The Nasdaq is about to gap up into the week.  Conditions are consolidating and bracketed on the intermediate timeframe and a break away from this zone will require some volume and conviction.  We can see two high volume nodes on the balance with price trading between the two and plenty of unresolved levels inside the toothy profile.  How this resolves will be very telling, although the long term suggests the sellers have a slight edge.  Below you can see the key levels within the intermediate term balance, as well as the bracket extremes:

The short term shows the formation of balance Friday, however we are set to open outside of balance, outside of range which suggests we are opening out of balance.  In this environment the risk of an opening drive in either direction is high.  The gap below should be respected and signs of weakness may suggest the gap fill trade will take hold.  This is even more likely given the fat, high quality distribution below, which we are likely to revisit. See below:

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As I continue to study the opening swings and the behavior that occurs in-and-around the levels what becomes clear is how important the narrative of the tape is to successfully positioning yourself intraday.  The early action in the market is very telling of how the morning is likely to progress.  Also, how we go into New York lunch hour and how we leave the lunch hour are vital to trading the afternoon well.

The key is objectivity in your analysis and that comes from keeping a clear and calm mind. Shifting my swing portfolio to less hands on positions like ETFs and dividend stocks is also key, because even on a quiet day of chop in the Nasdaq, having a position down 12% is a distraction.

There were some very interesting opening swings and tight congestion points this week.  The daily action makes sense given our intermediate term balance.  Below you will see a picture of the intermediate term balance followed by annotated daily auctions.  Enjoy!

INTERMEDIATE TERM BALANCE:

MONDAY:

TUESDAY:

WEDNESDAY:

THURSDAY:

FRIDAY:

 

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The market has been kind enough to reward even the most simple of short trades, like shorting Twitter into lockup expiration.  With this in mind, we should respect the head-and-shoulders pattern forming on the NASDAQ composite over the duration of 2014.  First thing first, sellers need to gain control of the intermediate term.  Right now we are in balance.  See below:

Here is the same volume profile (15 sessions) without bars overlaid.  I have highlighted the key price levels inside our current balance:

The short term auction is seller controlled.  We can see value migrate down after 4-6 days of overlapping.  The sellers struck first.  Yesterday however suggests the action may have been temporary.  Early in the day the profile resembled a lowercase letter-b.  This is long liquidation.  However, the sellers did not demonstrate their usual follow through.  Instead responsive buyers came in and auctioned price up for the rest of the day.

Key today is whether buyers continue responding to these lower prices, or whether sellers begin initiating more selling into the weakness.  I have highlighted these observations, a few scenarios, and important levels on the following market profile charts:

 

 

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The sellers sat back and waited for higher prices this week. Once they had prices they deemed unfair to the upside, they came into the market in droves. Thursday and Friday successfully unwind steady bull progress. However, there is still potential for buyers to turn the market around according to my intermediate timeframe analysis. For now, here are the weekly opening swings and also a week of market profiles. Enjoy:

MONDAY:

TUESDAY:

WEDNESDAY:

THURSDAY:

FRIDAY:

THIS WEEK IN MARKET PROFILE:

 

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Nasdaq futures are quite a bit higher overnight, far outpacing the performance of all other major indices.  As of this writing, we are set to open about 50-to-60 points higher on the /NQ_F futures.  Pre market we had Durable Goods Orders and Jobless Claims which brought more buyers in, however most of the overnight strength is being attributed to earnings.

We are now above the midpoint of my proposed bracket range on the NASDAQ meaning the risk of being long is greater than being short.  At the same time, our intermediate auction continues higher.

These big overnight gaps can often create a frustrating day trade environment.  Risk is elevated because the market is clearly out of balance.  Often it is best to do very little, instead managing existing positions and carefully looking for rotation opportunities into stocks that have not run.

I highlight my primary upside target for the Nasdaq on the following intermediate term volume composite:

I am using a 24-hour market profile this morning since we had so much overnight action.  I want to see the footprint this action left and look for high opportunity levels as well as envision how today’s profile may take shape.  I have highlighted these observations below:

 

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Nasdaq futures traded mostly flat and balanced overnight until some early morning selling pushed us a touch lower.  As a result, the overnight profile shows two distinct volume distributions.  We have Flash PMI data at 9:45 and New Home Sales at 10:00 as well as some major Dow components reporting earnings before the bell.  Perhaps the most sensitive announcements pertaining to the Nasdaq come out after market close today, including earnings from Apple and Facebook.

What I attempt to do with a long term chart is speed read the context of the market long term and use the information for broad strokes of risk analysis.  Essentially, my vision is for the long term auction to come into balanced, bracketed trade.  This is something that has not really happened since mid 2012.  We are roughly above the middle or mean of this bracket, which makes risk of holding longs greater.  This still is occurring inside a very long term uptrend so I give the upside a slight benefit of the doubt:

On the intermediate term, my goal is to determine who is in control and when we may see a new intermediate term change.  Right now the buyers are in control of the intermediate term.  They are pressing prices higher since tax day.  We have come close to exceeding the prior swing high and the possibility exists that buyers can remain in control, further driving prices higher.  However, I took the stance yesterday that we may be nearing another inflection point and I made a few adjustments to my portfolio.  Yet buyers remain in control of the intermediate term swing, see below:

We use the short term auctions to gauge the continuation of the auction, always looking for signs of aging like overlapping value or opposing wicks (responsive selling) or sloppy distributions of volume within the profiles.  Yesterday exhibited strong buyer control but also displayed a few interesting signs.  We formed a P-shaped profile which suggests a short squeeze erupted early on but new, initiative buyers were not strong enough to continue pressing the value higher.  In context, their passiveness in the afternoon makes sense; we made a ton of progress via a gap higher and a strong morning drive.  Buying at this point became difficult.  Yet, we did see some buyers dipping their toes in as another rotation did develop late in the day.  Overall, buyers still in control also by closing out the day near the highs.  This auction is likely to continue higher in the short term, especially if yesterday’s value area low holds as support.  Otherwise, the gap fill trade may kick in.  See below:

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The Nasdaq composite is up slightly overnight on a balanced session of trade. One of the economic releases I will be watching today is the 10am Existing Home Sales and whether it stimulates trade in my shares of Zillow.  There are no other major economic reports out today, but we do have a slew of earnings on tap in the coming days which may materially affect the manner in which the NASDAQ trades.

The long term auction is in the process of balancing via a bracketed trade.  My goal in these conditions is to locate bracket extremes as well as the midpoint and base my risk around these parameters.  Currently I estimate we are below the midpoint but far enough away from bracket lows to justify reducing risk a bit.  As this balance progresses, the parameters will become more clear.  This process is more art than science.

The intermediate term swing trade is buyer controlled.  I decided to change my interpretation of the intermediate term timeframe recently.  The intermediate timeframe is not something I measure in time, but rather by the swing trade occurring.  Buyers control the current swing but are tasked with either printing a higher low, a higher high, or both.  Thus even through the control the current swing, their control is still in question.  See below:

The short term auction is buyer controlled.  We are seeing their force abate slightly as value begins to overlap.  However buyer participants came into Monday seeking lower prices and when they saw a perceived discount they snapped it up.  Look at the strong responsive buying tail we printed yesterday as well as the follow though initiating buyers who closed us near the high of the session.  This is a solid example of a buyer controlled market profile:

 

 

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As we enter the thick of earning’s season, it becomes more important than ever to not lose sight of both the big picture and the intricate short term picture which develops before us.  Overnight we saw an upward move Sunday evening which gave way to balanced, two-way trade overnight and into the morning.  As the USA comes online, we are seeing sellers creep onto the tape.

The long term auction is very interesting this week as we can see a notable change taking place.  For quite some time, it appeared the long term auction was buyer controlled where it now appears balance has taken hold.  Research shows the markets spend more than half their time in balance thus one must expect such an environment to return often.  The question is whether buyers can build upon last week’s responsive buying.  To me, it is not so important that these recent lows hold, but instead that we see equal force being applied on the market by both buyers and sellers.  Here’s the current long term auction:

On the intermediate timeframe, we can see volume totally dried up when we made new annual lows last week.  Speculators often look for explosive, high volume type action to confirm a swing high or low when really the exact opposite occurs at these levels.  What happens movement in the direction of the trend stops bringing new participation in.  In this case, sellers were not motivated to act by the new lows.  Instead we saw a buy response which was equally as strong as the selling move down.  Thus began an intermediate term swing higher:

I am using my EMAs as well as the very low volume node just a tick above the very round 3500 price level as my intermediate term pivot this week.

The short term shows buyer control.  Value is migrating higher without much overlap and the profiles are showing healthy auction activity on both sides.  Whether this clean auction continues through an important week of earnings will be telling for the weeks to come.  See below:

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We continue to observe the Nasdaq opening swing over here.  As always, your thoughts are appreciated because the more we discuss, the more we learn.  Thank you Zen for writing an anecdote of sorts last week.

Some notes, less noise.  Have a look:

MONDAY

 

TUESDAY:

 

WEDNESDAY:

 

 

THURSDAY:

 

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Nasdaq futures were set to drift lower overnight after some mixed afterhours trade in Google and IBM added a layer of uncertainty into the trading environment.  Drift lower they did until about 7am when a low volume ramp higher occurred.  Since then we had jobless claims which was received initially with a push higher.  We are currently trading inside balance and inside range from yesterday which suggests a lower risk/reward environment.

The intermediate term auction is interesting.  Sellers came in where I expected yesterday, which was a patch of low volume nodes on the composite profile.  Their response was perhaps exaggerated a bit by the afterhours earnings which kicked off the selling.  Sellers still retain control on the intermediate term, but the most recent swing bounce has been the sharpest yet which leads me to wonder if the velocity will be enough to get us higher.  Above yesterday’s high we begin to enter a zone of fast trade.  First let’s observe the intermediate term trend:

Now we can increase the magnification and observe the short term auctions.  Tax day, 04/15, we printed an outside day where price exceeded both the high and low of the prior day.  In this case, it was actually the prior two days.  Yesterday confirmed the outside day by migrating value higher.  These two bits of context tell me buyers control the short term auction.  Volumes are lower given the holiday climate, but you can still see a clear distribution formed yesterday.  One subtle footprint however is a spike of volume near the highs.  Normally we would expect to see volume thin out at the extremes—if we are in balance.  This suggests increasing prices facilitated more trade and that an imbalance may exists.  I have highlighted this occurrence a few other observations on the following market profile chart:

 

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