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Tag Archives: $NDX

Almost a Half Gap

Nasdaq futures are up just a point or so, essentially unchanged, as we approach the US cash open.  Today The Fed will release minutes from the July 29-30 FOMC meeting at 2pm.  The expectations are low, with traders looking for more details on the specifics of the exit strategy.  The overall consensus is for full details to be released at the September meeting.  Since we have testimony from Janet Yellen coming up Friday from Jackson Hole, any market reaction today is likely to be muted.  Keep in mind this meeting we are receiving minutes from today took place prior to the recent uptick in geopolitical tensions.

The Nasdaq Composite, not the front month futures contract but the actual index, has pushed well into the monthly gap left behind at the start of the dot com crash.  This context could be one of the factors leading to this low volume drift higher.  If you think about how price behaves in a volume void or pocket, we tend to see this type of slow grind up through it.  As we progress, I will be watching this index closely to see if we are destined to traverse the entire region or instead perhaps only half for now.  I have noted the gap and its midpoint on the following weekly chart:


The intermediate term timeframe is bullish.  We are seeing a series of higher highs and lows print since exiting a tight price compression on 08/11.  The move has featured five overnight gaps in a row which exceeded the prior day range.  As a result, our composite profile has some very pronounced peaks and valleys.  When we eventually find sellers, the question will be how much ground are they able to cover?  We can gauge the timeframe of the seller and their conviction by how many of these price levels highlighted below are recaptured by the selling.  I left the measured move targets on the chart for one last look (127.2% and 117.2% Fibonacci extensions) but since we have actual price action in place now I will delete them.  I have also noted the current midpoint of this move just to give some perspective to the progress made:


Taking our eyes even closer to the action, we can see the short term trend is higher.  Not just price but also value continued to migrate higher yesterday.  In its wake we left a poor low which may be vulnerable today.  I have noted this price as well as other areas I will be observing today on the following market profile chart:


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Into The Gap

Index futures are trading up a bit premarket, CPI data just came out in line with expectations and brought in a bit of selling, however we still have almost an hour before the market opens.  Traders may have their eyes set on Wednesday, the day we are scheduled to hear from the primary market movers—the USA Federal Reserve.  They will be releasing the minutes from their July meeting at 2pm on Tuesday.  Before we open for trade Wednesday we will be receiving the Fed minutes from the Bank of England.  With earnings season winding down, these type of economic events will be what prompts movement in the markets.

The intermediate term volume profile has taken the shape of peaks and valleys one might expect when price discovery is underway, and that certainly appears to be the case.  The market is searching for sellers as the auction rolls upward.  The pace began to slow yesterday afternoon, however we did not find a selling response significant enough to be begin the process of balancing this timeframe.  Instead we are buyer controlled.  Price stalled at my first measured move target, however these prices are by no means science, they are merely Fibonacci extensions of our prior swing dated from 07/24 -to- 08/07.  It does tell me yesterday was a stop run because essentially this price level is where intermediate term short sellers might put their stop loss orders in.  If we exceed the second Fib level at 4030.50, and see acceptance, this market can go much, much, higher.  I have noted these levels and other intermediate term prices below:


Supporting the idea of a heady rally is the very long term perspective seen on the weekly Nasdaq Composite where price breached the 14-year-old gap I have been discussing.  The Nasdaq Composite is just an index, thus we do not have volume profile to observe, but the gap suggests similar behavior may occur.  This gap has over a 60 point range to the upside, see below:


Here’s the snapshot I posted last week if you want to reference the gap:


Yesterday we printed a P-shaped market profile which suggests a temporary phenomenon known as a “short squeeze” occurred.  When this formation occurs after a two or three day snapback rally inside an intermediate term downtrend it can often mark the end of the rally, a final squeeze before returning to the bigger trend.  However, in this case, where we are making new contract highs to start the week AND where we gapped higher, it does not carry the same implications.  It does tell us a squeeze occurred early in the session.  It does tell us fresh risk was initiated by buyers during the day, and it does tell us sellers did not enter the market in a meaningful way.  I have highlighted the prices levels I will be monitoring, as well as a few other observations below:


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The Market Will Keep This Up Until We Are Done Finding Sellers

The economic calendar is quiet to start the week but will be ramping up as we progress.  We have NAHB Housing Market Index at 10am, Bank of New Zealand Inflation Expectation just before midnight, and UK and USA CPI data out before the open of Tuesday trade.

Nasdaq futures are currently set to gap higher to begin the week.  We are right about at the threshold of “pro gap” territory where seeking to fade the overnight action can require deeper pockets than most traders have.  The key however is to observe how we open and especially any attempts to reject the higher prices.  Opening like this, to start the week, up at contract highs, elevates the risk of an opening drive in either direction.

If instead we see an open auction and then some chop, we know the other timeframe is waiting before making a decision.  Either way, the discovery process is active until the market is done finding sellers.

I have noted the nearest low volume nodes on the following intermediate term chart.  If sellers can push trade down through 3958.25 then the market likely has done a good job finding sellers on the intermediate term timeframe and we can begin balancing again on this timeframe.  This may not be a welcomed development for the market.  I have also noted my measured move targets to the upside.  These serve more as reference points then specifics, but are upside road signs to gauge the action.  See below:


Therefore, should we see sellers push down and fill the overnight gap, we need to be keying off of Friday’s market profile.  I red starred the VAL at 3958.25.  If we start trading below that level, especially today, then you should take caution on the long side.  I have noted the key levels below:


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Holding Shorts Underwater

Last week’s work is paying off today.  When you put aside the headlines and focus on interpreting the auction you will find yourself much more able to execute.  Traders often struggle with their trading during the summer months for a variety of reasons.  In many ways, summer trade is like the off season and such a break is much deserved and needed.  However, if you push too hard, forcing trades, you might be frustrated when the thin action plays out.

The Nasdaq has been leading thus far this morning, where price gapped up and chopped a tight range before breaking higher.  Although I do not expect a ton a conviction from buyers today, I would still caution shorts with this initiative-type buying occurring.  I highlighted the 3907 price level this morning as a key composite LVN to monitor during today’s trade.  Watch how the market treats this level today as your intraday pivot.  Should we continue sustaining trade above it, then the discovery process is likely to continue higher.


On the day my only action was scaling off a piece of my TNA long.

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Monday Morning Context Read

Quiet morning on the economic front, with our biggest scheduled event being premarket earnings announced by PCLN whose shares are currently trading over 2% lower on a weaker-than-expected Q3 forecast.  The calendar is relatively quiet until Wednesday, however we continue to be in an elevated headline risk environment associated with both Mid East and Russian tensions.

As we head into USA trade, the price of the Nasdaq is set to gap higher.

Turning our attention to the auction, long term participants are bullish to neutral.  Intermediate term players have been neutral-to-bearish since the end of July.  Last Monday we traded back up above 3900 and were unable to find sustained buyers.  Then several times last week, a responsive seller was found just above MCVPOC at 3886.  We are set to open above the 3886 responsive seller near 3900.   The intermediate term timeframe is in balance over 30 sessions after pulling back off the highs.  You can see the intermediate term commentary on the following composite profile:


Risk of a drive higher is elevated today give the gap up and away from a 4 day range.  The drive force becomes even more likely if we sustain trade above 3907, the nearest composite LVN to current prices.

On the contrary, if we open for trade and the market goes on SALE, with a large rejection seller who starts fading the gap, we are returning to a very ugly auction from Friday.  Caution if we sustain trade below 3882 it opens the door to an overnight gap fill down to 3873.75 which puts us on the mouth of a slide zone down to 3867 and Friday’s session had a poor low which too would be vulnerable.  It is context to keep in mind today, this poor structure, especially if we see an aggressive fade.

I have noted the short term levels I will be observing on the following market profile chart:


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One Ugly Auction

Friday’s Nasdaq auction took on an odd formation which in part was news driven.  The profile itself does not provide much short term signal, but it does provide many juicy opportunities if we auction through it early next week.

First off, both price extremes, the high and low, were poorly formed.  Thus if we open for trade inside this range Monday and price action begins pushing toward one the extremes, it is likely to break.  Second, when news of the Russians withdrawing troops they had postured along the Ukrainian border hit the wires price lurched higher leaving a series of single prints on the tape.  This thin area received no auction.  If you look to the left you can see we already spent a significant amount of time deliberating these prices, thus we may not need to auction them again.  However, if price pushes into this slider range from above or below, we are likely to sweep right through it fast.  Finally, all of the action took place inside of Thursday’s range, an inside day.

An inside day is often used to signal indecision because neither the buyers nor the sellers are able to push the price beyond the prior day range.  It may suggest the recent index weakness is coming to an end.

Be sure to tune in Monday morning, when we have more updated prices to template against this profile.


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A Fresh Look at Multiple Timeframe Volume Profile

Nasdaq futures were very illiquid last night and with only slightly above average volume we managed to print over 40 points of range.  It started yesterday evening when a wave of sell flow pushed the market lower.  The timing of the selling loosely correlated with US President Obama approving the use of strategic air strike in Iraq.  There were also so big moves occurring across the Forex complex including the Aussie dollar.  Around 4:30am prices reversed course and quickly auctioned higher and the push managed to take prices up above yesterday’s midpoint.  As we approach US trade we are set to gap a bit higher however prices are on the move, and where we are in a half hour could materially change.

One of the questions we constantly ask ourselves as speculators is, “who is participating in this tape?”  There are day-timeframe and other short term participants or “locals”, intermediate term investors, and long term players, and believe it or not, longer term participants.  Think of locals like car dealers—they only hold inventory for a very short time with the intention of facilitating trade between the long term seller (the auto manufacturer) and the long term buyer (the consumer).  Locals do not have strong drive or commitment to prices, and do not drive directional moves.  Intermediate term participants may extend prices a bit with their position entry because they have a longer term horizon and do not observe short term price levels.  The long term participant will drive through many price levels, moved to act perhaps by a geopolitical event or macroeconomic theory.  When they act, our job as smaller players is to stay out of their way or join their order flow.

This is the essence of timeframe analysis.  The challenge is keeping it all straight in the heat of the trading day which is why I create these morning reports.  However there is always a possibility of a better looking glass or tool for observing the action.  I have been building this new volume profile chart for a few weeks, have a look.  You will notice three sets of volume profiles.  The black outline is the long term composite, the red and blue on the far right is the past six days of trade (the stalemate between a big buyer and a big seller), and finally each daily volume profile.  I have noted the key prices which likely determine the victor of this intermediate term battle, as well as other interesting short term levels:

I have noted short term observations and levels on the following market profile chart:



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Finding The Swing Low

Nasdaq futures caught a bit of a pop this morning right around the time European Central Bank released their rate decision which continues to be in line with expectation.  About half of the fast gains have since been given back, and the sell flow began at 8:30am when ECB’s Draghi began his press conference.  At the same time US Continuing and Initial Jobless Claims were released.  Continuing Claims were worse than expected and Initial Claims better.  The rest of the economic docket is open today aside from a 10:30am Natural Gas report energy traders will want to keep an eye on and Consumer Credit at 3pm.

The intermediate term timeframe is flirting with the idea of going seller controlled.  We are almost developing a pattern of lower highs and lower lows.  To negate this developing process, buyers need to step up and establish a higher high very soon.  If they can hold the LVN at 3865.25 it would be a productive start to the process.  Even if they cannot press up and out today or tomorrow, by simply slowing the action down they would fortify the idea that intermediate term balance is still in place.  I have highlighted key intermediate term price levels below:


Buyers are still on their heels, and without stabilization soon we risk another acceleration of price discovery lower.  The question I constantly ask when the market is working on building a swing low is, “Is the market done finding buyers?”  We saw a sharp responsive buyer off the open yesterday morning and the action saw continuation into the afternoon—initiative buying coming in after the fact.  Once a strong bid is established, this is what we see, the action process goes in the other direction until it is done searching out a seller.  The process forms value.  If the conviction buyer does not show up to defend her responsive buying yesterday morning, that could be a shift in short term sentiment.  I have highlighted the key price levels I will be monitoring early on the following market profile chart:


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Conviction Seller North of 3900

The buyers got a bit ahead of themselves early yesterday afternoon when they pressed prices up through the highs. Once doing so, they uncovered a strong responsive seller who patiently let price come to her and then erased over 20 points of progress in the final 30 minutes of trade lasting from 3:45-4:15pm.  That pulse of selling carried over into the overnight session where the brief pop in prices after weaker-than-expected Chinese PMI data was faded and prices continued drifting lower.  On our economic radar for today’s trade is ISM Non-manufacturing composite at 10am as well as Factory orders at the same time.

The intermediate timeframe is spreading out like discovery is taking place, but as a pile of volume-at-price it still resembles balance.  The balance we can observe dates back to the start of July, has a low slung VPOC just below our current prices, and we are currently muddling through the thick value zone.  I have highlighted the key price levels below which will serve as sign posts as the story unfolds:


You can see the intense indecision on yesterday’s market profile which has long tails on both sides of value.  This is the nature of a neutral day which has a real lack of directional conviction.  I have noted the price levels I will be watching early on below:


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Is The Nasdaq Done Finding Buyers?

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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