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Wrap Your Mind Around The Nasdaq Auction

Nasdaq futures are trading lower overnight as we come back to the market after a long holiday weekend.  Last week was a very strong week for the composite and extended the new swing high made in the prior week.  The net result of the action is an extended chart with buyers doing a good job migrating prices higher.  The biggest economic news overnight was weaker-than-expected industrial production numbers from the Germans.  We have little on the docket in the United States until Wednesday when The Fed will release minutes from their June meeting.

Looking at our long term Composite chart, you can see buyers in control via seven weeks of near uninterrupted progress to the upside.  I have highlighted two price levels above our current price action.  The first, red line, is where the 14 year old gap in prices starts and the second yellow line is where the gap ends.  This the biggest piece of context I am observing above.  Gaps tend to initially offer stiff resistance, perhaps even several times, before possibly being filled and likely in a rapid manner:

07072014_Weekly_NQ

Long term, there is a bit of structure that troubles me a bit and it started in May.  When I look at the monthly volume profiles, I see weakness in our recent bull run, the foundation poured before the rally seems odd.  These long term context pieces are just that, long term, and are the very broad strokes before honing in on the more actionable short term.  See below:

07072014_MonthlyProfiles_NQ
Intermediate term we might see a better perspective on just how much progress buyers have made these last two weeks.  There was a significant compression down near 3800 and buyers used its combustion to propel market prices over 100 Nasdaq points higher.  In their wake is a thin stretch of volume profile with some low volume nodes we might begin testing out if sellers start responding this week.  There is some structure near 3890 but no really thick volume structure until you look down to about 3800.  This is climbing the wall of worry and it appears many participants have opted to do so, see below:

07072014_IntTerm_NQ

Taking to the market profile, we can see the market never really came into balance as we closed out the week.  The only balanced profile in sight occurred Wednesday after the trend.  I broke out part of the trend day, the part where the trend ended, and combined it with Wednesday’s balance.  This gives us a nice thick balance structure below to monitor.  It also made the vulnerable double bottom more clear to see at 3883.  We are currently set to gap lower inside an unbalanced profile which buyers were in control of at the end of last week.  This lack of balance and the gap lower might lead to some interesting intraday action to start the week.  I have highlighted some of the key zones I will be observing on the following market profile chart:

07072014_marketprofile_NQ

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Opening Swings – Buyers Rule The Roost in The Short Week

The holiday drift was in full effect last week and there were not very many opportunities to trade the short side of the tape.  Overall we saw very methodical auctions where the market set a low bid and then auctioned higher.

I highlighted the opening swings, except for on Tuesday, the strong trend day, which did not print an opening swing, instead only driving higher.

I have highlighted some of my best and worst trades of the week as well, enjoy:

MONDAY:

06302014_os

TUESDAY:

07012014_os

WEDNESDAY:

07022014_os

THURSDAY:

07032014_os

 

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Mutual Fund Tuesday – Holiday Edition

Today is the first day of the third quarter and also the second day of a holiday shortened week.  Nasdaq futures are currently priced to gap higher into the session by just over 10 points.  The important economic releases scheduled for today happen early during our session, with PMI Manufacturing index at 9:45 and more importantly ISM Manufacturing Index and Construction Spending at 10am.  There is a 4-Week T-bill auction at 11:30am.  Janet Yellen is set to speak tomorrow at 11am.

Price drifted higher overnight, and given the context of a poor high, the acceptance of value as evident by the clean distribution yesterday, and late responsive buyer the drift was expected.  These few days ahead of the 4th of July tend to be bullish, but with money managers eager to start the new month/quarter off we can see some bigger swings in both directions intraday.

The long term and intermediate timeframes are buyer controlled meaning prices are not balanced nor are they making lower lows and lower highs.  Instead we are making higher highs and higher lows on a weekly chart of the composite (see yesterday morning’s premarket analysis) and the intermediate term chart is doing the same.  If the market sees some selling today, there are some interesting low volume nodes we could test out while still retaining buyer control.  I have highlighted these levels on the following intermediate term composite:
07012014_IntTerm_NQ

There is a slippery zone on the market profile.  This is a price area where buyers were very confident yesterday.  However, should we trade back into this region and not observe the same level of confidence from the buyers, they we are likely to see a fast liquidation take hold, something to shake out weak handed longs perhaps.  On the upside we are working with measured moves.  I have noted the measured move targets, as well as a few other observations on the following market profile chart:

07012014_marketprofile_NQ

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Month End Monday

As we head into another month end trade, the Nasdaq is starting off the shortened holiday week in the green.  The overnight session was mostly balanced.  A wave of selling came through around 6am which found responsive buyers lurking below.  The Canadians released weaker than expected GDP stats at 8:30am this morning and the news thus far has not triggered a response from the US equity futures.  Notable economic data on deck today includes US Pending Home Sales and 10am, Dallas Fed Survey at 10:30am, and Fed’s Williams speaking at 1:10pm.

We closed out last week with a rally, and with prices at fresh swing highs.  Looking at a long term chart you can see the buyers are in control as price advertises higher in an attempt to entice sellers into the exchange:

06302014_Weekly_NQ

On the intermediate term we can see an important low volume node formed just before the breakout, 3823.75 is on watch early on this week:
06302014_IntTerm_NQ

Bringing our attention closer to the action, the market profile shows value on the rise with Friady printing a normal variation day with buyers extending the range higher and also pressing value higher.  The price zone from 3830 – 3826 is fast and we may traverse it a few times today, especially if the market begins to balance out.  I am particularly keen on the low volume node which appears here on the market profile as well as the composite, right at 3823.75.  This level is my in play action level of the day. I have highlighted this level and a few more observations on the following market profile chart:

06302014_marketprofile_NQ

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Opening Swings – The Freedom To Form an Analysis

Freedom is kicked into high gear this weekend as we prepare to celebrate Independence day.  The weather up north is paradise, something we patiently wait all year for.  With that in mind and family and friends arriving in town, I took a brief moment to work through the Nasdaq opening swings from last week.  Skipping an analysis of last week’s action with all the festivities as an excuse would be a shame because the action was so dynamic last week.  The market is coming to terms with swing highs with only the Dot Com bubble peak above.  These truly are interesting times for our country and its markets.  If that doesn’t excite you enough to dig into some charts, then I am not sure what will.

Let’s have a solid holiday week.  And what better way to kick it off then to wrap your mind around auction theory and how it can assist you in the daily navigation of our electronic markets.

MONDAY:

06232014_os

TUESDAY:

06242014_os

WEDNESDAY:

 

06252014_os

THURSDAY:

06262014_os

FRIDAY:

06272014_os

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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:
NQ_intterm_0627014_1

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

NQ_intterm_0627014_2

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:

NQ_marketprofile_06272014

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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:

NQ_intterm_06262014

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:

NQ_marketprofile_06262014

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:

NQ_marketprofile_06252014

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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:

NQ_marketprofile_06242014

NQ_marketprofile_06242014_b

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.

NQ_intterm_06242014

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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.

MONDAY:

NQ_os_06162014

TUESDAY:

NQ_os_06172014

WEDNESDAY (FED DAY):

NQ_os_06182014

THURSDAY/FRIDAY:

NQ_os_0619&202014

WEEKLY AUCTION SNAPSHOT:

NQ_weeklyRecap_06212014

 

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