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Tag Archives: $COMPQ

Intermarket Analysis

USA indices are up slightly during the globex session, despite notable weakness in the Asian markets. The NASDAQ continues to lag the S&P, The Dow, and the Russell index.

The sell flow which entered the market last week was strongest in the NASDAQ where sellers can clearly be seen reacting to perceived premiums. Their actions in the market were dynamic enough to leave selling wicks on the market profiles and also effective in driving value lower. The 24-hour profile shows this action mostly clearly, with selling wicks clear. I have highlighted these wicks, as well as two scenarios I envision for today’s trade in the /NQ_F, our futures contract for tracking the NASDAQ:


It is important, especially if you are participating in the financials trade, to keep an eye on the intermediate-term balance in the S&P 500. I have highlighted this balance on the following /ES_F chart, our futures contract for tracking the S&P 500. We can monitor the price action near these balance extremes to gauge if other time frame (long time frame) participants are increasing activity in our market. Note: they “should” be more active, as the holiday trading season comes to an end:


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Intermediate Term Focus

December 20th was a big day on the S&P 500 (aka $SPX aka /ES_F) where price extended upon the large trend day only two days prior. The events of December 20th set the stage for a holiday drift of benevolent proportions.

Then yesterday came and we erased the entire drift in one foul swoop. Or did we?
The balancing process is an interesting natural phenomenon driven by the collective actions of all market participants. Yesterday the sellers were in control but intermediate term we are working through a balance.

This balancing event is occurring at very elevated prices which should bring the trader a bit of caution for continued liquidation. I compressed the balancing action into one profile this morning on the S&P 500 because the resulting picture is rather interesting and gives us a solid bit of context to frame our minds around. Put simply, we’re stuck between two humps…until we aren’t:


Overnight our range was larger than recent past where the action has been benign. Sellers could be seen early in the evening beating price lower at 1829 and producing a wonderful rotation down to 1820.50. This is where we can see the intermediate term balance/auction come into control—buyers defended the price zone and their demand was strong enough to propel price a tick above yesterday’s RTH range.

The bad news for bulls is we typically do not set swing high/low during the overnight session. Thus the downside is vulnerable. The good news is we are seeing healthy market activity and participation by both parties.

I have highlighted a few levels I will be keying off of in the NASDAQ today on the following market profile charts:


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A Fresh Batch of Context

We are starting the year off with an interesting bit of context in place.  The long term control of the bull was reasserted last week, fueled by strong buying demand that entered the market when The Fed removed uncertainty over their taper itinerary. 

Intermediate term, looking at the last few sessions, we have begun the process of balancing out up at annual highs.  We were yet to see any sharp rejection.  Instead price has drifted with a slight bullish bias through the holiday season.  Within this low volume drift environment, individual equities have performed well.

Tuesday, year end, was a day controlled by the buyers, and showed signs of control both from the long timeframe and the day timeframe where local traders appear to have actively participated at value area low, a logical level to see their participation.

Overnight we gapped lower and initially the action is being met with buying.  The move was dynamic enough to print nearly 10 handles lower on the S&P futures (/ES) and nearly 20 handles on the NASDAQ futures (/NQ).  This is pro gap territory where attempting to fade the sell flow and press the gap shut becomes a more risky endeavor.

However, we are still trading within Tuesday’s range, just a few points below the value area.  If price can creep above 3577.50 before the opening bell, it would indicate we are back into Tuesday’s balance, and the move has been accepted.  Should we open below this level, we need to be keen to the open type and who may be asserting control.

Should the sellers reject any attempts back into Tuesday’s value, we may begin liquidating early on.  I will look for buyers to react at 3563 and then at the support zone highlighted below.

Overall I anticipate balanced trade may ensue, but should my support zones void I am prepared for a liquidation tape, especially given the extended nature of the market.



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Year End Context Profile

The premarket is seeing buy flow entering the market, albeit thin, as the USA comes online. The action was enough to push us outside of value and nearly above yesterday’s range. This creates an elevated risk/reward environment where intraday positions have a better opportunity to flourish.

