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: