 07/25.  With that in mind, these intermediate term price levels are more pertinent to our decision making process then our market profile levels:

However, just as we shifted to an intermediate term climate, we could just as easily shift back into a local controlled chop.  This is the essence of market profile analysis, to answer a few questions:

Who is likely participating in the market?

What are they attempting to do?

How good of a job are they doing?

What are they likely to do from here?

The interesting piece of market profile context from yesterday-to-today is derived from the day type we printed yesterday–a Neutral Extreme.  The Neutral Extreme day type is characterized as such for having range extension on both sides of the initial balance AND a close near one of the daily extremes.  This type of close has a strong directional conviction in the direction of the close, which was down.  Meaning, participants were VERY confident they would be waking up to lower prices this morning.  Thus today’s big gap up is likely to produce a squeeze if the sellers cannot hammer the tape early on.

Therefore, I have highlighted the short term levels I will be observing early on to gauge market conditions using the below market profile chart:

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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:

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:

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:

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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:

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:

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

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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:

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:

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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:

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

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:

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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:

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

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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:

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

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

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