Given the proximity of the overnight gap, we may see sellers attempting to fill it by trading us back down to 3566.75. If this is to occur, I think the time of day is critical. An early push from the sellers which gets rejected by buying would set the stage for a strong session.

If instead we see a mixed opening trade, predominately driven by buyers, we have to be on watch for an afternoon fade.

I have highlighted both these scenarios on the following 24-hour market profile chart. Below the 24-hour chart is the RTH chart which I have left blank but you can see the relevant value areas on high volume nodes, especially if you click and enlarge the image:


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Making Lemonade

One of the greatest weaknesses of elder generations is their resistance to change. Perhaps in their younger, scrappier years they would take changes in stride while walking two miles in the snow to school. But with the routine comes comfort and stubbornness. Eventually obsolescence sets in.

With that in mind, I will not damn my future’s platform for completing a major update over the weekend, an update so grand it succeeded in killing all of my helper robots (algorithms). Instead I simply await word from my team of scientists and engineers working around the clock to integrate the new technology into my platform.

Unfortunate for me, this means I will be trading “VFR” today. Unfortunate for you, my morning market analysis will be a bit lacking today.
You will have to look up a daily chart on your own to see Friday’s trade printed an outside day in the NASDAQ composite meaning we exceeded Thursday’s high and low during the Friday session. These type of prints signal indecision and suggest the violent act of balance is beginning.

From here three things can happen. The market can reject the idea of balancing due to strong demand for stocks. This would propel us higher and away from the Thursday/Friday range. The opposite can occur to the downside due to a flood of supply entering the marketplace. The third is the balancing dance, much like the courting rituals of a finch—jumpy, choppy, and everyone gets horny at the extremes before getting faded.

I have highlighted key market profile notes on the following charts with the caveat that Friday’s data has been vaporized and is not presented below:


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The Flow of Profit Taking

The markets engaged a one directional drift this week after news of a The Fed tapering on December 18th reignited the spirit of the long term directional control—the bull.  As the [Santa] rally has progressed we start to see the marketplace working into equilibrium.  This process can be seen as overlapping price action.  As our balance establishes further it will be seen as overlapping value areas.

These prints are the result of sell orders entering the market with a force equal to and at times greater than the force applied by buy orders.  As the rally ages, we eventually reach balance or see a sharp rejection lower by selling.

This has not occurred yet.  However, we may see profit taking start to kick in today ahead of the weekend.  This does not mean you should automatically take profit in your own portfolio, only that your plans should be assessed on individual stocks and consider taking profit or selling if your desired target has been achieved.

We also want to measure any downward move and whether it makes logical sense in the auction process, or whether we are seeing a shift in control away from the long term trend.  Should we see selling enter the market, my expectation is for algorithms to begin hunting stop orders.  This action could take price in the NASDAQ futures down to the support zone from 3565.25 – 3563.50.

I have highlighted this zone as well as a few other market profile thoughts on the following chart:



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Morning NASDAQ Context

The globex market opened back up for business this morning at 6am and was greeted by an early bid which drove prices higher. In the short term we have become overbought and it will be interesting to see how these conditions are met as we approach regular trading hours.

Seeing price swing a fresh high in the premarket provides an interesting bit of context for bulls to hang their hat on, as the likelihood of making swing highs during non-cash trading hours is low. This type of context is not always actionable, however, as the mornings swing high cold hold for days and even perhaps weeks prior to being eclipsed. Therefore the premarket swing high is interesting from a context perspective, but not necessarily actionable from a timing perspective.

Price is currently trading entirely outside of Tuesday’s range suggesting we our coming into a market which is out of balance. This creates a higher risk/reward environment then a market opening in prior range.

