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Tag Archives: $QQQ

Friday Before a New Month

Nasdaq futures are currently down just about 5 points during an overnight session which featured more sellers than buyers but overall printed a balanced session.  There were several economic data points out of the UK and Europe early this morning including UK GDP YoY which came in just a tad below expectations (3% actual, 3.1% expected) and German CPI which was in line with expectations.  During our hours of trade, we only have the U of M Consumer Confidence report at 9:55am.

Yesterday we [nearly] printed a Normal day during the regular trading hours.  The range actually extended past the initial balance by a single tick during the final 15 minutes of the pit session after the stock market closed.  Normal days lack the directional conviction of other market profile formations.  It started with a strong responsive selling drive which may have been prompted by some unexpected news early on.  The action was contained within the prior day’s range and a two-way auction ensued which eventually gave way to buyers pressing to the high by closing bell.  The net effect was slightly higher prices and value, and a clear “crime scene” or low volume node which separates  where buyers and sellers gain short term control.  See below:

The same price level shows up on our composite profile which encompasses all the price action during our swing trade:


Lacking directional conviction makes sense given the bigger picture.  The Nasdaq is coming to terms with swing highs and the market is simply a mechanism for participants to exchange contracts based upon their perceived value of the Nasdaq.  You can imagine many participants are active at these price extremes because the proximity to prior inflection points demands the attention of all timeframes.

Keep in mind, we start a new month Tuesday, the market has shown headline sensitivity regarding Iraq, and 4th of July is one week away.  We may enter a holiday drift.  However these are not price levels where you want to become complacent.

On the short term, I have observed a few key price levels and market profile features:


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Restoring Balance

The markets constantly shift from a state of balance to imbalance and back into balance.  This behavior is a result of the open marketplace and how buyers and sellers come to an agreement on where the value of a security is.  The key is knowing which timeframes are in balance, which are not, and who is likely to be participating in the marketplace given the conditions.

With the Nasdaq trading near annual highs it is reasonable to expect most participants are active in the market to some degree.  Right now the intermediate term is out of balance.  Even though price re-trended higher yesterday, we never saw value shift higher.  In fact, our VPOC stayed pinned back where the prior consolidation was.  The price action was impressive from the bulls but they are now tasked with proving their grit by sustaining this move and pressing value higher.  I have highlighted some of the interesting intermediate term levels below, including the “crime scene” where the rally-breakdown-rally seems to gather steam:


Short term we are out of balance on the RTH profiles.  It takes some chopping to see the auction properly but value is indeed moving higher.  Overnight we printed a very balanced session, see below:


US personal spending came in below expectations and consumption expenditures were in line during the 8:30am announcement.  We have Fed’s Bullard speaking in New York at 1:05 PM and some afternoon treasury auctions.  There is also a natural gas report at 10:30am.

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On Guard for False Move Ramifications

The logic behind a false move can be a bit complicated.  The market breaks out higher after a period of consolidation and spends several periods facilitating trade well in the direction of the breakout.  The auction is going well and the expected effect is for higher prices to entice new buyers into the marketplace and to continue probing higher to incentivize sellers to come in.  Once sellers have become incentivized, there is a reasonable expectation that we might see trapped shorts begin to cover on the pullback thus creating demand.  There is also a likelihood for participants who missed the move to eagerly participate on the pullback.  That was not the case yesterday which is why we use words like “might” and “likely” and “probable” and “could” avoiding absolutes and accepting that anything can and will happen in the marketplace.

Instead we reversed the entire move and price was thrown back to the scene of the breakout only a few short hours later.  This is not normal and can produce some unexpected effects.  Longs initiated during the rally are negative, some longs initiated during the consolidating building up to the rally are negative while others are flat, and shorts initiated on the way down have the confidence of a bearish candle print.  Sellers might take this opportunity to press into the vulnerability of the longs thus producing a liquidation, and there is profile context which will signal to us where this will occur.

I will only present the regular trading hour market profile for the Nasdaq this morning because I want you to actually enlarge this file and think about why and where it makes sense to expect liquidation to take hold.  These are the levels I will be observing today:


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Holding Balance

The Nasdaq continues to experience balanced conditions in the short term.  Early this morning we saw a wave of selling come through the market right around 4:30am when we had some speakers in London as well as UK loans for home purchases data which came in better than expected.  The selling found responsive buying just below our low of the session yesterday and we quickly snapped back to the other side of balance.  As we come into the USA cash session futures are currently up just over one point.

The economic docket for today shows Cash-Shiller home price index at 9am followed by New Home Sales and Consumer Confidence at 10.  We have some treasury auctions taking place at 11:30am and Fed speaker William Dudley at 2pm.

The overnight profile has changed form slightly, the shelf which I was keen on yesterday was disrupted overnight and as a result we now have a more balanced-looking profile.  The spill over the shelf last night carries a bit of expectation for accelerated prices to the downside.  Thus, seeing a responsive buyer eager to purchase at a perceived discount gives buyers a bit of conviction here.  There is not much need to observe the overnight profile, more important is to observe any price action if we trade below the overnight low at 3783.75.  Should we revisit this level and not see a similar response from buyers that might reveal a change in the context of buyer conviction.

Below I present the daily market profile first before then after splitting and manipulating the distributions.  Yesterday was a neutral print with a slight upside bias which suggests a decent amount of conviction on the part of the buyers, especially since their range extension was the second one and they defended the move back to the mean.  The second chart gives us clear short term levels to work with today:



Buyers are in a position in the intermediate term to drive higher.  If they cannot however, this entire upper distribution might be called into question by the market and a sharp rejection candle lower may be the final result.  Keep that in mind as the week progresses because sometimes we glean much insight from the market when it does not behave as we expect at certain junctures.


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Opening Swings: Less Noise

I migrated to a renko chart this week.  I have been observing the renko alongside my minute chart for several weeks, seeking to locate consolidation patterns on the renko when I liked where the minute chart was.  The more I thought about it, and back tested, I noticed I could eliminate the minute chart entirely.  I have talked to several traders who scalp from minute charts, and several who are still recuperating their losses.  Unless you are a thoroughbred scalper, you may want to focus on finding 2-3 spots per session to work from.  With that in mind, the renko is great.  You need to tweak the inputs a bit and observe and backtest the size of the bars to fit the market you trade, but once you do the consolidations can be seen with less noise.

I present the opening swings this week on renko charts.  Because they are not time dependent, I have noted the globex/cash sessions.  I have noted other key observations as well.  And finally below is a snapshot of the entire week’s auction.












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Hot Pocket

Yesterday morning we tested higher early in the session and found responsive selling early.  The action followed through for much of the day until we reached the value area high from Wednesday’s initial distribution.  If you recall, Wednesday traded like two different sessions, thus it made sense to split the distributions in market profile.  The resulting market profile print from yesterday is a normal variation which ended near the middle but lower than Wednesday’s close.

The USA economic calendar is quiet on this Quad Witching Friday, however Canada is releasing the CPI information at 8:30am and we also have Euro-Zone Consumer Confidence at 10am.

The overnight profile is squatted with no clear balance forming.  We however form a shelf at 3784.75, only one tick above the slippery pocket spanning from 3784.50 – 3780 on the intermediate timeframe.  This small pocket is critical in the short term because it separates price from the uppermost auction distribution and the below balance region.  Even more important, sustaining the prices shows the market accepts the Fed rally.  Otherwise, if we drop back down into the balance just below, the entire context is called into question, and the toothy thin zone below our most recent balance becomes a tasty target for short sellers.  I have highlighted this intermediate term structure below:


With that intermediate term context in mind, let’s put our eyes on the short term and find out where we can best gauge price action intraday.  These levels are a bit more subtle to spot today by simply looking at the distributed profile, but when I split it open and observe some of the key characteristics of yesterday’s trade, the relevant levels jump right out.  Use these levels early on today as your sign posts:


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Looking at The Structure Across All Timeframes

The Nasdaq futures are trading a touch higher overnight in a session which printed a quiet, slightly imbalanced market profile.  Initial Jobless Claims and Continuing Claims came in worse than expected at 8:30am but we saw no reaction from the market after the news.  We have Philadelphia Fed at 10 am, and the Natural Gas report at 10:30am which may affect any energy trades.

Yesterday reads like two different sessions on the market profile.  There was the normal variation session before FOMC, and the trend day after the session.  Our expectation after a trend day is that we are likely to see balance near the upper end of the trend NQ_marketprofile_06192014

Taking our eyes out to the long term, I want to point out two items.  First, we are trading near prior swing highs.  We are coming into prior swing highs with strong buyer thrust.  How we handle these prices will be very telling going into summer.  On the second chart, I have plotted monthly profiles to exhibit the lack of structure behind our most recent upward move.  This is a caveat to the recent upward action, something I keep in the back of my mind but always consider.  See below



Finally, and perhaps the most pertinent to swing trades (2-12 days) is the intermediate term auction.  Prices are back inside the uppermost distribution of action.  Buyers need to sustain trade above 3784.50 to keep us from a harsh revisit of our prior balance.  Sustaining trade above this level would be constructive and suggest the strong initiative force which drove us from this balance on 06/12 has changed, as has sentiment.  See below:



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All The Context You Need Heading into a Fed Afternoon

The Nasdaq futures are quiet overnight, up a few points as the financial participants hold their collective breath ahead of this afternoon’s Fed proceedings.  The market expects $15B pace in MBS purchases, $20B pace in Treasury purchases, $35B in QE.  We also our rate decision (0.25% forecast) and Janet Yellen press conference at 2:30.

With OPEX this Friday, and the Fed itinerary, the rest of this week is not an environment to be complacent in.  There is likely to be other timeframe participants through the rest of the week, and knowing the key price levels and observing the market behavior is important for knowing exactly the type of context we are trading in.

On the intermediate timeframe, we are balanced just below our uppermost distribution.  Three attempts have been made to breach the threshold separating our current bracketed trade from the uppermost distribution and each time we have found responsive selling at the resistance.  Below, and nearly 40 Nasdaq points away, is a base which formed during the end of May and into June before we rallied.  The VPOC of this entire composite still resides in this bottommost distribution and the structure below is thin and toothy.  If sellers can initiate order flow below 3754.75, then we are likely to see a test of this base before we go elsewhere in the auction.  See below:


If you look at the 24-hour globex profiles, you can see the long duration of time we have spent in balance.  The older these balances become, the more likely it is they break.  The key is monitoring the action near the extremes of value and whether we are making a clean break.  See below:


Taking our attention to the short term, we can see value continues to overlap but move higher over the last four distributions.  Yesterday’s auction formed a much cleaner distribution than Monday, thus we should monitor today’s action verses the value area that formed.  A clean move away from this value may be an early indication of where the market is headed over the coming days.  See below:


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Sellers Showing Their Hand

Nasdaq futures sold off 10 points just after the 8:30am release of stronger than expected Consumer Price Index numbers.  The futures had initially drifted higher overnight to take out yesterday’s high and the action made sense when you view our price action in yesterday’s regular trading hours.  There is not much else on today’s economic agenda.  We have headline sensitivity to issues surrounding Iraq, the World Cup is in full swing after the USA narrowly escaped with a victory over Ghana, and we have FOMC announcements up tomorrow.

Yesterday we printed a Normal Variation Day which structurally has a wide initial balance followed by a range extension from the initial balance.  It is as if the other timeframe participant has watched the early action of the auction and decided with conviction to make an aggressive entrance into the market.  Yesterday, we traded higher for the first hour of trade until responsive sellers made an aggressive entrance into the market which subsequently extended our range lower.

The quirk of yesterday’s Normal Variation print is these types of profiles usually establish value lower.  That was not the case however yesterday, as the remainder of the day behaved more like a neutral day, where we saw the selling move faded back to the midpoint of the session.  After that occurred, the market returned to a one timeframe, local-to-local chop.  Logically, we drifted higher overnight, pressing into the other timeframe seller (OTF) from yesterday.

If we take a look at the intermediate term, we can see the overhead supply which we bumped into, which makes the responsive selling make much more sense.  We traded into our uppermost balance region and finding sellers up there was a very logical expectation.  As the market continues trading in balance, we may test lower to see if buyers in the lower balance/base possess the same conviction they had prior to lifting prices.  Overall, we are in balance with well defined regions to trade/form intermediate term bias from, see below:

Bringing our eyes in a bit closer, we can see there was no clear value area yesterday during trade.  It almost suggests imbalance.  And although we saw the aggressive entrance from an OTF seller, we expect their behavior to press balance lower.  The net effect of yesterday’s action was higher prices and a higher VPOC, although the lack of value suggests an imbalance exists on the short term.  If the sellers do not take control early on, we could set up a squeeze.


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Trading in The Fast Zone

Nasdaq futures opened to a sharp drive lower Sunday evening before finding a bid slightly below our Friday lows.  The market then drifted a bit higher for the rest of the session and we are currently priced about 10 handles below Friday close.  We have the Empire State Manufacturing Survey at 8:30 which could change prices ahead of the bell.  We also have Industrial Production at 9:15 and the Housing Market Index at 10.  Overall, the early news flow may create some early opportunities in the market.

Starting with a long term view of the Nasdaq Composite, we can see the market finding sellers after three weeks of exploring outside a well-established bracket.  The selling came in right where we might expect, up near prior swing highs.  The question this week is whether sellers become more active and begin initiating additional sales after their responsive actions.  Below is a chart where each candle represents a week of prices on the Nasdaq Composite:


On the intermediate term, we can see prices are in a state of balance.  We are trading between two well-established value zones.  The levels we currently inhabit received very little auctioning the first time around as we simply blasted through them.  The thin zone can produce fast moves in the short term, but the resolution to this intermediate-term balance will depend on who can initiate trade beyond the strong balance zones on either side of this volume pocket.  I did not want to mark too many low volume nodes to obstruct the view of the market here, but I did mark the most pertinent ones for monitoring a transition away from this zone.  Three levels are noted below—two low volume nodes near the extremes and on low volume node near the middle (pivot).  See below:

I have noted my key observations of the short term auction below:


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