Nasdaq futures chopped about in an active session of trade overnight after yesterday printed a directional distribution-type day.  The primary expectation after yesterday’s distribution is chop with a downward bias.  The wildcard today comes in the afternoon, where the market will receive minutes from the September FOMC meeting.

Yesterday the market went neutral early.  Prices wasted little time range extending higher in the morning and pressed into Friday’s range where we found responsive sellers who pressed us through the initial balance and out the other side.  We were in a neutral print before noon.  When buyers made a second attempt higher they could not and choppiness gave way to afternoon selling.  The neutral extreme type print carries strong directional conviction by the sellers, second only to the trend day.

Below current prices we have the strong buyer reaction from last Thursday.  Whether buyers carry the same conviction today will likely be tested.  If not, then price is likely to continue discovering lower in an attempt to find a buyer.  Below last Thursday’s low we might begin to explore the 8/12 price range where an open gap and naked VPOC exist.  Have a look at the cumulative delta on the bottom of the chart as well which emphasizes the strength of the selling pressure yesterday.  I have noted these prices and other observations on the following intermediate term volume profile:

I have noted the short term price levels I will be observing on the following market profile chart:

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Interestingly enough, when we first traded up to 4000 in the Nasdaq futures back in August (at the time we were trading the September contract and the ‘spot’ was a bit different) the market gave the price no thought and simply pressed through it.  Demand was high.  Even more interesting is how the market is currently coming to terms with the millennial mark.  As we approach US cash trade, price is straddling the 4000 handle after building support in the region during yesterday’s trade.

There were some fast selling rotations occurring overnight around the time the Swiss were releasing various economic data points, none of which were particularly soft.  During today’s session look for a reaction to the UK’s GDP estimate around 10am.  Aside from that we have some Fed speakers at 2:30pm, 3pm, and 4:30pm ahead of tomorrow afternoon’s FOMC minutes.

The intermediate term has a clear downward trend in tact as we enter Tuesday.  This can be seen as a series of lower highs and lows.  The most recent low was sharply rejected by a strong buyer response.  However, it had to cut pretty deep to find a vein of buyers who were willing to participate.  Buyers may be working on printing their first higher low since the failed auction on 09/19 this week.  They did however leave a bit of unfinished business below.  When we gapped higher on Friday price managed to close the range gap, or the space between the high of Thursday and the open on Friday.  This increases the probability of a full gap fill to the closing print down at 3977.25.  Should the market begin to soften at any point today, this will be a simple target for the sellers.  I have highlighted this observation and others on the following volume profile chart:

Short term, we printed another distribution-type day where the bulk of volume occurred at or near the lower quadrant of the session range.  This managed to push value lower.  The buyers were active and responsive to defend Friday’s buying tail.  This can be seen as the thin market profile near the bottom.  Note however that the coinciding volume profile suggests much business was done near the lows.  Overall, it provides us many interesting levels to observe and I have highlighted them below:

 

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Overnight volume in the Nasdaq futures slowed dramatically ahead of the 8:30am release of Non-farm Payrolls and Unemployment Rate and spent most of the session drifting higher.  Prices managed to take out yesterday’s high and sustain trade above those levels ahead of the release.  As one might expect, volumes increased after the 8:30am numbers which showed unemployment rate unexpectedly dropping to 5.9% but a mixed message overall with average pay still compressed.  The initial reaction is higher prices.  At 10:00am we have ISM Non-Manufacturing Composite on tap.

As we head into Friday, the intermediate term timeframe is in seller control.  This can be seen as a sequence of lower highs and lows on the following chart.  You might have noticed yesterday that there is only the blue volume composite on the right edge of the chart.  That is because we have no micro-balance forming.  Instead price is loose and discovering value.  When the market trades lower it is searching for motivated buyers, yesterday’s strong responsive buy suggests we might be done looking for buyers, at least on the short term.  Once they are found the auction begins in the opposite direction until buyers dry up and seller response exceeds demand.  Since the bulls lack control on this timeframe, they are currently guilty until proven innocent by printing a higher low and higher high at the least.  I have marked the key low volume nodes and a few other observations below:

During the first three or four days of the month there is an expectation for increased demand in the marketplace.  At this time, many of the institutional funds receive cash inflows from regular folks making fixed contributions to their 401k and other investment plans.  There are studies proving this phenomenon.  The question is how much funding is put to work and what is its impact on the marketplace.  I have noted the key short term levels I will be observing on the following market profile chart:

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Nasdaq futures had another busy overnight session where volumes continue to run at an above average clip.  The main feature of the overnight session was a strong rotation of buying which began just before 5am and just above yesterday’s low of the session.  Synchronizing loosely with the move was economic news from the Euro-Zone where there PPI numbers came in a bit softer than expected.  At 7:45am the ECB announced it would keep its Bank Rate inline with expectations and as we approach cash trade Mario Draghi is speaking at a rate press conference which is stirring prices lower.  We have factory orders at 10am and our premarket seller is again active.

Since this chart took out a significant reference zone yesterday, let’s revisit the weekly chart of the Nasdaq composite.  Price is currently pushing below an area previously inhabited by sellers.  Thus, the market was not yet able to convert this resistance into support.  After rotating the gap zone and printing some long legged dojis we have decidedly pressed lower.  Bear in mind however, there are two trading days left in this week which might significantly alter the appearance of our current candle.  The long term trend is still up, however this small move could be the start of a neutral environment on the long term:

Intermediate term we have gone into seller control.  This can be seen as a series of lower highs and lows.  The question now is where this cycle will end and how the next leg will print.  There was a very complete feel to yesterday’s trade where we saw a very motivated move, a pullback around the midpoint, a secondary thrust, and then a corrective set of waves.  That daily move settled out a naked VPOC that was left behind at 3967.25.  That’s good news, the market is still auctioning in a very methodical manner.  An argument could be made that the turn is in, however the task of bulls is to prove their innocence because this timeframe is seller controlled.  I have noted the key price levels below:

Finally, I have noted the short term levels I will be observing on the following market profile chart:

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Nasdaq futures are down to start the new quarter, and as we approach US market open prices are trading near yesterday’s low.  Late yesterday afternoon the markets were informed the Ebola virus had made its way into the United States.  Other overnight news included mixed manufacturing data out fo Europe, inline manufacturing data from China, and USA ADP Employment change coming in slightly better than expected.  The last four days we have had an aggressive seller working in the premarket session not long before cash open.  They are again active today.  At 10am we have ISM manufacturing as well as Construction Spending.  Energy traders will likely focus on the Crude Oil and Gas/Distillate Inventory numbers at 10:30am.

Furthermore, German Bund futures ripped through prior all-time highs this morning which resulted in a powerful reaction lower in German equities.  Macro conditions are running high however the correlations have not significantly impacted individual equities yet.   And as we approach cash open the Russell is attempting a slight bull divergence on the very short term timeframe.

Again visiting the long term chart of the Nasdaq Composite, we can see prices are in a zone where sellers initially held us down.  Since then, we broke higher, rotated through the dot com gap, and are now retesting the zone from above.  This long term timeframe remains buyer controlled and in a support zone.  Long term bullish:

The intermediate term is balanced with a slight downward bias.  This balance will be 33 sessions old today and we can see a pattern of lower highs and lows emerging.  With the open gap below sellers have something to shoot for.  Thus the intermediate term is neutral-to-slight-bearish:

Finally, the short term came into overlapping balance yesterday verse Monday.  The auction yesterday was very clean and methodical and balanced.  As we are set to open near the low of the session, we will have a fairly early indication of whether prices are trying to head lower or instead accepting and continuing higher.  I have highlighted the price levels I will be observing on the following market profile chart:

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Sellers dominated the globex trading session overnight by sustaining a downtrend throughout trade.  Sources suggest the unrest in Hong Kong may be weighing on investors’ minds as we start the week.  However what matters most is the fast approaching month end.  This month saw shifting tides across the macro spectrum and as that money sloshes around bigger waves occur.

If you recall, we discussed a gap on the Nasdaq Composite chart which dated back to April 2000.  When the dot com hysteria came tumbling down it included a quarterly gap down which never filled.  When we came into the gap at the end of last August prices ripped through to the other side in a scant two weeks.  Since then we printed three hammers with the wicks increasing in size as uncertainty grew.  Then last week we fell back down through the bottom of the gap before finding buyers in a zone where sellers were initially defending.  This is how an uptrend works, until it doesn’t.  I have highlighted these long term observations below:

Intermediate term, we have been monitoring a balance which developed, showed sell side imbalance, moved lower and corrected itself back into symmetry, made new highs confirming the balance but also possibly a failed auction, and since then we are showing signs of a downtrend.  If we make a new low, and especially if it entices more supply into the market, we could very easily transition into a seller controlled intermediate-term timeframe.  See below:

Finally, drawing our eyes in close to the short term auction, I had made some modifications to the profiles to show us a clear picture of the auction.  Thursday was the most sell flow I can ever recall seeing since becoming intimately involved with the Nasdaq futures around March this year.  It was 3 straight hours of relentless selling.  When responsive buyers did emerge, printing two impressive 12.5 point and 10 point rotations, each was sold into.  It took six more 10+ point rotations to stabilize the market.  However, the market did stabilize on the short term, and the resulting print is an enormous long liquidation, b-shaped profile.  Then Friday we popped out of the low balance and printed what amounts to a short squeeze P-shape.  As we come into cash open, the overnight sellers have rejected the small upper value and put us back inside the lower balance zone.  How we navigate this region early on will offer us objective clues into short term direction.  I have highlighted the key price levels below:

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Nasdaq futures were already operating on slightly above average volume ahead of the 8:30am GPD release.  Prices were up ahead of the data and saw a slight selling reaction to the inline numbers.  There is also news of Bill Gross leaving Pimco for Janus Capital.  Since the news came out we have seen selling accelerate a bit and the news has also served as a disruption to the overall bond market.

Yesterday the sellers made enough progress on the Nasdaq to call intermediate term balance into question.  The boundaries of intermediate term balance as well as any bracketed-type trade are always a bit grey, meaning you cannot assign a fixed price level to them.  Instead we can use volume profile to see if activity dries up as we enter the extreme territory.  Also of importance is the price action leading into the extreme.  This move lower started with a failed auction, an attempt to make new highs where activity quickly evaporated followed by a fast move in the opposite direction.  It then printed a lower high and lower low suggesting multiple day seller control.  This balance is going on 30 sessions old.  Once they become this mature the likelihood of leaving them to explore new prices is elevated.  In summary, we are at risk of starting a discovery process lower.  I have highlighted these observations and more on the following intermediate term market profile:

I have noted short term price levels on the following market profile chart.  Note also, barely visible in the top left of the chart is the “solid structure” I discussed yesterday.  This multiple day support foundation was obliterated yesterday and is out of normal upside range as of our current premarket prices.  See below:

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Nasdaq futures traded in a quiet range for most of the globex session before selling stepped up around 8am.  Since 8am there has been a steady flow of sell orders which paused only briefly ahead of the 8:30am durable goods order release.  Overall we are priced to gap down at the open of US trade.  Just after the open we will have PMI numbers at 9:45am, natural gas storage data at 10:30am, Kansas City Fed Manufacturing Activity at 11am, and Fed’s Lockhart speaks at 1:20pm.  Bank of England Carney is speaking as we head into US trade and the main talking point is interest rates which he says are close to rising.

The intermediate term timeframe continued its balancing act yesterday when it quickly traversed the point of control at 4066.  The velocity of the move might be attributed to the compression which took place prior to the breakout.  When balance begins to form inside of a larger balance, you know there is a coil ready to spring a big move.  Buyers will want to defend their progress and extend upon it soon, otherwise they risk calling the entire move into question.  I have noted the key levels I will be observing on the following volume profile chart:

On the below market profile chart, I have made some cuts and merges to best view the auction taking place.  Note the solid structure below our current prices.  This is comprised of trade from late Monday morning through to early yesterday.  On either side of it is the hard sell on Monday’s open and the fast buy yesterday.  I have noted the key short term levels I will be observing as well:

 

 

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On the economic calendar today we have New Home Sales set for release at 10am.  Interesting anecdote, I was speaking with the largest lumber dealer in the metro Detroit area over the weekend who said they are having their best year on record.  Odd, or he’s lying.  Energy traders will be watching the 10 and 10:30am releases of crude oil, gasoline, and distillate.  Fed Mester will speak on monetary policy at 12:15pm and Fed Evens will s peak at 1:00pm on the labor market.  Pre-market Thursday we have US Durable Goods Orders on the docket which is something to keep in mind for any overnight positions you intend to hold.

I love when rare events occur and yet receive no coverage in the financial media because it means I have something interesting to share with you.  Yesterday the Nasdaq futures printed a ‘normal’ day-type which interestingly enough is anything but normal.  There have only been 55 instances since July 2010 aka 95% of the time this type of day does not print.  We have printed eleven such days in 2014.  A normal day is classified as a day where no range extension occurs on either side of the initial balance.  Its characteristics usually include an aggressive entrance into the early markets which stretches a wide initial balance which remains as the extremes for the duration of the session.  We indeed printed an abnormal IB range yesterday.  I have noted our range on the embedded chart inside the below chart, which highlights all prior normal days this year:

We cannot infer much information to aid in prediction using this fact, however we can examine the contextual powers at work.  This is the story and we always want to read it as more information is made available.  Lately this market has seen prices aggressively pushed around by other time frame participants.  Their actions can be seen both on price bars and volume profile as long stretches of action with no respect for day trader levels (value areas, VPOCs, etc.)  These higher time frame moves are motivated more by geopolitical events, macroeconomic data, or some other longer term perspective analysis.  However yesterday, and to a certain extent Monday, we began seeing signs that the other time frame activity is abating.  On Monday I actually split off most of the day’s profile from the initial balance because after the first hour of trade the market completely shifted its behavior.  Pair that with yesterday’s big initial balance and you see what is occurring—early session OTF aggression but a market coming into balance.

Even more interesting, this balance is forming inside a larger intermediate term balance which, as highlighted yesterday, needed some back-and-fill to properly form the symmetrical Gaussian curve.

I will stop here, for this is becoming too complex when in reality markets are very simple mechanisms for facilitating trade.  We are doing a very good job of it inside of this intermediate term balance.  If trade dries up on attempts lower, then we head higher to previous sources of liquidity.

I have highlighted key intermediate term price levels on the following volume profile chart:

Finally and most actionable, I have marked up the market profile chart with the key levels I will be observing today.  Also note, once the splits have been made to reveal the auction activity we printed an outside day yesterday:

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Nasdaq futures are lower over the duration of the globex session with the bulk of the selling occurring yesterday evening.  We seem to have found a buyer around the time Europe opened and we are since trading back at the mid of the overnight session range.  Today’s economic calendar has Existing Home Sales at 10am.  Also, Mario Draghi is scheduled to speak in Brussels at 9am, and the entire week features a variety of Fed speakers (no Yellen) speaking at a several of events.  On Friday we have GDP stats set for release.

Intermediate term, although we see this timeframe in balance with these longer timeframe participants actively establishing a value through their actions, we can also see the difficulty we are having establishing intraday value.  This suggests two things.  First we are participating in a market with active longer timeframe participants who push price around with their actions.  Second, we are not very complacent nor certain that current prices properly represent value.  As this value matures, now 24 sessions old, the likelihood of transitioning into price discovery increases.  I have noted the key price levels of our intermediate term on the following volume profile chart:

I have marked up the market profile chart with the levels I find interesting going into today’s trade.  The lack of value areas recently makes for an interesting landscape of peaks and valleys for the market to explore.  Where we ultimately locate price acceptance will be telling to start the week.  See below:

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