Early on, my expectation is to see sell flow work into the market. On the NASDAQ, I am looking for order flow to take price back into Tuesday’s value and perhaps through our entire range, putting any newly initiated longs underwater. Sell stop hunter algorithms will be targeting 3558 – 3556. This price zone is just below Monday’s VPOC at 3560.50. The VPOC still stands naked after buyers reacted just above the level on Christmas eve.

Should we instead see buyers driving off the open, I will be testing their might verses 3580 -3580.50. If price is sustained above this level early on, it would be wise to avoid any fade or gap fill intraday shorts. A gap fill would take prices down to 3571. Given the close proximity of the gap, my expectation is for a fill to occur today.

I have highlighted a few of the levels on the following 24-hour market profile chart:


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Put a Bow on the Week With Market Profile Theory

The market drifted higher overnight, with the NASDAQ printing two methodical rotations higher.  The action was dynamic enough to press price outside of yesterday’s value, but static enough to keep prices within yesterday’s range.  Thus the risk/reward level is elevated today, but not National Homeland Security Red by any means.  It’s more like a code orange.

Talking overnight gaps, we still have a gap open between Wednesday and Thusday on the upside at 3508.25 and we have this morning’s gap down to 3493.25.  These contextual pieces may lend themselves to a bit of chop in the early market hours.

Yesterday was a digestion/balancing day, with the market accepting it’s marked up prices and buyers on the delta.  Buyers on the delta refers to the order flow intraday, where we saw participants willing to take the offer and actively engage the market to enter long positions (or cover shorts).  We printed the very uncommon normal day  in market profile terminology, where the first hour’s price action was very wide and contained the range for the rest of the day.  We have a buying tail on the low end of our profile suggesting buyers perceived the early drop in prices as deep discount and reacted accordingly.

Overall, we printed a P-shaped profile which signals a short squeeze occurred.  Whether that squeeze will provide the tinder to spark another rally will be revealed today by the auction activity.

I have highlighted levels I will be watching to track the progress made by buyers and sellers on the following market profile chart:


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Today Is When You Make The Money

Yesterday afternoon, once we had our news of taper, we saw a clear entry of the long-timeframe trader.  It started with an aggressive buyer reaction to prices perceived as deep discount—a long tail printed off the lows.  Next we saw two-timeframe action where the intermediate term was wrangling for control with the long timeframe.  This action can be seen just below our balance zone’s value area low.  Once we reentered the balance zone, long time frame captured control of the market and pressed us through the value area and up to our hinge of supply near the annual highs.

My expectation today is to see back-and-fill balancing taking place between the shelf of historic price action at the highs and the layers of support built below.  I have highlighted these reference points on the following NASDAQ market profile chart:



While the market is balancing out, look for individual pockets of momentum to run as people chase performance in this last full week of trade.  Check out the Option Addict blog and comment section where top traders are sharing the names they will be watching for momentum.

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Ignore The Fed and Observe The Auction

It is not necessarily that today’s news headlines are any more important than what we saw last month or any other day or week for that matter.  Instead what makes today important from a trading point of view is the aging balance zone which has developed in the intermediate term.

Long term, we have a market in the solid control of buyers.

Intermediate term, we lack control.  Since about November 26th, the market has balanced and chopped with no clear victor in place.  I have illustrated this intermediate term balance today using the NASDAQ composite futures and the developed Gaussian curve spanning several weeks.  See below:


On the short term, I give sellers the slight edge for liquidating the market on 12/11 and since then only allowing the market to coil.

Yesterday we printed a neutral print, which signals indecision and tends to occur near inflection points.  This is balancing.

Overnight we bounced back from the late afternoon fade and have chopped along.  More balancing/indecision.

Thus I conclude we are in a balancing environment.  Therefore we must be aware of when the market is moving out of balance, and who is asserting control.  As you can see on the above chart, there is a hinge of overhead supply the market needs to negotiate.  The low end of our intermediate-term distribution shows a buyers’ tail. 

Drilling into the daily market profiles, I list the key levels to monitor as we move about today.  I am especially keen on 3452.50 – 3450 below.  If we do not see buyers at this level, the downside could accelerate.


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