The NASDAQ futures market showed a bit of follow through on the behalf of the sellers, where price took out our Monday morning low.  However, the probe lower, likely algorithmic in nature, was met with a reactive buy force and price swiftly auctioned back into yesterday’s value range.

Conversely, the SPX futures made no new low overnight, instead continuing to coil.  There has been a subtle bit of relative strength exhibited by the SPX verses the NASDAQ composite these last few days including yesterday where we printed a normal day.  In market profile theory, a normal day features a dynamic open, likely driven by a longer timeframe trader entering the marketplace.  The range of the first hour is not breached for the rest of the session.  These are very rare, occurring in the SPX only five times in the last six years.  Oddly enough, we printed a normal day in the SPX on Friday and Monday.

The action suggests coiling and this uncertainty is suitable for our current situation.  We are nearing the close of a very strong year in the markets.  Many are likely closing their books early to lock in the gains, yet we have strong pockets of momentum in select industries.  The Fed, our current market moving exceptional, is experiencing a changing of the guards from Bernanke to Yellen and we have taper talks given the recent progress in the labor markets.

The markets have two choices today.  Either continue to coil ahead of Wednesday’s Fed announcement or move away from here.  I have bracketed both the NASDAQ and the SPX today as guideposts as the day progresses.  Keep these brackets, or support/resistance clusters, in mind today as the day progresses to measure any progress made by the buyers and sellers.

I have also highlighted a few scenarios for the NASDAQ using the 24 hour market profile chart:

 

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Note:  All price levels mentioned going forward will be in reference to the March contract. 

If you were just waking up to the market, you may be unaware of the wild ride index futures took overnight.  The S&P printed over a 20 point range in the overnight session after reversing early weakness.  The Nasdaq traded over 40 points in range.  In short, last night featured violent indecision of the overnight/low volume variety.

As of 8am, the S&P is set to open above Friday’s range which tells us we are in a high risk/reward environment.  The NASDAQ is not quite above Friday’s range, but is outside of Friday’s value which gives us a similar context to frame our day.

Early on it will be interesting to see if sellers can reject the overnight progress and press back into Friday’s value.  Turning our attention to the NASDAQ, we are opening in the slippery single prints from early Friday where sellers aggressively auctioned lower.  We may see a similar push from sellers early on and should monitor trade at 3461.50 which marks the value area high on Friday’s session.  Below there we have a VPOC at 3458 and a value area low at 3452.25.  Short sellers will be on the lookout for a rejection of this range as it may signal a bullish reversal is materializing.

I have noted these levels, as well as key resistance points and a few possible scenarios on the following market profile charts:

 

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We continued working through a correction yesterday in the NASDAQ where sellers continued to their control.  Their success in controlling yesterday’s auction can be seen in yesterday’s RTH market profile print.  Assessing their control boils down to the following points:

Range extension lower

Value overlap/lower

VPOC migration lower

Lower high and lower low

The positive news for longs is price has begun the pinball process of discouragement, where price is chopping around and taking no prisoners on either side.  If my read on sentiment is correct, I will be looking for a higher low to setup soon on the NASDAQ.  This may occur as soon as today.

The S&P has a very similar sentimental context.

Buyers came in overnight and bid the markets up a bit, but we are still trading inside of yesterday’s value, thus it has been accepted.  Early on, I will be looking for sellers to reemerge and press price lower.  I will be gauging their sentiment between 3465.50 – 3462.50.  Should their pressure abate in this range, I will be looking for long exposure.  Should their selling campaign continue, I will look for sellers to push into our 12/04 low at 3453.25.

On the upside, I will look for any signs of trade sustaining above 3476.50 our value area high from yesterday and also a low volume node left behind during Wednesday’s liquidation.

I have highlighted these levels on the following market profile chart:

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If you have been sidelined in cash with risk capital you otherwise desire to be committing to equities, you may be coming into today with a shopping list of stocks.

Perhaps however, you should not simply buy at the open.  If instead you have the option to watch the day develop, I have two downside targets in mind for adding exposure.  The following prices are in reference to the

The first is 3460 and the second is 3453.50. These price levels represent targets algorithms will have in mind when they attempt to liquidate any holdouts to the long side.  The market went up for quite some time, lacked follow-through conviction, and is now testing lower to gauge buyers’ appetite.  A step taken by the market place to do this is pressing into existing longs to see if they liquidate.

The overnight market was on the move and slightly lower.  The short term momentum favors seller control.  Therefore we can measure their conviction verse the above to support levels.  Should sellers abate early on, they may be waiting to see the auction first.  In this event, look for their presence at 3476.25, the low volume node just above our overnight high, then 3483 which is yesterday’s VPOC.

Should strength rip through the market, my upside target is 3490.

I have highlighted these prices on the following Market profile chart:

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Sellers pushed into the marketplace early this morning and continue pressing into the NASDAQ.  Although a news bite may be the culprit, let us instead focus on the price action.

As I write we are making new overnight lows and they are carrying a bit of velocity.  Should the algorithms sense buyer blood we may see trade down to 3511 – 3509.75 range, pressing any long initiated yesterday during RTH underwater.

It would make sense to test the sentiment of the buyers early on after they lacked any real follow through on their rally yesterday.  Should buyers not show up at the above range our next levels of support are the LNV at 3505.50 then the value area low at mezzo-century mark 3500.

Below the mezzo century we open the door to a 12/5 retracement, when an open gap still exists down to 3478.25.

However, I am still calling for a rally off these highs.  Overhead I will look for signs of selling around 3519 (VPOC and gap fill) and yesterday’s high of 3525.

These levels can be seen on the following MP chart:

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We are fast approaching one month of static returns for the book of Raul.  November 18^th my book peaked in tandem with the swing high in ONVO and turned lower.  Still much a drunken off my superfluous hot streak, I bought WLT with funds from cashing out of AAPL (note: this required me buying said shares a few days later.  It was a sublime exit and reentry, traded like a true scalper, but perhaps more than necessary for a swing book) and cut losses on SFM and YGE.

A few short days later I bought the dip in GOGO and more CREE.  The GOGO and AMBA are who returned me to prior portfolio highs and propelled my book gingerly above prior high mark last Wednesday…you know, back when the market was going down and I was 90% long.  Then starting Thursday the bulls stampeded higher.  SOL also sent a chill across the collective spine of solar stocks, especially the YGE I have been so eagerly accumulating, effectively sending me back to Mid-November gains.

So much progress forfeited in the name of MOAR. The worst part is I like solar stocks even more at these prices.  Goodness, if my book had any cash lying around I would have been buying FSLR today.  Am I sick?  I do not believe so, when I observe the FSLR weekly chart (I know, stretching my timeframe to justify a trade) I see exactly the type of conditions I thrive in.  Have a look:

So I may forego hitting my 33% return goal on my swing portfolio, darn…I really need that money January 1^st to buy tacos and such.  I suppose what I am saying is I do not answer to anyone, this is my money, and I like my odds over the next few weeks.  It is the god damned holidays anyhow, who wants to be ferreting for giblets when they can play Edward ham hands?

I doubt however that I could play this trade as slow as LED.  That trade has been violently dead since the summer.  Net-net they are a very green shoot in my annual performance, but we have been operating on the wrong side of the chart for quite some time.  I suppose the shear age of this correction and my optimism for the industry as a whole is what has me currently positioned more aggressively now than I have been since early March.

Final thought, the NASDAQ is up 3% since November 18^th.  I am unchanged.  This means nothing to you.  It means everything to me when I glue my brain to NASDAQ 2-6 hours per day.   Here’s me verses the indices:

I am still 100% long.  I tried doing something, anything today, and no matter how hard I tried I could not justify selling anything.  I feel good about that.  Selling for the sake of selling, driven mainly from emotions associated with wheel spinning, seems like work for the sake of work.

When something breaks I will fix it, and I can’t sell YGE down here.  I can sell it lower.  I can sell it higher, but I can’t sell it here.

 

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The equity markets opened Sunday evening only to find buyers interested in increased exposure.  Since then price has behaved orderly, consolidating the overnight gains and positioning price outside of Friday’s price range and value.

Should prices on the NASDAQ composite sustain trade over 3511 into the opening bell, we are opening out of balance, and the risk of a violent move is high.  However, if I have correctly identified where were are currently trading within the sentiment cycle, we are deep in denial, which may produce muted trade.

The S&P is currently trading only two handles above Friday’s closing price which leaves the door open for a gap fill lower.  Early on, perhaps even pre-market, we may see sellers coming in to close the gap.  More important contextually than the gap however, is the low volume node we printed on Friday’s S&P volume profile at 1802.50.  This price level set value area low several times in November and on Friday the action from buyers was dynamic enough to leave a low volume, fast moving footprint.  Should the sellers quickly reject us back below this level and sustain trade for over an hour, we may be in store for further downside.

The NASDAQ is currently trading eight handles above its closing print showing greater strength early on.  I will be watching the overnight swing low at 3506.75 to measure bullish appetite early on.

Overall, the action looks ripe for a rally however it is paramount we stay objective in our analysis and accept and define price levels which may negate our thesis.  I have highlighted the low volume zone on the S&P on the following market profile chart:

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The markets auctioned very methodical all week ahead of what is likely to be an interesting Friday.  We tracked the control of sellers which began on Monday and came into question Wednesday with a violent neutral session.  Thursday the market told us it accepted the current prices by balancing out inside of the large neutral day and is waiting for new information before exploring elsewhere.

Overnight the NASDAQ divided itself into three micro sessions by auctioning then breaking a bit higher, auctioning then breaking higher, and finally auctioning as the USA come online.  The action overnight suggests buyers have the early edge.  However they have also pressed us into very short term overbought conditions.

Taking a look at the longer term via value migration, you can see the relative strength of the NASDAQ verses the S&P:

 

Early on we have employment data which may better set the tone for our session, but the following reference points will still be relevant in determining whether the market is breaking out of balance to the upside or the downside:

 

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When we examined the forest tree-by-tree yesterday, it was evident risk appetite was strong.  After two days of sustaining control in the marketplace, sellers were countered by aggressive buy flow Wednesday.  The action started with a strong opening drive.  All of my upside targets were met by 10:15 AM.  It was at this point I hypothesized a trend day was setting up.

The trend context made sense at the time, but it also made it difficult for me to palate the sharp selling reversal.  My thoughts became jumbled and I missed the opportunity to fade the second range extension on the day.  The aggressive selling push was futile because we had already made range extension higher after a strong opening drive.

The very fact that we set such a wide initial balance higher, driven by the buyers was strong indication of their returning confidence and control.  Taking the net sum of the market profile pieces, we can see the buyers gained almost complete control:

Our value area is overlapping/higher

Our close was higher

There is a large buying tail

The only piece missing is a migration of volume point of control higher.  This point of contention is critical today.  Will price revert back to value lower, or will value migrate higher with prices?

As of 8:15am, we are set to open outside of value on the upside.  Overnight, buyers gained control after a balanced session of trade and the result was a higher distribution.  This is a high risk environment where price can move beyond what we often consider normal.  Therefore it is vital we have price levels in mind to guide our context.

I have highlighted key support zones on the following market profile chart:

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