Nasdaq futures are lower overnight, currently trade is down nearly 20 handles off Thursday’s close.  Selling activity picked up early this morning around 6:30am.  We are currently trading right around yesterday’s value area low meaning we are set to open inside range, potentially inside balance which suggests the market is coming into balance.

The weekly candle will give us a ton of information this afternoon as we get to see whether price will struggle at the midpoint of my proposed bracket range or if we have enough power to continue higher and set the other extreme.

The intermediate term auction is buyer controlled and working on continuing higher after printing a higher low yesterday.  I have highlighted the intermediate term on the following volume profile composite:

The short term auction is a rare spectacle of balance.  We printed a neutral print with price never exceeding the initial balance.  This happens less than 3% of the time over the last 3 years of data.  It shows indecision on the part of buyers and sellers.  We can see a volume skew to the upside plus a close near the value area high which suggested just a slight bit of buyer conviction.  However, the next accepted move away from here will be the important one.  For now, the short term is in balance:

 

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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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NASDAQ futures worked higher overnight building upon the afternoon strength buyers were able to muster.  The responsive buying ignited soon after price took out the year-to-dates lows on the /NQ contract.  Instead of the new lows bringing more sellers into the marketplace, we saw volume dry up at the levels and then a sharp response from buyers.  The bounce that materialized has the potent look of a durable swing low for the next few trading days.

The long term auction has been disrupted after being controlled by the buyer for over a year.  Today the picture of the NASDAQ composite has changed a bit.  I perceive the long term auction as in balance which dates back to November 11^th, or 11/11/13.  I do not choose these dates at random but instead observe the past market activity and how it relates to our newly revealed information.  My largest moving average (99EMA) is starting to turn lower on the daily chart but we do not have clear alignment of the moving averages which would add to a case for seller control.

I have built the intermediate composite volume profile to span from 11/11 to today so we can observe the volume taking place inside the auction.  It is hard to see, but 3515.25 is the volume point of control or the largest tip on the profile.  These are prices that both buyers and sellers consider fair and we conduct large amounts of trade at.  My goal currently is to sell some of my swing long exposure above this level.  Intraday, if I see price building acceptance above this level then I will look to trade a long beyond it.  I have highlighted this level was well as my swing trade targets on the following intermediate term profile:

The short term auction shows buyers with a strong response.  They need to build on it and yesterday they accomplished a response with the potential to be build upon with some initiating buying.  However, should they be overwhelmed with supply price could reject back down into three days of overlapping value.  Standing between sellers goals is a very interesting low volume node at 3485.50 which is also in confluence with several value area highs.  This level is my key pivot intraday between long and short bias, until a level more influential materializes.  Buyers show us gaining acceptance into the upper profile which has prices up to around 3545:

 

We have jobless claims at 8:30am which could have a material effect on the picture we see coming into the open.  We also have Philadelphia Fed announcement around 10am to be aware of.

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It has been a busy morning in the futures market as premarket participants digest CPI data as Janet Yellen prepares to speak.  The reaction thus far to a slight uptick in CPI was a pop and fade.

The intermediate term auction continues to appear seller controlled with swing trades showing a series of lower highs and lows.  The question now is whether market supply will continue driving prices down on the intermediate term, or if instead price will stabilize and revert to the mean.   There is data supporting the latter outcome and that my expectation.  However, I respect the trend playing out on the intermediate term and must be willing to shift my stance should my expectation not occur.  I would not change this vision of a bracketed trading range developing if we took out our recent swing lows, but it would be a progressive step.

On the day timeframe auction, little changed between Friday and Monday.  We printed an inside day where our daily range was within the range of Friday and we also printed a neutral day with range extension to both sides of the initial balance.  Both of these characteristics suggest indecision on the part of buyers and sellers.  We printed an excess low yesterday which suggests we may see some follow through by swing buyers today.  I have highlighted this excess low as well as a few other observations on the following regular trading hours NASDAQ market profile:

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We have some early strength in the NASDAQ index futures.  The question on everyone’s mind this morning is whether we will see the early weakness get faded by strong sell flow or whether the higher advertised prices encourage buyers to enter the marketplace.  The former has been more prevalent for the last two to three weeks.

For today’s presentation of the intermediate timeframe, I chose to build out the volume profile based upon the 72 trading sessions completed thus far this year.  From the volume profile emerges some unique clues into whether the intermediate term is balanced or readying to explore lower for value.  The pattern of lower highs and lows gives sellers a clear momentum edge on the intermediate timeframe, but what is volume suggesting about value?  We do show some consensus of value around 3550 which you will notice is below the midpoint of our annual profile.  This suggests value has built lower and adds support to the idea of a continued migration lower.  However we do show a semblance of the bell curve too which makes the mean revision trade still a viable thought, although one which needs to engage sooner than later.  Also, any bounce which materializes much be carefully observed verses the very low volume node at 3580.  If price cannot gain acceptance above this level we would further expect price to continue lower.  I have highlighted these observations and a few others on the following annual volume profile distribution:

The short term auction suggests buyers have an edge this morning.  We had a rather thorough auction during our globex session which built an excess low which can be seen as a thin tail below the profile.  This suggests responsive buying and sellers drying up.  As the USA comes online we are seeing the large value area from Friday gain acceptance via volume building higher on our current profile.  This creates the expectation for trade through Friday’s value.  I have highlighted Friday’s value area and the key levels inside of it on the following market profile chart:

Taking our attention out to the long term we can see the buyers no longer clearly in control of the long term auction according to the daily chart.  We are trading below our moving averages which are flat at best and some moving lower.  We are still above February lows and we may see a balanced, bracketed trading range form.  Overall the long term auction is in balance until we take out the February lows.

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