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Tag Archives: $NQ_F

Opening Swing: Third Edition

Opening Swing is an ongoing series where we review the opening swing for each day of trade in the NASDAQ futures and the effect these price levels demonstrate on the subsequent price action.  We also look at tradable opportunities and discuss the risks involved with these trades.

The opening swing is the price range established right after the market opens.  There are orders called Market On Open (MOO) orders which execute when the market opens.  The opening swing is not timed, but rather the push in either direction from these orders.

I began writing this series at a very interesting time in the market.  Many of the traders I respect and follow foreshadowed 2014 to be a year of increased volatility and as soon as it hit in mid January I began formulating thoughts and testing strategies to capitalize on the wider ranges volatility offers.  I chose to focus on the NASDAQ because it offers a wider range to trade then the S&P and also by monitoring the index I have an indication of the pressures existing on most of the stocks I trade.

Most of my notes this week are embedded in the images, so click through them to see some very interesting market activity in and around the opening swing.  There were some fantastic tradable opportunities this week.  As always, do not hesitate to discuss these strategies and share any inputs you may have.

For additional insight into the overall context from each day you can review my morning context reports.












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Nearing a Potential Inflection Point

We began seeing sellers abate yesterday after they gave the marketplace a solid push at the opening bell.  Their activity early in the day was dynamic enough to print a very wide initial balance, but as the day progressed we saw their control give way to balanced, two-way trade.  This type of market profile print is referred to as a Normal day although the name is misleading as these types of sessions are more an exception to the rules.  A normal day lacks any real directional conviction and often shows up near inflection points.  We can see the short term coming into balance on the following market profile chart:


The intermediate term auction is seller controlled however, which leads warrants caution until balance can be achieved at the least.  I covered my hedge early yesterday into what I deemed price becoming extended to the downside.  However markets can certainly continue to press their momentum both directions.  I have highlighted the key downside levels on the following volume profile chart:


The long term auction is still buyer controlled.  It is damaged.  The trend is not as clean cut as we have seen for many months, but the pattern of higher highs and higher lows is still in place.  And we are nearing one of my favorite reference points, see below:


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Settling Unfinished Business

Sellers gained quite a bit of confidence yesterday.  The day started with responsive selling into the overnight strength which morphed into initiating selling for the rest of the day.  The session ended up printing a new swing low and solidified the seller control on the intermediate term timeframe.

The long term timeframe is still buyer controlled in the NASDAQ composite even through this selling.  This can be seen as a series of higher highs and lows on the weekly chart.  We are watching the market follow through this week on an outside candle print two weeks back.  The outside candle print often occurs near inflection points.

The intermediate term is seller controlled.  I had to rebuild my volume profile back to November 25th to get all the data needed for a proper composite profile representation.  I have highlighted some key levels and observations on the following intermediate term volume profile chart:


The short term auction is seller controlled.  Value is being pushed lower and prices are testing lower into areas of unfinished business (naked VPOCs).  I have highlighted the key levels I will be watching today, as well as a few scenarios on the following market profile chart:


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Sellers Abate as Balance Takes Shape

NASDAQ futures are higher overnight and we are currently priced to open inside of yesterday’s range but outside of value which presents an elevated potential for big intraday moves.  The overnight profile is also interesting because it shows no real consensus on value.  Instead we have a toothy profile with buyers pushing higher.

Price traversed through the volume cave which delineates where our upper-most intermediate term balance zone exists.  We are currently trading just above it which creates the potential opportunity for an overnight gap fill more possible and rapid due to the low volume structure beneath our current pricing.  The intermediate term is seller controlled but showing signs of balancing.  Yesterday morning sellers were unable to press to new lows verses Monday.  Instead we stabilized at a low volume node just above the Monday low and reversed higher.  Sellers need to prevent acceptance of trade above 3645.75 to sustain their control of the intermediate term. The long term auction is still buyer controlled as seen on a daily chart.  I have highlighted this key price level and the volume cave below on the following volume profile chart:


The short term auction is out of balance and buyer controlled.  This can be seen as value migrating higher.  Buyers need to make a new high above 3645.75 (overnight high) to firm up their control in the short term.  I have highlighted this level and a few potential scenarios on the following market profile chart:


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Day Trader Environment

The NASDAQ futures are higher overnight, drifting quietly through the globex session after buyers put together a decent bounce yesterday afternoon.  As the USA comes online, prices are currently trading just above the afternoon swing high.

The long term auction taking place in the NASDAQ composite has become an interesting picture.  On one hand, the weekly chart is very much still in buyer control.  The series of higher highs and lows is still intact.  Yet the weekly chart offers us a bit of contex that we continue to watch develop. Three weeks back it printed an outside candle and this week has the potential to confirm it to the downside.  Of course, this is very early speculation since we have only seen one trading day, but something to keep in mind nonetheless.  The daily chart suggests buyers are still in control but with a more confident seller pressing down below recent support.  We have not seen a swing low support broken since late January.  In that instance the market quickly V-shape recovered, should one expect the same outcome again?

The intermediate term auction is seller controlled.  This can be seen as a series of lower highs and lower lows.  The sellers also pressed us out of the intermediate term balanced volume profile.  There now exists a large void in volume where the lower end of balance once existed.  It would not surprise me if price were to traverse this area several times the next time we come to it before the market ultimately decides which side of the cave it wants to trade on.  I have highlighted this volume cave and some other interesting observations on the following volume profile chart:


The short term auction is buyer controlled.  We saw responsive buying yesterday afternoon which resulted in some tail prints which demonstrate strong demand.  When the NASDAQ came into the bell while forming balance and that profile print has a long tail on it also.  There exists a stronger potential for an opening drive this morning for two reasons.  First, the market is currently trading only a few points below the volume cave highlighted above (intermediate term).  Second the market profile prints are single prints like a zipper, and prices tend to run right up these.  Thus, any aggressive attempts to fade early strength are at an elevated risk of a drive.  Otherwise,  we have a solid profile structure to trade against below us.  The play would be to short into any early overbought positions and target an overnight gap fill.  If price trades inside of the prior value for an hour, find another entry onto the short side to trade through value to the VPOC and then the VAL.  I have highlighted this trade as well as a few other observations on the following market profile chart:



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If Balance, Then Buying Opportunity, Else Caution

Futures are slightly up through the globex session despite my twittersphere erupting with hubris over the China PMI data that came out last night.  I never view the futures after the market closes because I do not trade during these hours and usually someone else will talk about them sufficiently.  To me, the equity index futures really only make sense when the underlying instruments they track are also trading, especially in our current environment, the “market of stocks”.

Taking to the NASDAQ, the long term picture is interesting as we can still see buyers in control of the auction.  The weekly chart printed an outside candle two weeks back which is a candlestick pattern which tends to develop near inflection points.  It is important to wait for confirmation of this type of candle before adding credence to it.

The long term auction as viewed on a daily chart of the NASDAQ composite is in buyer control.  Sellers can shift the long term into balance by sustaining trade below the lows printed two Fridays ago, March 14th.  If they are able to complete this feat, it would put the long term auction into balance.  Until then, we are still in buyer control on the long term.

The intermediate term is balanced with an edge to the sellers.  The potential exists for another revision trade back to the midpoint of the maturing intermediate term balance we have been watching which dates back to February 13th.  The VPOC of our balance still sits well above the midpoint which suggests the market has not yet accepted the lower end of intermediate term balance as fair.  Sellers gain the slight edge because of the speed with which we have seen the market trade.  This fast environment creates anxiety which can result in liquidation.  If we are to stay in balance, then the market needs to not spend too much time below 3645.75 today.  I have highlighted the key levels pertaining to the intermediate term on the following volume profile chart:


The short term auction is balanced.  After the afternoon selling Friday the market came into balance and the action carried through into the overnight session last night.  We are currently priced to open inside of Friday’s range in a thin volume area.  This may result in some fast action early on.  I have highlighted the price levels I find most interesting, as well as envisioned a few scenarios on the following market profile chart:


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Building Energy

The NASDAQ drifted higher overnight and price is currently trading outside of yesterday’s range.  In terms of potential for a wide range/volatile day, this is as elevated a condition as the market can offer.  Today is also option expiration which can really result in some unique auction activity.  However it is ultimately order flow that dictates the direction of the market inside the day timeframe and we should be keen in our observance of it.

The long term auction continues to show buyer control.  We tested recent lows last Friday and gapped when we came back to market Monday morning.  We have held that gap higher all week.  We need to keep this gap in mind because often these gaps get filled, settling unfinished business if you will, before the market continues elsewhere.  Overall though, the market continues to find a bid on the long term timeframe and continues to auction higher.

The intermediate timeframe is balancing.  Tuesday buyers were able to quell the price action which up unto Tuesday suggested sellers were in control of the intermediate term auction.  After we trended higher Tuesday, we saw the late-afternoon selloff Wednesday (Yellen) which was met almost immediately with a strong buying response.   This can be seen as long tails on the candles suggesting dynamic responsive buying.  Since then we have consolidated and coiled right in the middle of intermediate term balance.  The market is building energy for its next move with a very clean auction into value.  I have highlighted our current balance and a few other observations on the following volume profile composite:

The short term auction is buyer controlled.  This can be seen as value drifting higher over the last few market profile distributions.  The overnight action in particular shows buyer control as it presses value up into the top of Tuesday’s action which marked the high point thus far on the week.  The key for buyers is to press above 3711 and gain acceptance above the level.  That could be the progress needed to invigorate initiating buys in the afternoon.  Otherwise we may see more backing and filling as intermediate term players continue to slug it out.  I have highlighted a few key price levels and observations on the following market profile chart:


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The Discovery Process

Yesterday we saw the effects of overhead supply and how sometimes the weight of said supply becomes too great and liquidation ensues.  Many a market commenter will cite the Fed meeting as the reason for the move, but an understanding of the auction and balancing process yields the potential directional bias of the market.  An event such as the Fed simply accelerates the process of price discovery.

The long term auction continues being controlled by the buyer.  This can be seen clearly on a weekly chart of the NASDAQ Composite index which shows a pattern of higher highs and higher lows dating back to October 2011.  The daily chart suggests a similar buyer control with prices continuing to hold their recent low around 4200.

The intermediate term auction is in balance.  When we sold off yesterday afternoon, the market was able to find a higher low.  Responsive buying down inside Monday’s range was forceful enough to reverse the directional liquidation occurring.  Price eventually settled near where we hypothesized value to be yesterday morning, 3678.25.  I have highlighted the inflection points which resulted in the market coming into balance, as well as a few key action price points on the following volume profile composite:


The short term auction is in balance.  I have traced the movement of value since Monday and you can see it drifting and consolidating much like a sine wave with increasing frequency.  Sticking with Monday, 3/17, we left behind a naked VPOC at 3644.50.  This level may be targeted by sellers today should we see any follow through by them.  Overall my expectation is for the market to chop about and settle a bit early on before deciding on a direction.  I have highlighted a few levels I will be watching today as well as a few scenarios on the following market profile chart:

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Mean Revision

NASDAQ futures are currently trading just above the high print on yesterday’s trade in an overnight session in a relatively quiet and balanced overnight session.  The first test above yesterday’s high occurred early this morning and found responsive selling by price since stabilized and is holding the high water mark.

We printed a trend day yesterday which started with a strong opening drive and continued making successful auctions higher for most of the day.  Once a trend day is recognized, a consistently profitable play is to find a place to get a trade on in the direction of the trend and hold the position into the following session.  That is because any entry during a trend day offers a near risk free entry into the following session meaning, at some point in the following session price will trade beyond the direction of the range of the trend.

The short term auction is buyer controlled.  This can be seen in the migration of value back higher and the buying tail present on our current profile.  As we approach the cash open, price action has stabilized near yesterday’s highs and is coiled tight.  It appears the market is waiting for news of catalyst before deciding short term direction.  We have an FOMC meeting this afternoon which may be what has the market on pause.  I have highlighted a few scenarios for this morning as well as interesting levels on the following market profile chart:

The intermediate term auction is back in balance.  The sellers were quick to lose control of the intermediate term.  Yesterday morning it appeared they may sustain control by holding Monday’s high and printing another lower high.  However and entrance by the long term participant drove price through most areas of resistance and reverted price back to the mean or volume point of control at 3699 (or 3700 if you prefer round numbers).  Price and value always converge it is just a matter of how they do so.  In this case, price reverted back to value and not the other way around.  This suggests the current value of the NASDAQ is perceived as about 3700 by buyers and they were aggressive buyers until the level was reached.  This begs the question then, why did I begin shorting the index yesterday?  My hypothesis is that value is actually a bit lower, more around 3678.25.  Therefore I want to participate in the discovery process by selling into this two day rally.  I have highlighted the intermediate term balance on the following volume composite chart:


Even though I am confident in my short and willing to add to it upon further strength, I realize the long term auction still favors they buyer.  Thus this trade carries a lower probability then a mean reversion long trade.  I am willing to cut this loss if price is accepted above   ~3715.

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Respect The Seller

Index futures are higher overnight after briefly taking out yesterday’s low late last night.   Yesterday the low of the day was printed within a few minutes of the cash markets opening for trade at 9:30am when an opening drive erupted.   The opening drive gives us a sense of the responsive buying demand that exists down at these bracket lows, and it gives merit to the idea that the intermediate term may sustain balance.

The long term auction in the NASDAQ Composite shows control by the buyer.  This control can be seen as a series of higher lows and higher highs on the weekly price chart.  Two weeks ago, we printed an outside candle on the weekly candle which is yet to confirm as a reversal candle lower.  We need to see follow through downward before considering the potential for a reversal on this long term timeframe.

On the daily chart, the auction is still buyer controlled after their success in holding the support at 4250 from Friday-to-Monday.  We are closely watching for the next leg higher to make new highs, otherwise the recent support becomes vulnerable.

The intermediate timeframe auction is seller controlled.  Their control can be seen dating back to March 7th when a series of lower highs and lows began to print.  We briefly breached intermediate term bracket lows on Friday before gapping back into the balanced bracket price yesterday.  The key here is to not be stubborn, and if the market succeeds in printing a lower high to consider the intermediate term to be back in balance.  Note how the low volume node at 3668.50 was converted into resistance with relative ease by the sellers.  For now, we remain seller controlled.  I have highlighted the intermediate term auction on the following volume profile chart:

The short term timeframe is interesting.  Yesterday’s opening drive produced a wide initial balance.  So wide in fact we never breached it for the rest of the session.  This is called a normal day and they are anything but.  Normal days show a lack of directional conviction by both parties to the auction.  However, in not losing sight of the intermediate term, it was clear the up move was likely to fade.  Couple yesterday’s afternoon fade with the overnight action and you can see we are balanced and indecisive in the short term.  I expect some chop early on today as we deal with the imbalance of the overnight session after yesterday which was a relatively big up day.  I have highlighted a few scenarios and the levels I will be watching on the following market profile chart:



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