We have two major price zones to use as guideposts if this market continues to put in large ranges.  The balance zone above (which coincides with a possible gap fill) from 1657.25 – 1653 is our barrier to the upside, and the lower zone, our major support, spans from 1628 – 1623.  It’s best to view these areas on the volume profile charts to see their significance.

In between, we have a low volume slip zone that the overnight session had some fun sliding down and up through.  I’m not going to inject much bias into this piece, I’m simply defining interesting reference points, and seeing how we behave today.

I want to see if they can form any semblance of a gap fill.  How well that goes (or doesn’t) will be telling.

These morning markets, I come to them every morning.  Much like The Zen Hunter alluded to about surfers, it’s an obsession—every day hunting waves to ride.

I put up these profiles, looking for where the waves can kick up.  Boy did a wave kick up today!  I have wins on both the long and the short side, easily my best day ever, earning 10 S&P points.  It was fun too.  And I stuck to the plan all but once.  My one deviation, an attempt to knife catch that free fall, was my only loss on the day.  So be it.  Stick to the plan or lose money.

Anyhow, that’s why we do all this work, for days like today.  They’re calling this the blow off top already.  I’ll hold my judgment for now, but I did cut my RGR and YELP longs in case the afternoon gets a little Nightmare on Elm Street.

Let’s look at these stocks and see what’s working.

Yesterday was essentially a completion of Monday’s auction.  The charting software I’m currently using won’t allow me to merge these two profiles together, so we’ll have to visualize it for today.

Notice the very fragmented, low quality trade that occurred in the upper 1/3 of Monday’s profile.  Now notice how much of Tuesday was spent thoroughly auctioning those prices.  Interestingly enough, yesterday was also a neutral day, featuring range extension in both directions, signaling a lack of directional conviction and the possibility of a change in the market conditions.

We’re still above the large balance distribution from last week, the overnight session is balanced within our current profile, and we’re essentially waiting for the market to tip its hand.

Here’s the levels I’ll be monitoring to gauge which way the market is trying to go, and how good of a job it’s doing:

The overnight session has seen sellers trying to gain a foothold.  Most of their overnight attempts have been thwarted but they appear to be gaining a bit of traction as I’m preparing this analysis.

We’re still above the major three day balance zone I highlighted yesterday morning.

The behavior of volume on the upper half of yesterday’s range is fragmented and signals a lack of trade facilitation.  It’s odd really, it wasn’t a sharp reaction from the sellers but more running out of buyers.  Either way 1666.75 was left behind as a near no volume node and is the primary resistance to the upside.

It’s looking like we may test the balance zone today, and along with it my expectation is for some choppiness.  Buckle up.

UPDATED NOTE: We put in a double bottom at 1661 overnight.  It’s close to yesterday’s low 1660.  A test of this area seems likely and important.  A break of 1661-60 should have us looking for swift trade back to the balance zone below.

Coming into the week, we have three days of overlapping value to use as bias for direction into the week.  Last week featured a very similar overlap of value and seeing acceptance of price above the big value gave us conviction to the long side all week.

The same weight should be given to the three days of overlapping value this week.

The overnight session has been flat thus far.  The only notable development was the rejection of Friday’s HVN on the upper volume node at 1664.50 which I consider the only line in the sand stopping more upside.

Here’s a markup of the other important S&P levels:

The overnight session has seen the S&P index as much as seven handles higher from yesterday’s close, putting in two rather methodic rotations higher.  The resulting volume profile is wide however, which paints a more neutral picture of the session.  We may need to see more profile development before we’re able to build any context from it.

The key feature of yesterday’s profile is when price “fell out of bed”.  A liquidation took place at 2pm and price tumbled 9 handles lower before recovering off the lows by about 33 percent.  The resulting action left behind an excess low at 1647.50.  Someone, aka they, found the price such a bargain, they snatched them up with aggressive reactive action.  Should we trade back down to this level and the market doesn’t receive the same aggressive reaction from the buyers, we can take it as a sign that something has changed, and position for lower trade.

I’ve highlighted this excess low and other key levels in the volume profile look, enjoy:

The morning session is balanced, and somewhat choppy.  The rotations don’t seem to make much progress and I got caught up in the noise with several trades.

I went 5/14 giving me a win rate of 36 percent.  My best trade was long into the 11 am hour catching a drift higher that earned 2.5 handles.  My two worse trade were chop along the VPOC each carving out 1.75 handles on two units.  Net-net I was down on the session.

My best position was shorting into the 10am Philadelphia fed number.  The market was bid up into the number, ran some stops and then reversed lower.  I covered far too soon, taking only 1 handle out of the 7 handle move.

Biggest area for improvement is waiting for a bit more conviction before trading from the middle of the value area to the outside.

Another quiet overnight session, forming the familiar bell-curve within yesterday’s fat value area.  This tells me there haven’t been any significant developments overnight.

The ten handles swing lower seen during the ES afternoon suggests emotions are building up in this tape, but hardly suggests complacency.  When price knifed lower to the scene of the early breakout, it was met as a huge buying opportunity.  The low volume node left behind at 1648.75-1648.50 is an interesting byproduct of that swift rejection.  Should the bulls not defend this level in the same manner on a retest, I’ll take it as a cue that sentiment has shifted.

Early on, perhaps even premarket, I’ll be looking for a test of the 1648.50 level mentioned above.

One of the key elements to yesterday’s trend that should have kept me from fading early on was the opening type.  Yesterday we saw a classic opening drive: the market opened above the value area highs spanning four days and didn’t look back.

Today we’re seeing a more balanced session overnight, with the action taking place within yesterday’s upper volume distribution.  I’ll be keying off the price action inside the upper boundaries of the P-shaped profile.  The single prints below can get slippery, should price trade back down into them, I’m playing for a swift move through them; a crushing blow to the bulls.

But mostly, I’m looking for digestion of yesterday’s move.  Should price consolidate within this upper distribution, we could see individual stocks fare very well.

UPDATE:  We had some jawboning jerk the overnight market up, we’re now dealing with a double distribution on the 24 hour profile:

It’s been a quiet morning session, but certainly of a different character than we’ve seen since entering this large balance zone.

Since the neutral day on the 9^th, I’ve been watchful for the next move out of balance.  This morning’s profile suggests we may see it today.

What I’m referring to it the toothy characteristics of the volume.  Recent overnight profiles have been near-perfect bell curves.  This morning not so much, instead the profile lacks a clear point of control.  Price rejected yesterday’s high overnight at 1633.25 and swiftly rotated lower, with a current low right at the major confluence of VPOCs at 1626.50.

As we progress into the morning USA session, I’m looking for the market to rotate higher off of the major VPOC level and result in another quiet open with little gap to trade.  However, if the buyers don’t file in to buoy this index, I suspect we may explore lower.