The economic docket features several heavy hitting events for the week ahead.  Starting with today at 10:30am when the ECB announces Covered Bond Purchase plan.  We also have Dallas Fed at the same time.  Premarket Tuesday we have Durable Goods Orders being announced followed by Consumer Confidence at 10am.  Come Wednesday afternoon we will be hearing several data points from the Fed including Pace of several asset purchasing programs, QE3 Pace, and the FOMC rate decision.  Thursday we hear Q3 GDP out of USA.  With all of that in mind, it behooves the speculator to turn their attention to the real information by observing our recent price action and volume behavior.

First let’s return to a weekly chart of the actual Nasdaq Composite.  Most of our charting of the Nasdaq features the front-month future contract, however the index itself often offers interesting and relevant action points.  Before volatility came into the market we saw price grind up and through the open gap left behind 14 year ago during the dot com bubble.  Once filling the void, prices printed a series of doji-type candles which signal indecision.  The final doji was long-legged then we began heading lower.  There was a responsive bid during most of the process which can be seen as tails on the candles or ‘shadows’.  However, three weeks ago we printed a large red candle down that closed on the lows.  Then two weeks ago we print a massive hammer candle, then last week a huge green candle.  The question now is whether the hammer-plus-confirmation allows the long term uptrend to continue.  As you can see price has come back into a prior area of resistance.  I suspect we see the market struggle to go higher at the least.  What bulls do not want is a fast rejection down—especially one that gives back 50% or more of last week’s gains.  I have noted these observations below:

The most recent and key takeaway from the above chart is that it is long-term bullish and the recent action printed a hammer reversal.  Thus, now coming to the daily chart, we know we want to know where the midpoint of that move is and how the volume structure looks between current prices and the mid.  I have noted the mid below as a solid blue line.  Above there are two distinct valleys where volume drops off significantly.  These can be fast regions for price action.  If instead price struggles to traverse these zones that would be an indication that buyers are sustaining control on the day-to-day timeframe.  I have noted the brackets around these low volume regions and other observations on the below daily chart of the December /NQ future contract:

Finally, I have noted the key price levels I will be observing short term on the following volume profile mash up chart:

Nasdaq futures are up over 25 points ahead of cash open on a session which featured two major up rotations, one near 3:30am when Europe opened and another around 7am when early earnings announcements started coming out.  Some of the buy flow is being attributed to better than expected earnings from CAT, who also saw a sizeable stock buyback occur.  8:30am we had Initial and Continuing Claims stats which came out in line with expectation.  We have house price index at 9am, leading indicators at 10am, and then Natural Gas Inventories at 10:30am.

The Nasdaq is gapping just above the prior day range, and the size of the gap is what some consider ‘pro’ meaning an attempt to fade it is likely a trade only accomplished with very deep, professional pockets.  The risk to such a trade is the volume pocket just above which could act as an accelerator if prices are not rejected away from the vacuum.  The open will be vital to today’s trade.  Do responsive sellers show up and dominate?  Or do we see a dominant buy flow which sweeps us up into this pocket?  See below:

The one trait sellers did not present yesterday which had been rather obvious during other down days was the strong volume and big negative cumulative delta.  Instead we compressed yesterday.  I have been keen on this prior balance zone formed to start October.  When it formed to start the month I thought we would leave it to the upside.  Instead we explored lower, found a sharp responsive buyer, and now here we are revisiting this zone.  The MCVPOC held as resistance yesterday but we might explore through the region today to the other side (above).  We also have the ‘LVN Separator’ at 3937.25 below as a key pivot should sellers price reject out of this area.  These very important levels, as well as other vital price levels are noted below on the following volume profile mash up chart:

Equity futures are flat overnight after a quiet session of digesting yesterday’s move.  As we approach US trade the CPI stats are out and roughly in line while some traders may have expected a bit softer of a number.  This is lending a bit of strength to the US dollar early on and the initial reaction in Nasdaq futures is muted.  Buyers managed to extend yesterday’s progress a bit during the globex session before finding responsive sellers who neutralized the session.

Below is a daily chart of the Nasdaq futures where we can see just how sharp of a rejection buyers created with their response to the discounted prices.  I noted the midpoint of the down move yesterday which is at 3902.375 and I combined that with the midpoint of the current up move (which is still in development) at 3832 to highlight a broad ‘pivot’ area.  Whoever controls this zone has an opportunity to control the long term timeframe.  There is also a very well defined LVN above current prices as we press into the scene of the breakdown.  My expectation is for the market to find responsive sellers at some point today:

If you look at the nearest profile to the left of our current prices, you can see our ‘template day’ or the day we are trading relative to is thin north of 3979 until about 4014.  If this was our only observation we might consider the risk of a fast slide up this zone.  However, there is a larger balance in play up here.  It is the red and green micro composite on the left side of the screen.  It tells the story regarding the last auction we held at these prices.  I have carefully selected the price levels I will be observing as we enter this zone (and beyond) on the following volume profile mash up chart:

Four hours of continuous buy flow impulsively ripped through the globex marketplace this morning.  The move is being attributed to an ECB corporate bond buying plan according to a few media outlets.  The ‘why’ of a move is often the focus of media outlets, but we focus on the ‘how’.  We know for certain a dominant buyer overnight rejected us away from yesterday’s prices.  This puts the Nasdaq out of balance as we approach cash open.  Our next job is to assess how RTH participants react to this new development.

There is a general consensus of skepticism surrounding the market bounce currently taking place.  The dip lower that precluded our current market bounce was fast and spanned a wide price range.  This leads many to suspect any bounce will eventually roll over, likely before attaining new highs.

That theory becomes a bit thorny as we enter today’s session.  We are now pushing into a zone where the market is likely to find sellers, however if they instead back off the tape we have a high velocity move underway which could carry us to new highs.

Buyers were impressive yesterday.  The session started with a strong push higher, lingered for the rest of the day, and finally made another thrust up into the bell.  Looking at the daily chart below, we can see prices probing a prior area of support which also features a high volume node.  It appears we will ‘test through’ this zone to the LVN on the other side before determining if this zone will be converted into resistance.  On the whole, this is the first real pullback since this move started.  I have noted the motivated move lower, its midpoint, and a few other observations below:

We always observe the midpoint of a major move in the marketplace.  Major is relative as the markets produce similar patterns on multiple scales and timeframes.  This is why you hear the word fractal thrown around in these parts.  Put simply, the mid is a simple number to calculate and observe which makes it easy to run statistical analysis on, build trade ideas on, and build executing algorithms upon.

On the shorter 15-minute timeframe we can see the market is returning to its normal function of balance-discovery in a quest to determine value.  The recent low printed a clean balance volume profile before we began exploring upward.  Now price is probing into the volume profile printed just after we left a 7-day balance and only moments before we printed the fastest leg of the downward move.  This is our template day of volume-at-price to observe for today’s trade.  I have highlighted the key price levels I will be observing on the following chart:

Nasdaq futures have seen a slow in pace as we enter the new week.  Last week (OPEX) featured the highest volumes both in regular session and globex that we have seen in several years.  As  we embark on a new month of risk, activity has slowed.  Since opening for trade Sunday afternoon the price of the Nasdaq front month (December) futures contract has traded inside of Friday’s range suggesting overnight/weekend participants accept Friday’s range as balance.  The session kicked off with a low volume rally which slowly evaporated through the duration of the evening.  The economic calendar was quiet overnight.  We have China GDP numbers out this evening and USA CPI on the docket for Wednesday premarket.  Earnings season is ramping up throughout the week as well.

The market became a bit illiquid last week as participants aggressively sold equities.  Price action ‘broke loose’ which is a phrase we often use to describe the price action following a break from compression.  In these conditions, the quest for value and balance go out of whack and we are offered a rare opportunity to see real human emotion play out in the tape, often fear.  The event leaves a ripple in our environment and is likely to continue affecting the behavior of prices going forward.  Remember, price has memory.  Fortunately, the action managed to form brackets last week—guideposts we can use to assess price and volume going forward to determine if either the buyer or seller is gaining control.  I have noted these brackets on the following daily chart.  Note how prior zones of support and resistance are transformed into their counterparts:

Given the progress of sellers over the last 1-2 weeks, the micro composite from Wednesday/Thursday, and especially given the amount of volume which came in on the downward action, my short term bias is medium bearish.  You can see three volume profile print-types: the large composite on the right (months of volume-at-price), the red and green ‘micro composite’ facing the opposite way of all the others, and the daily volume profiles.  Each tells me a different story.  I have noted the price levels I will be observing as opportunities on the following 15-minute volume profile chart.

Markets operate on fractals which occur on all timeframes and they look the same only the scales can be much larger.  One of the predominant characteristics of the market is to ‘check back’ or revisit a zone where a significant event occurred.  Once the Nasdaq broke loose to the downside its first stop was the major resistance zone we printed back in March 2014.  As we approach US cash trade, we are seeing some follow through from buyers who showed up at this level.  Volumes are still running on the high end in the globex session, but, as you might imagine, they are lower as we head higher.

Giving boost to index prices is speculation of additional stimulus according to many of the media outlets.  However it makes more sense to attribute this move to the oversold conditions which have persisted in the market since last week.  The issue we have is how long the market stayed oversold.  This type of long duration oversold event often precludes a shift in sentiment overall.

Investors are looking for this round of earnings to build confidence in the marketplace and thus far results have been mixed.  The earning season is only beginning however.  We have U of M Confidence numbers at 10am and an otherwise quiet economic calendar.  Also, although it might seem a bit trite, I continue to monitor the trade in NFLX after its jaw dropping 20% move to see how the market digests it.

I have noted the ‘check back’ on the following chart, and also where we are likely to run into some sellers.  These are very broad brush strokes which we can refine on a shorter timeframe, and then refine on a shorter timeframe, and then refine on a shorter timeframe to day trade.  However, stock traders and swing traders/investors should be keen on these zones:

We are currently trading on the upper edge of yesterday’s range and it will be important to observe early on if buyers reject yesterday’s range.  If they do, we are likely to explore higher which puts prices into an air pocket which might lend to upside acceleration, especially if shorts begin to cover.  You will also notice the 2-day balance we formed on the lows featuring a clean taper bottom and a centralized VPOC—lovely symmetry.  I have also noted the price levels I will be observing:

Nasdaq futures are hovering right around yesterday’s low as we head into Thursday’s trade.  Volume overnight is above yesterday’s and that is saying something.  We are running at extremely high volumes in the globex session (and RTH).  This market is doing a very good job of facilitating trade as it heads lower.

Tomorrow is option expiration day after what has been the fastest down week of the year.  As we wrap up the week there are a slew of economic releases including manufacturing numbers at 9:15 am, Philly Fed and Housing Market index at 10am, and Friday we have more housing stats premarket then U of M Confidence at 9:55am.  We also have the Ebola, taper, major earnings including Google, and a big down market.

Yesterday I put out a note about how this type of action is surly to attract the interest of a higher timeframe.  Depending on how we close, this news will reach many normal folks for the first time over the weekend.  It will then be their discretion to act.  We have no way of truly knowing how their perception will color the market, however we can continue to be vigilant as the increasingly risky hole shorts continue to win out in this marketplace.

We have been zoomed out and looking at the daily chart of the Nasdaq futures since the span of price action has accelerated.  As you can see, yesterday occurred on the heaviest volume we have seen this year.  The low printed on the session was of decent quality, meaning, we saw a sharp response from buyers which left an excess low.  This type of buying action can motivate others to begin legging back in and using this larger buyer to lean on for support.  Therefore, if we do not see similar buyer strength near these lows today, it might result in another leg of selling as the fresh buy flow loses traction.  Nevertheless, we can look for signs of follow through today as an opportunity at a tradable trough.  Note how we are coming into an area that was vehemently defended by sellers earlier in the year, this is very likely to behave as support:

A commenter once asked if I keep a running count of the naked VPOCs the market leaves behind during a swing.  I never have, but as we systematically ‘check back’ to these levels during this correction I could see the merit in such a counter.  Every day when I ‘look left’ and take the time to find the highest quality reference points I have another naked VPOC to note.  The market loves to retest these HVN price zones before continuing higher and our most recent leg up abandoned that idea and marched higher relentlessly.  Now that we are on the other side of the mountain these levels are being worked.  I have noted the next NVPOC at 3676 as well as a few other observations on the following intermediate term chart.  Do not let this chart confuse you, it is simply key price levels to observe in the seller controlled intermediate timeframe:

Nasdaq futures are down on heavy volume overnight.  As we approach US cash trade prices are trading below yesterday’s range.  Prices were soft overnight and accelerated at 8:30am when Advanced Retail Sales and Empire Manufacturing came in lower than expected.  We also have Business Inventories at 10am and Fed’s Beige Book at 2pm.

Whenever the market gaps outside of the prior day range we know with certainty we are out of balance on the short timeframe.   Overnight participants have rejected yesterday’s range and once the stocks which comprise the index begin trading the new development needs to be priced into the market.

The daily chart illustrates just how fast this market is travelling down and how little difficult it has been, this week especially, to find a motivated buyer.  Once Monday rejected the V-shaped bounces of last week it sent a strong indication that sellers were in control.  Until we see buyers able to take out a prior day’s high the momentum is lower.  What is lending to the velocity of the move is the toothy volume profile we built on the way up.  Each time we slide down through an high volume zone there is another volume pocket which provides little support. The question now is whether we will traverse the next region to return to the very thick profile developed the first two quarters of this year.  I have noted this and a few more observations on the following daily bar chart:

One might make the argument that the daily chart is neutral or even bullish, however there is no confusion on the intermediate term timeframe which is trend down seller controlled.  Yesterday I suggested we needed to see something drastic to change that control.  To clarify, an event would need to be drastic to alter the intermediate term control in one day.  Something less drastic, perhaps lasting 5-6 trading days, could also serve to put this timeframe back into balance.  In the market profile webinar I discussed how high volume nodes don’t make good entries.  That is because often times we traverse the entire high volume region and test the other side of it before determining if it was an effective zone for turning price.  That is what we are looking for today, as we test the low volume nodes on the other side, if it is in fact support.  I have note the key price levels I will be observing on the seller controlled chart below:

Nasdaq futures worked higher during the globex session, with the bulk of the move occurring after 7:30am when we started hearing about earnings from a few banks as well as JNJ.  The economic news from the UK and Europe was all soft overnight but the market appears more reactive to the earnings environment today.

The market worked back to an area of prior liquidity yesterday after failing to sustain trade at the prior high volume zone around 3890.  The thin pocket we fell into offered prices little opportunity to sustain themselves.  However, just below yesterday’s low was a spike of volume left behind when sellers previously defended this zone with rigor before ultimately giving way to higher prices.  These are the places where we look for signs of demand—places where sellers previously played defense.   Converting resistance into support is a characteristic the market often demonstrates. I have noted this level as well as the air pocket below it on the following daily bar chart:

The issue bulls have to contend with is the motivated manner by which the market is trading.  Volume on the Nasdaq futures during the last three down days has been at the highest seen since around 2011.  The market is a mechanism designed to facilitate as much trade as possible between as many parties as exist.  Since the 9/19 failed auction high we have seen a clear pattern of lower highs and lows emerge on the intermediate term timeframe.  At some point this selling exhausts itself, and perhaps this morning’s strong gap up is an early sign of exhaustion.  However it would take something drastic to turn the course of our current intermediate term direction.  I have noted key price levels I will be observing including a price level I consider “drastic” and also noted the granular detail of the HVN zone we are trading down into (see prior chart) on the following intermediate term profile:

Traders are coming into the week with the Nasdaq futures up a bit on this Columbus Day session.  The globex market opened Sunday evening and showed some continuation on Friday’s weakness which made sense considering how we closed on the low tick of the session Friday afternoon.  Prices began to recover their losses a bit around the time European markets opened up.  The economic calendar is a bit slower this week and back loaded, with the highest impact announcements coming Wednesday (Advanced Retail Sales, Fed Beige Book) and Friday (U of Michigan Confidence).

Turning first to the daily chart, we can see just how weak the market has been since the Alibaba IPO.  Correlation does not indicate causation, however, we also printed a failed Nasdaq auction on the day BABA came public.  Since then we cannot find a sustained bidder in the market.  Instead we continue exploring lower, like Columbus, in search of buyers.  I have noted the activity below:

Becoming a bit more granular and observing the 15-minute chart, we can see how balance began to form at the start of October despite the failed auction and inability to string together two up days.  It was a violent form of balance dating from Oct 1 – last Thursday.  Friday we opened on the lower range of the micro-balance and rejected it, starting anew the discovery process.  I noted in purple how the market made a strong bounce and ‘rechecked’ the scene of the rejection where if verified seller control.  I have noted this as well as the key price levels below (dating back to June) and above:

I am in development of a new market profile chart this week, thus I will primarily focus on the intermediate term chart these first few days of the week.  I am also allowing Xfinity a second chance as I start the week after their linesmen and women demonstrated some of the highest customer service I have seen over the weekend.  Thus, I will be a bit hands off until the systems prove stable.