Nasdaq futures traded quietly for most of the night before sellers came in around 8:30am.  Since then, it appears the sellers have taken control on the very short term in an otherwise balanced overnight session.  There are some retail store numbers out premarket including the Redbook, and we have several treasury auctions in the afternoon.  The economic calendar is otherwise quiet for the session.

Buyers pressed the envelope of extreme on the intermediate timframe yesterday after starting the day with a short squeeze.  The market profile print into the early afternoon resembled a P-shape, which signals a dynamic short squeeze which failed to attract fresh initiating buyers.  However, buyers were enticed by the higher prices eventually and an afternoon rally took shape.  You can see we are trading above a composite volume pocket below.  This may be traversed several times today and during the rest of the week:

On The short term, buyer are in control but we are set to gap lower a touch in a thin volume zone.  One must be careful in this region as price can move very fast.  I suspect we retest yesterday’s VPOC if sellers continue their early campaign, and we still have a large gap left below on the weekly chart.  I have highlighted a few short term observations on the following market profile chart:

Nasdaq futures drifted higher while stocks were closed for trade Sunday and Monday, and as we approach USA open prices are around 15 point above our Friday closing price of 3675.  Durable Goods Orders came in better than expected at 8:30am but was received by the market with a muted response.  This may suggest buyers have already priced in best case scenarios on the short term.  Or perhaps participants are moving slow after the holiday weekend.

The short term pivot level early on appears to be 3689.75.  Taking a look at our 24-hour profile which includes all of the globex trade during the holiday, we can see a buildup occurring just below this level before finally bursting through.  The resulting profile has a low volume node at this action point.  See below:

Buyers are in control the intermediate term swing.  Price has been trending higher since setting swing low on 5/20.  The action indicates other timeframe (OTF) activity.  These longer term participants became evident last Wednesday and now they are coming into the week in control.  There is a possibility we see some profit taking by the OTF early this week, and an early tell about the profit taking and the overall health of the market will be the depth of the next pullback.  It seems bulls will want to hold 3645.25 which is Friday’s low print and a low volume node on our composite.  Otherwise the door swings wide open for a fast mean revision trade to take hold:

It is important to keep the long term market structure in your mind even while you trade the very short term.  Looking a monthly candle chart you can see the sideways churn or bracketed trading action.  Markets spend around 70% of the time in balance.  Hanging out up near the dot come bubble peaks for this long is rather interesting.  What is it telling us about the overall health of the marketplace?  What is it telling us about investor risk tolerance?  See below:

The Nasdaq is trading a touch higher after a relatively quiet and balanced overnight session.  As we roll into the holiday weekend the economic docket is quiet, with only new home sales at 10 am and some markets closed for trade at 2pm.

Given the weekend context and the strong progress of the week, we may see some profit taking where sellers are more prevalent then they have been during the rest of the week.  Yesterday the buyers continued to show control on the short term where value migrated higher without any overlay of the prior day.  The action dried up a bit and as a result we printed an oddly shaped profile with almost two distributions.  We may see this area of low volume more thoroughly auctioned today:

The intermediate term is really attempting buyer control here, and I will say they are in control of the current swing, but it is just barely confined to the intermediate term balance.  We exceeded the prior high of the intermediate term balance yesterday by two points.  However another leg and sustained prices above yesterday’s high would be needed to establish a strong foothold of the intermediate term time frame by buyers.  I have noted a few other key upside levels as well as our two point range extension below:

Don’t lose sight of the big picture.  These are important prices we are trading:

Volume may be light today, so have well established price ranges and try not to get whacked by the day traders.

We never know how far the market can go in any one direction.  We can however monitor the action and look for signs of continuation.

Nasdaq futures  are trading a touch higher after giving up some of the overnight gains when the 8:30am jobs report hit the tape.  We are currently trading just above the low of the job claims selling as the USA comes online.  The overnight session formed an odd ledge which is likely to resolve early on, especially given the proximity to the overnight gap.  See below, on the 24-hour profile:

The regular trading hours profile shows buyer control, however not the radical jolt higher radical control we have been managing to trade lately.  Instead we saw buyers respond to early pricing as if it was a discount, and later in the session more buyers came in and initiated fresh risk.  Toward the end of the session we saw another rally which printed a high volume node near the high of the session.  This is interesting and suggest the market was successful in facilitating trade at these higher prices.  Higher advertised prices brought more buyers into the market.  See below:

We need to remember however, that we are trading at the high extremes of intermediate term balance.  Gravity may kick in and pull us back to the mean, which is now very far from current prices.  Should this occur, we would first need to lose some important composite low volume nodes.  I have highlighted the levels below which sellers would have to bunker bust to cue the revision trade:

The overnight auction is slightly higher in the Nasdaq index after an interesting neutral session yesterday.  As the week continues on, volumes are light and likely to decrease as we head into the holiday week.  Note: US markets will be closed Monday in observation of Memorial Day.  We have lots of Fed talk on the docket for today which may lend some volatility to the market. However, as the USA comes online we are priced to open inside yesterday’s value and range.

Yesterday was a neutral day, the type of market profile print where price range extends beyond both extremes of the initial balance.  These profiles suggest aggressive indecision on the behalf of the marketplace and tend to occur at or near inflection points.  The volume profile print that resulted from the action shows the heavy indecision with a wide distribution and several high volume nodes throughout the profile.  We settled near the mid, but there are some interesting characteristics and price levels from which we can glean some intraday insight as today progresses.  See below:

Since we can see the seller above, and we can also see the thin structure they desire to press price into, we can zoom out to the intermediate term and see why their presence is being felt.  See below:

And if we zoom in on the intermediate term action, we can see the microcomposite low volume node that is pivotal on this timeframe, 3599.75, which you just as easily could have conjured by watching the price action around the 3600 century mark.  But at least we know there is a why in the equation.  As adult learners we always want the what and the why.  See below:

Finally, going to the very long term weekly chart of the Nasdaq composite, we can keep our mind wrapped around the brackets we are trading in.  The market spends more time bracketing then trending, so you need tools to trade these conditions.  See below:

Nasdaq futures are trading a touch higher overnight in a mostly balanced session.  The key feature that stands out from the 24-hour profile (which includes our globex session) is the ledge that formed at 3607.25.  Markets have a tendency to spill over, or “flush through” these ledges.  The context of a ledge is interesting because we can glean insight from it.  If the market is instead unable to press below the ledge, then the profile piece is indicative of a strong bid in place.  I have highlighted this ledge below:

Taking our eyes to the intermediate term timeframe, we are at the top of our bracket range.  This zone is as challenging an environment as I know to trade within.  The forces of mean revision act like gravity on the tape and their powers are stronger until we exceed balance and begin exploring elsewhere.  This is week 7 inside this bracket range which is fairly old in market years.  The potential does exist to breach and explore higher, however you should be looking closely for signs of weakening propulsion.  There’s no need to get fancy in this regard, keep your eyes on 3600.  There is a very low volume node at 3599.75 which separates us from the main pull of mean revision.  See below:

Short term, we are buyer controlled with yesterday’s profile finishing out with a strong distribution atop a thin zipper.  This looks like an exaggerated short squeeze profile which often takes on a P-shape.  It suggests the progress made in the morning was sufficient for the day and did not entice enough new buyers to continue the trend.  That makes sense, given we have an entire week left.  Upside targets are the 05/13 high at 3624.25, then the naked VPOC from 04/03 at 3631.75.  Caution below the profile ledge at 3607.25:

We are coming into Friday with the NASDAQ basically flat on the week after a strong gap-and-go higher Monday.  The overnight session was balanced and our profile print left an interesting shelf up above at 3567.25.  This type of incomplete profile gives us a big clue early on.  The market will most likely spill over the shelf which could take price to some interesting levels early on.  Of course, if the shelf holds, that odd behavior would tell us the market is in the firm grip of seller control on the short term.  See below:

The intermediate term continues to hang on the balance despite a valiant attempt to escape from buyers.  There was a thin market profile print yesterday, a zipper, which price slid right down through.  However, the intermediate term remains balanced.  I have noted only the lowest of low volume nodes to keep the noise level low on this chart.  See below:

Sellers took control on the short term during regular trading hours, despite our shelf action mentioned above.  On the short term, sellers successfully dictated price lower and value followed, pressing and closing the weekly gap we printed Monday and stopping precisely at last Friday’s value area high.  I expected this fat, well established profile to be revisited as these types of profiles exude a strong gravitational pull in times of mean revision.  The key today is whether we can hold yesterday’s low which coincides with the value area high from Friday.  If not, we are likely to trade through the value area.  On the upside, the market can zip right up the thin profile just like it zipped down it yesterday.  The action is thin from 3572 – 3586.  The a break of the shelf mentioned above may take price into this thin region.  I have highlighted these two interesting contextual pieces below on the market profile:

Nasdaq futures are a touch lower overnight in a quiet session of trade.  The overnight profile shows a slight selling wick above after a wave of selling came through around 3:30am.  Today is a busy day on the economic calendar and we are currently priced to open inside range and outside of value presenting only a slightly elevated risk environment.

The intermediate term auction is still in balance and buyers responded to the late afternoon selling yesterday.  As frustrated as I was at yesterday’s close with many of my swing positions, conditions favor the longs.  If buyers can hold yesterday’s lows we may be looking at a buy-the-dip opportunity.  Below you can see what I am referring to:

When I zoom in on the short term auction you can see the downside risk.  There is a very thin profile structure below current prices and we could easily slash through these levels.  On the contrary, the profile print yesterday has the potential to show a bias to the buyers.  Value never migrated lower, instead hanging on right at Tuesday’s LVN at 3606.75.  Value also overlapped Tuesday action which suggests we were coming into balance.  The late afternoon selling may have been a shakeout because a responsive buyer came in.  The key to validating the responsive buying tail is two TPO prints which hold the line.  Otherwise, we can slide right down into Monday’s lows and potentially fill the weekly gap we printed Monday morning.  See below:

Nasdaq futures are currently priced to gap lower about 10 points after a wave of selling took out Tuesday’s opening swing low at 3606.50 around 6am.  The selling accelerated at 8:30 when the PPI numbers were released.  As price currently stands, we are set to open out of value and out of range suggesting the short term is out of balance and the risk environment is high.

Risk of an opening drive is elevated today, especially given the big gap left open from Monday’s open.  The stakes are high because not only are we inside of option expiration week, but we also have prices on the Nasdaq which are attempting to escape intermediate term balance.  Paramount to achieving this is printing a higher low on the intermediate term.  I have roughly chosen 3595 as the price where I want to see signs of responsive buying.  If they do not show up, we could be in for a fast liquidation trade because mean revision will set in and the short term profile structure below us is thin.  Here is a picture of the intermediate term balance with relevant price levels noted:

In the short term auction, yesterday was a neutral print with range extension on both sides of the profile.  These prints tend to occur at or near inflection points.  The profile shows responsive selling coming in soon after we range extended higher and taking out the lows.  The rest of the action was spent printing volume in the bottom half of the profile which made for a saggy look.  My expectation was for price to balance out this profile by trading down to 3595.  I did not however expect to be waking up to these prices.  Buyers continued migrating value higher yesterday which tells me the short term auction was still buyer controlled as of yesterday’s close.  I have annotated the market profile below:

Scenario 1: market tests lower, finds responsive buying between 3595 – 3593.75 and begins rotating back to VAL 3606.50

Scenario 2: market tests lower, takes out 3593.75 and accelerates lower- opening drive down

Scenario 3: market tests higher finds responsive selling at 3606.50, balances out above Monday VPOC 3597.50 and then goes for overnight gap fill to 3608.75 then VAH 3614.75

It seems as if each time we see a few progressive up days in the Nasdaq we soon see a session of heavy selling which unwinds all the progress made.  This behavior has conditioned astute swing trades to fade the rips.  The question now is whether we see more of the same or instead the market begins climbing a wall of worry.  You can see a few recent examples of what I am referring to on the following daily Composite chart:

With the long term in balance and a bit of skepticism about joining strength, we have to question intermediate term balance.  I have expanded my intermediate term profile to encompass 26 sessions of trade because price was escaping the shorter 18 session balance.    As you can see below, we are trading up into the thin upper tail of our balance.  This zone is where action can become rather interesting as the pull of mean revision is strong but with enough propulsion (buy flow) we can escape balance and swing higher.  We left a big gap in the chart yesterday which suggests strong buying but also leaves a sloppy chart behind.  I have marked the key levels below which buyers need to defend to keep us on a swing higher ascent:

The short term is buyer controlled.  Although the larger timeframes show balance, on the short term we are out of balance and exploring higher.  Price action and volume were dynamic enough yesterday to press our entire value area above the prior (Friday’s) day’s session.  One cannot predict whether such upward progress will continue, however we can monitor the continuation via some key price levels.  Between the price levels highlighted above, and the ones below, we can determine if buyers are coming in today and initiating into strength by defending these key levels: