Tue Oct 8, 2013 8:27am ESTComments Off on Value Migrating Down
The hard selling into the bell yesterday continued on into the early overnight hours. The action was effective at breaking consolidating prices to the downside and testing recent lows. We are seeing a bit of buy strength working into the market as the US comes online and it will be interesting to see how we handle it upon opening.
There is currently a gap in place below which could lend itself to a fill do to its close proximity to our current prices. Should we then lose 1667 intraday, I believe that sets the stage for a leg lower.
Downside target continues to be the range from 1659.25 to 1657.00. Should we see strength coming into the market, I will be looking for reactive selling first at 1676 then at 1690. The sellers lose control over 1692.
The overnight profile suggests balance via printing a near-perfect bell curve. The move away from here may start with a head fake and then price slashing through the entire range quickly.
I have highlighted a few scenarios and the migration of value on the following market profile charts:
Mon Oct 7, 2013 8:08am ESTComments Off on Playing The Outside of The Field
This week I will be more actively trading the order flow in the /NQ contract. However I still see an opportunity to trade the /ES, but my goal is to hone in on one good trade idea, a fade from the outside of the range, and only take one or two trades a day.
Last night I highlighted a consolidation formation occurring in the /ES and it has begun breaking down. The primary support has not yet been taken out, but we are in a momentum environment where it looks vulnerable. Although the move away from this consolidation will pack serious energy, I see an opportunity to fade the move, even if only for 2-3 handles.
I have highlighted that opportunity on the following market profile chart and also I highlighted a few possible scenarios on the second market profile chart below:
As I have discussed in the past, one of my favorite data to gather and track is cumulative volume delta (CVD) on the front-month index futures. Considering the S&P futures are the most liquid financial instrument in the world it is important evaluate the volume a bit further.
CVD = volume traded at offer – volume traded at bid
Taking a look at the price action to start the month in conjunction with a moving average of the CVD offers us interesting insight into the overall market behavior.
The futures opened trade last Sunday in a similar fashion to tonight’s gap lower.
You can see pressure being exerted on the offer early in the week, especially when Tuesday hit and all the hot new money was put to work. Unfortunately, all of the power exertion was effective at only retracing into the upper bracket of our prior range. Like our distant relatives would study the stars and name constellations, the near-perfect distribution of volume formed during our prior range was named Da Vinci’s Brush. All that buy flow was capable of testing value area high and nothing more. There we found a patient, quiet seller resting on the offer. Actually, the seller may have been large enough absorb all of Monday’s buy flow. A whale, if you will.
It seems as if the more aggressive sellers caught the scent of this whale around the third and began pressing hard on the bid. The selling force was enough to reject the Da Vinci range and send us to new lows where again, we found dip buyers.
So we know where the buyers are and where the sellers are. Most importantly we know their battle lines are converging. The victor has much to gain with volatility on the rise.
The seller, our whale, feels bigger and more patient than the buy flow. If the buyers are to pull a victory this week, we are going to need more power. However this market has been unforgiving to bears all year long. We have distracted minds watching the bureaucrats and political emotions are running high. The overall climate is a combustible mixture much more volatile than a Tesla Model S battery.
Gentleman, you should take action according the how the following consolidation resolves:
The markets were fairly quiet overnight and staged a small rally in the early am hours which is how being faded back. Price is consolidating ahead of the US open and I suspect more chop is in store before we see any directional conviction today.
We are currently trading near yesterday’s VPOC which tells me little in the way of development occurred overnight. Instead the markets seemed to tread water, waiting to hear the next development out of the United States.
Early on, buy flow has a slight edge and if the market can put in a higher low here premarket we may get some additional vertical development by the bulls. Overall however, the situation has become much more choppy and indecisive.
I have highlighted a few scenarios and key levels on the following market profile charts:
Thu Oct 3, 2013 8:29am ESTComments Off on Day Three: Sellers After Hours
This is the third day I have woken up to assess sell flow in the overnight markets. The S&P rejected the large distribution we built into last week’s close which had a value area low at 1686.25. It came in the form of a rally that failed to take out the intraday high. Instead price fizzled out into the bell and eventually sold off hard after hours.
As aggressive at the evening sellers were, their order flow did not take out yesterday’s RTH low at 1673.25. Instead it stopped and turned on a dime one tick above the low. Since then we have snapped back and are trading sideways and the globex volume profile shows balance.
Early on the important manner is who pushes first. We have a low volume node at 1682 (o/n high) which looks vulnerable if some buyers come in early on.
My overall analysis is that if no aggressive selling comes in and we hold yesterday’s low, the stage is setting up for a rally.
I have highlighted some upside targets and a few scenarios on the following market profile charts:
Wed Oct 2, 2013 8:24am ESTComments Off on Heavy Selling Overnight
The overnight action in the S&P saw a wave a selling rip though overnight pressing prices over 15 handles off the high. Since then price has rotated higher a bit and we are currently trading about 8 handles below yesterday’s close.
Early on price is negotiating an interesting level right here from 1681 – 1683 which was a huge volume cave during yesterday’s trade. I am interested to see who dictates price away from the range and the directional conviction they carry with their trade. It could certainly be the hand tip during the morning session.
With a gap of less than 10 handles, it is prudent to keep the gap trade in your contextual mind during today’s session. The sellers hold the momentum edge currently and it would not surprise me to see another push lower from them early on. But it is important to consider the possibility of trapping shorts on that move and the implications it has on a potential gap fill.
I have highlighted a price levels of interest and a few scenarios on the following market profile charts:
The S&P was able to follow through on the strength that entered the market late yesterday afternoon. Huge volume poured into the market near the bell, pressing us into the upper quadrant and above the VPOC. Since then the market has fizzled a bit and is mostly trading sideways about 1.5 points above yesterday’s close.
Since gapping lower Sunday evening the market has been slowly climbing back toward Da Vinci’s brush which was the naming we used for the very large value distribution that formed during the second half of last week. The question now is how we treat this value. Can we get back inside it and sustain trade for more than an hour? If yes, there is an 80% probability we will rotate the entire area. If instead we test 1686.25 and the market sharply rejects price, we may be in store for a more broad based correction. We may even reject the area initially but find sellers cannot follow through on the rejection but instead run out of gas. These are three scenarios you must consider when observing a large balance of trade.
Overnight we printed two TPO distributions, but a relatively Gaussian volume distribution suggesting we are finding balance in the marketplace. We saw a sharp buying tail on Monday morning that bulls do not want to see given up which starts at 1671. Trading back below that level shows definite weakness from a once otherwise strong buyer.
I have highlighted these levels and a few scenarios on the following market profile charts:
Price is/was/will always be the final arbiter, but I like to use cumulative volume delta to peer a little deeper into order flow. Check out the below graph, the below line is averaging the delta (volume at offer – volume at bid) to smooth the behavior out so I can better observe the trend.
Since the 26th, more orders are taking place at the offer than the bid suggesting aggressive buyers are more active than aggressive sellers. Perhaps the developing shape, wall-o-worry, is leading the market. Perhaps buyers are getting too far ahead of themselves and will blow their buying power before an actual move. Nevertheless, the bid is present:
Futures opened weak Sunday evening amidst headlines of a government shutdown. Whether or not this established news flow is the reason for the gap lower, or if instead some other macro characteristic fundamentally changed over the weekend I cannot say. What we do know is today is the final day of the month and we are coming into it with a 15 handle gap in the S&P.
These so called pro gaps are named as such due to their quirky behavior and proclivity to defy smaller gap-like tendencies. Simply buying the open with the expectation of the gap filling higher is a fools endeavor unless said fool possesses very deep pockets and radical risk tolerance. Instead one would be keen to closely observe the first half hour of trade and do their best to classify the opening type and the implications it has on both buyer and seller conviction.
Early on, my initial hypothesis is for sellers to push and attempt to drive lower on the gap. However to my eye the task seems daunting. There have been three rotations lower since the intial gap down and in their sum they have only achieved four handles of rotation. The market keeps bumping its head on 1676. Should the buyers breach this price and sustain trade, we would be well on our way toward navigating this overhead gap. Watch for head fakes!
Down below, I am keying off of two support levels dating back to the early days of September: nearby 1669.50 and the ghoulish 1666. Should the market furiously slash though these levels early this week, it may be prudent to raise cash levels and consider hedging.
I have highlighted a scenario and price levels on the following market profile charts:
The /ES is working on coming into balance, and that process has continued overnight. Overnight there were seven handles of range but it took place within yesterdays range. Price was unable to take out prior day highs (or lows) as it auctioned through the night. Instead we saw a quiet auction taking place within the confines of our lower distribution.
Early on we may see sellers working back into the market to close any overnight gap back down to 1686.25. This level also marks the value area low set by both distributions yesterday. If bulls want to effectively impede the sell flow, they can start by holding value and setting a higher low.
Overall my expectation is for continued choppiness which means we are in a trading environment conducive to intraday Bossram Alpha signals. The key is patience and letting the market come to your target entry points—think Braveheart holding the line alongside his army.
I have highlighted a few scenarios and price levels of interest on the following market profile charts: