My home computer aka JET FUEL ONLY was so aghast by yesterday’s session that it could only stomach charting half the session.  And even though I calm it with restarts and data massages it refuses to provide me a full readout of the auction from yesterday.

The session yesterday was the widest range since 10/18/2011 and it was all selling after gapping higher on the open.  Headline risk drove the markets, which used the Italian elections as an excuse to selloff.  The stability of the Italian state came into question.  I can tell you as someone who has spent extensive time in Italy, they LOVE politics.  They love food, fast cars, and beautiful people.  And that’s it.  All of this gives them a dramatic flair.  They’re taking the election confusion in stride, it gives them something to live for.  The market has wanted to gut momentum traders for weeks.  This was as good a reason as any.

As for the rest of the week and how we should trade it, the key is taking it one day at a time.  There is a major low volume void at 1481.50.  If we begin rotating lower today, we could see this level behaving like a magnate.  Sometimes the market sharply rejects these low volume voids.  This is also where we put in the globex lows (which were yesterday late-afternoon). Below I show support at 1471.50.

Upside, let’s see how the market behaves from 1500-1504.  That can give us an excellent feel of sentiment. 

Here’s my chart output from yesterday:

http://youtu.be/qZCSGwKOntY?t=30s

Good Morning traders, we’re coming into the week hot again.  The Europeans put at bid in the S&P overnight and have seen the contract seven handles higher.  Price has lost momentum near 1524 which is the major confluence noted on my chart today.  It marks the edges of two significant value areas from last week (Tuesday & Wednesday).  How the market behaves at this level early this week will give you a significant feel for the sentiment surrounding last week’s distribution day lower.

Trade was rather gappy [sic] last week, but considering the first distribution day occurred, followed by a gap lower, the fact that the bulls horned their way higher into the weekend gives you a sense of the demand existent in equities.  However, Friday’s profile was poorly formed.  It has a toothy shape, and shows evidence of the low volume.  That is why I’m marking the value area high as an ideally sustained level.  The weak auction is susceptible to re-auction.

And of course I’ve highlighted the pump line, and my out of the way “trip exposure” line should we be greeted by aggressive selling.  Stay open minded.

I’ve awoke to a lovely snow of the arctic variety.  I trade best in these situations.

A strong overnight session has pushed the S&P futures nearly ten handles higher and is currently making new highs as we enter Friday’s cash session.  We’re slated to open around 1510.  Yesterday I highlighted what I see to be a poorly auctioned area spanning from 1512-1504.  Early on I’m looking for reactive selling to drive price lower, targeting Wednesday’s low at 1506.25.  Then I’m looking for buyers to reenter and balance trade, giving us an auction in this zone for the remainder of the day.

If we should see buying at the open, a breach of 1511.50 could give us a quick ramp back to 1517.75.  The thin profile above suggests aggressive behavior by the sellers.  Should we not see a sharp rejection of these prices, but instead acceptance with volume, price can quickly revert to the value above.

Simple and sweet, let’s close this week out well.

Yesterday’s liquidation break took out nine days worth of auctions.  Going into 9am, we are set to open lower, suggesting a rejection of the entire upper range.  The globex session appears to have put in its lows after selling off sharply during the European market.  Asian markets were weak too, thus I expect my Japan stocks to gap lower.

Overnight, the market found buyers around 1501.50.  I had to stretch my profile chart back to 02/07 (two Thursday’s back) to find reference points.  The first thing that catches my eye is the naked VPOC from 02/07 at 1498.  Since we’re down here, there’s a strong proclivity for sellers to target this level.  Should the selling continue through the value area, I’m going to be looking for buyers at the value area low of 1495.75.  If they decide not to show up at these levels, I will drastically reduce exposure.

Talking upside and near-term range, there hasn’t been a health auction between the 1510 – 1504 region.  We’re set to open near these levels.  If I see balanced trade occurring (a nice, Gaussian bell) within these levels, I consider that constructive.  I’m looking for a balanced session and a compressed range before I get back my “buy the dip” mentality.

The market has certainly been worse to bulls than this.  But respect the action and get out of the way if everyone starts running for the door.  Should we stabilize, keep your head clear, look for signs of buyers initiating trades, and go and do likewise where quality chart setups present themselves. 

Happy Valentine’s Day ladies,

Gentleman, buy something, anything for your girl.  I don’t care if you think the holiday is fake.

Like I mentioned yesterday, we found real sellers working yesterday.  They left their footprint on the profile, where we see the market making three rotations lower.  What impresses me about the action taken by the sellers is how methodical they were.  This was the clever work of an expert or her robot I’m sure of it. Check it out:

As of this writing, we’re trading below Monday’s pump range around 1514.  Turns out the level didn’t give us much pump in the S&P, although it allowed individual equities to rip higher.  Given yesterday’s profile and the selloff during the globex session, I’m turning my attention to a downside scenario today.  The overnight low sits at 1510 which is right where things get slippery.  Should we lose that level intraday, I’ve boxed the area I want to see price sustain to keep me constructive on my solid long positions.  Should we begin trading into this area, I may scale profits in extended names and cut small losses before they morph into large ones.

Below 1504 today, and a major sentiment shift has occurred.

Tight range overnight, and considering we had a State of the Union address and I was expecting a binary reaction I’m rather thrilled with the quiet globex session.  That’s what’s up!

The president didn’t throw any major curveballs.  He’s just as stoked as we are that the market is ripping.  It was one of his first talking points.  Here’s my health of the country bellwether: where’s the Dow and how much can I sell my house for? Both are up, so USA #1.

As I pen this piece the S&P future is drifting slightly higher but 1520 is looking like a key upside level today.  Down below I want to see buyers resurface at 1514.  They handled that level with a calm and collected pomp yesterday.  Should they lose it things could get slippery.  You can reference yesterday’s post to see the slippery zone I’m still observing below.

That’s it.  Riding the rally is simple, until it isn’t.  Protect your necks.

As we enter another day of trading this market, we find ourselves hanging around near the highs but not pressing higher, it can be rather unnerving to have a large directional portfolio.  Yet we continue to see a resilient market unwilling to give back much ground.  S&P futures were higher overnight, peaking out at 1511, the high water mark set on Monday.

We’re off the highs a bit as we approach the 8:30 hour, and I want to point out a few odd characteristics about yesterday’s profile.  I’ve separated Tuesday and Wednesday’s profiles to the right to highlight the odd mirrored auctions that occurred:

Odd, yes? Also, you can see we booked an inside day with both the range compressing and the value compressing into the prior day’s respective range and value. This signals balance. It also tells up the market is building potential energy, and the next move could have some major velocity. We still have the poorly auctioned range surrounding the 1500 century mark. Should we blast higher, I will stop keeping this observation in mind. But until we leave this area with authority, which starts with sustaining trade above the orange box I highlighted above, I have to keep my aggression in check and keep some cash on hand.

Cash level currently 20% with a 5% TZA hedge (clown college)

Here’s a throwback surf jam for Kai and people like him:

http://youtu.be/1gdG7TZUqY0

Yesterday the action in the S&P did little to change to overall outlook of the direction of the market.  We’re still trading within the confines of brackets and there’s still cock fight action surrounding the 1500 century mark.

Bears can claim a small victory over the bulls yesterday in not allowing the value to be moved higher than last Friday.  Notice the value areas overlap, but the Tuesday value area has a lower VAH, VAL, and VPOC.  Bulls need to contain the downside for the remainder of the week, else the likelihood of an exploration lower increases.

What I want to see most is a healthy auction, represented by a smooth bell-shaped distribution, occurring within the area of 1502-1498.  Once these levels are thoroughly traded, our next move is a high probability hand tip for the direction of the next swing.

The NVPOC from Monday is the major target for sellers today.  If they’re able to reach it, I would consider their ability to dictate the direction of this tape to be increasing.  However, I will monitor the area for signs of buying activity.  You likely want to cut losses out of your portfolio if we begin rotating down to 1496 with behavior that suggests we’re closing the NVPOC because you losers will participate 1.5x or more with the broad market selloff.  Unless they don’t…this could be telling of buyer interest.

Remember to be water.

Yesterday was close to forming the rare PBR setup on the S&P future contract.  The characteristics are a P-shaped short squeeze profile followed by a b-shaped long liquidation profile.  Both profiles on their own signal the movement in price to be a temporary phenomenal fueled by shorts covering their positions or longs liquidating, respectively.

When you see the two profiles sequentially, it signals a dangerous environment much like a cock fight.  The moves are violent but until a cock digs their talons into the other fighter the play is to fade back to midpoint.

You can see the naked VPOC was finally closed up yesterday, that point has been on my mind several sessions as it lingered below.  We saw a decent reaction by the buyers down at 1490.25 making it a VERY significant reference point going forward.  Should we not see buyers remerge at these levels on a retest it could signal the environment has changed and reducing equity exposure prudent.

Elizamae asked me a few days back on my thoughts regarding the lack of auction in the four point range surrounding the 1500 century mark. I’ll reiterate that it resembles a bird fight, put that imagery in your brain. Violent flapping and chest puffing are the norm. Think Twitter. If we see a health auction of these levels today, the next move is our tell. Otherwise, the cock fight continues. Until proven otherwise, however, the prevailing trend has the edge.

http://youtu.be/nze096dqID0

http://youtu.be/zQDaGLe2qk4

Yesterday’s auction was successful in cleaning up the toothy lower ends of the prior two day’s profiles.  The price range from 1500-1495 has been very balanced and building pressure.  We’ve seen aggressive entry into the tape by both buyers and sellers at the extremes of this range which is healthy behavior for a balanced auction.

The sellers did manage to push value to its lowest level since entering this new range, down to 1494.75.  There were three shifts in the VPOC yesterday which is another sign of a balanced auction.  The VPOC was resting higher most of the session but as we entered the last fifteen minutes of trading a massive block of orders came through and lifted price higher.  Before the price was lifted the activity shifted value lower.

Honing in on yesterday’s value area, notice the entire value area is below the prior days.  This is a victory for the sellers as they have been able to slow value at best for most of this year.

Being the first of the month and a Friday, I’m expecting lots of trickery and traps.  I will again be placing most of my attention on the afternoon activity and the value placement.