The Nasdaq continues to make new highs this morning as volumes begin to dry up. The overnight range is in the realm of normal but still exhibiting a slightly compressed range. GDP data came in stronger than expected at 8:30 am and the initial reaction was buying. Keep in mind we also have Consumer Confidence data set for release at 10am today.

My initial outlook on the week was that the extended Nasdaq had done a good job finding sellers on Friday with the big gap higher and subsequent selloff. However, the market is again drifting higher in search of a fair sell point. Yesterday prices managed to exceed Friday’s high and push value higher on a session that featured many pockets of momentum under the surface.

The low volume environment is showing evidence of favoring buyers and traders are likely to benefit more from targeting opportune individual charts than trading the index itself. However, I have highlighted the key context levels I will be observing today on the following volume profile chart:

Today is option expiration day for many stock options, and although we live in the age of weekly expiration dated options, the original third Friday expiration carries a bit more weight. Just before 6am we received unexpected news from the East where the Chinese Central Bank cut deposit rates by 40 basis points. This news fueled a rally in the Nasdaq globex session which is currently printing a range in excess of the 1^st standard deviation of normal on volume to the same degree. In short, this is an outlier overnight session verse 68.8% of overnight sessions over the last five years.

The price action has us set to gap to new swing highs on the index suggesting the market will be out of balance come opening bell. This can lead to big moves. Leading into today was yesterday’s session which had the look of a short trap. Prices went gap lower and took out Wednesday’s low only to sharply reverse early on and squeeze shorts. The overall look of the profile suggests a short-squeeze event occurred leading into today.

Auction theory is not quite as effective at new highs, however I have listed the support levels I will be observing on the following volume profile chart:

Prices moved lower in the Nasdaq overnight and as we approach US trade the market is hovering inside the lower quadrant of yesterday’s range. At 8:30am traders learned about the CPI and Jobs situation in the United States, and all numbers but one were better than expected. Initial Jobless Claims came in a bit higher than expected. After the open we have Markit PMI at 9:45am and both Existing Home Sales and Philadelphia Fed at 10am.

The futures broke loose to the downside just after 3am and since then the overnight profile has taken on a b-shape suggesting the initial wave might have been of the long liquidation variety.  It also exposes a slip-zone up to 4217.50. You can see the overnight profile below:

At our current prices, the weak low at 4207 is now in range. This is a piece of context that formed on Monday when the market printed a double bottom on this tick. That is a poor low and carries an expectation of resolution. The swing high also looks weak but is nearly out of range statistically. The net result is a neutral stance which leads me to expect choppy trade. This is unless we see a strong driver off the open like we saw the past two days. I have highlighted the key price levels I will be observing as well as the weak high/low observations on the following volume profile chart:

Nasdaq futures traded a below normal range and volume overnight as the market heads into the halfway mark of a week featuring an economic data backload. At 8:30 am US Building Permits and Housing Starts numbers were released but show little impact on index prices. Instead it appears the market is more interested in the 2pm FOMC minutes and perhaps Thursday premarket when CPI data will be released.

My typical expectation on an FOMC day is an active open featuring 1-2 prominent rotations before the session turns into a grind ahead of the announcement. Yesterday’s strength was interesting early on because the open had a drive-like aspect to it that occasionally portends trend days. It was enough buyer conviction to keep me from putting any shorts on intra day and an interesting piece of context to carry through the session and into today. Buyers did manage to range extend higher and upon doing so discovered responsive selling. The high end of yesterday’s profile looks like absorption. The VPOC shifted to the high end of the profile and we pressed lower right into the bell.

The short term dividing point between the responsive seller and buyers is a low volume node at 4240.25. Even overnight, when prices briefly popped above this level, sellers were active. I have noted this level, all other key price levels, and an LVN slide zone on the following volume profile chart:

The Nasdaq has come into balance. Overnight prices traded a good portion of the balance zone, testing upper and lower value, and ultimately are trading near the midpoint as we head into Tuesday’s trade. Markets started moving around 4:30am when the UK released mixed-to-worse-than-expected Consumer Price data. The biggest rotations have been to the sell side but overall the session is neutral.

Any move away from our three-day value zone is now suspect with the approaching FOMC minutes tomorrow afternoon. The market is always trying to do something, even when it waits, and according to my contextual read it is trying to trade lower. However, it is not doing a very good job. Sellers pressed on the bid for most of yesterday’s session yet prices sustained above value. There is a poor low in place now [a double low vulnerable to breakage] and value drifted lower [VPOC] verses Friday.

Trying to go lower, waiting for new information, thus not doing a very good job trading lower is the short of it.

I have highlighted these observations as well as key price levels on the following volume profile chart:

Thank you for all the positive feedback on the inaugural Weekly Strategy Session. I look forward to building the broad context going forward.

Nasdaq futures trader lower for most of the globex session after Japan reported a weaker-than-expected third quarter GDP data. Buyers stepped up just above Friday’s low and as we approach US trade prices are pairing back more than half the overnight losses.

ECB Central Bank President Draghi is speaking in Brussels as we work through this final half hour of premarket trade. We also have US Industrial Production set to release at 9:15am.

A quick update of the weekly composite chart shows price worked higher last week following the indecision doji candle printed the week prior. We are trading above the now thoroughly auctioned ’14-year gap’ left open back in the year 2000 and are trading in a zone that was fast both upward and downward during the mania of the dot com bubble. See below:

Drilling down to the daily chart we can see just how stretched the market has become. Following a V-shaped recovery in Octobter the market has subsequently grinded higher through the start of November.   We are now trading up at the top end of some broad Fibonacci strokes drawn to assess whether the move higher is primarily driven by stop runs or if in fact it is something much larger. Buyers need to defend above the HVN at 4150 otherwise they run the risk of filling the air pocket 100 Nasdaq points below. I have noted these observations on the following daily Nasdaq future chart:

Finally, I have note the key short term levels I will be observing on the following volume profile chart. Note especially the short term LVN pivot at 4214.50 derived from the micro composite on the left.

Extended markets have a knack for continuing in the direction of the move well beyond what would be considered rational.  Mean revision strategies take heat, stubborn traders are slowly forced to liquidate, and eventually prices lurch back when a strong enough opposing force is found.  This is the auction process.  What we have seen this week is four steady days of value progression higher with only a slight sign on excess showing up on Thursday’s tape.  As we close out a week that was focused on retail we are currently trading right in the middle of Thursday’s range and a few points higher from the close.

The market appears to have come into balance overnight and it will be interesting to see how this is treated heading into the weekend.  Unlike the fast v-shape that put us into these last 10 days of grinding trade, we have moved higher on healthy auction activity free of overnight gaps.  We saw some signs of responsive selling yesterday where two waves of selling swept through the market at 11am and 1pm, vital times of day.  Whether that responsive seller is able to turn initiative and press down into Thursday’s range to target the NVPOC at 4190 will be a slight hint.  Even more telling of a market that has found a seller would be prices accepted below the LVN zone around 4183.75.  This is the key short term pivot for bulls.

I have highlighted this level and other key price levels on the following volume profile chart:

Nasdaq futures are up overnight with the primary thrust occuing just before midnight.  However as the US has come online prices have steadily declined and given back about half of the overnight progress.  The pullback began around 6am which does not coincide with any economic report or news story but did begin with an overnight failed auction.  Price took out the prior overnight high by a few ticks then quickly reversed.

At 8:30am US initial and Continuing Claims were released and both numbers were a bit higher than consensus expectation.  The initial reaction in the Nasdaq is light selling.

Volumes picked up yesterday and overnight to the highest levels on the week.  Walmart topped earnings forecasts this morning suggesting the US consumer is healthier than analysts expected as we head into the holiday season.

On a daily chart of the Nasdaq futures we can see price has entered a zone where according to measured move analysis there is an expectation of finding sellers.  Measured moves are not as dependable as volume profile and prior price action, however they give a sense of where the market might go to run the stop orders of short sellers.  The globex market is showing signs of effectively finding sellers, however it is more important to see it show up during regular trading hours.  I have noted the above observations and a few more notes on the following daily bar chart:

As a general rule, after three days of movement favorable to your bias, it makes sense to take profits.  On the below chart you can see value made a steady three-day progression away from a well-formed intermediate term balance.  This morning might be an opportunity to lock in some stretched stock trades you have, especially if they show signs of pause or reversal.  This will also free capital to initiate fresh risk, if you choose.  I have also noted the very key levels that emerged during yesterday’s session.  Note too how cumulative delta (Ask Traded vs Bid Traded) was unable to remain positive yesterday for the first time since 11/5:

Nasdaq futures worked lower overnight after yesterday’s action which featured a low volume advance to new highs on the year.  The nature of the move yesterday suggests prices were driven by the shorter timeframe, perhaps a mix of day traders and 2-6 day intermediate term traders, who pressed beyond the highs a bit to run stops.  The question as we head into the tail end of the week is whether buyers can sustain trade above the VPOC of our current balance or if instead we will break through the formation and fill the gap left behind when Japan announced their stimulus package.

A brief spike higher and subsequent fade occurred around 5:30am when the Bank of England released their inflation report, and ahead on the docket for today we have ECB President Draghi speaking at 9am in Rome, and US Wholesale Inventories at 10am.  We are entering the thick of retail earnings today and tomorrow with M, JCP, WMT, and many others set to report their performance over the next two days.

The below daily chart of the Nasdaq shows how prices entered a grinding phase after a strong v-shape bounce.  The slow pace suggests the market accepting higher prices at best and waiting for additional information at the least.  The drift achieved the initial measured move target of 4186.25 to the tick before the close yesterday.  These levels are Fibonacci in nature and serve as guides to whether moves are algorithmically driven stop runs or real progress.  If we see strong selling taking us below our upper HVN at 4149.50 then sellers are opening the opportunity to trade into the air pocket below.  I have noted these observations on the following daily bar chart of the Nasdaq:

As cautious as the above statements may seem, the market has several traits supporting the buyers.  Value has migrated higher during the last four sessions, there is no sign of excess on the highs (a wick), and the longer term trend is up.  What buyers lack is strong volume during the advance.  On the below chart I have noted the key price levels I will be observing during today’s session:

Volume overnight in the Nasdaq futures ran on the low end of normal as prices traded slightly higher on the session.  The economic calendar was fairly quiet with a few data points coming out of Japan.  The Yen trade balance beat expectations while Consumer Confidence is the east was lower than expected.

Most of the discussion surrounding volume centers around time-duration volume and often on a per day basis.  However given the right data, like raw tick data streaming from the IQ Feed servers, you can map other dimensions of volume like at-price and cumulative delta.

Volume at price produces the price levels where our attention might yield an area of interest to gauge sentiment and trade from.  Cumulative delta can show us who is more motivated to take action in the tape.

Yesterday the market gap slightly lower found responsive buyers.  These buyers were responsive to the open, but initiative in nature on the intermediate term.  They initiated risk away from the VPOC of the then 6-day (now 7-days mature) volume profile.  The resulting print pushed value to new highs.

This might be a bit less clear since doing away with the market profile charts.  However they were a bit redundant and using only the below presented chart frees up precious screen real estate and requires one less chart to monitor.  You might not as clearly see it as before, but Monday printed a P-shaped profile suggesting early OTF strength (active intermediate term buyer) which caused a short squeeze.  In the context of a downtrend, these often occur at-or-near a peak.  In the context of an uptrend they are not as effective.  All we know is value migrated higher but is still contained in the intermediate term balance.

The third dimension of volume is delta.  It can be seen in the bottom pane of my chart window and suggests buyers were the more active participants for the entire duration of the session.  That has been the case for six of the seven days of balance up here.  It could mean two things—a large seller is resting on the offer and absorbing all of this demand which creates sideways price action amidst motivated buyers.  Or it could suggest pressure building for another thrust higher.  If we continue to balance and delta cannot flip to negative then we are likely to continue grinding.

I have highlighted the key price levels I will be observing on the following volume profile mashup chart: