Nasdaq futures are lower this morning on heavy volume and an above average range.  The selling started not long after cash markets closed in the USA and it made an aggressive rotation between 3-5am.  The economic calendar is quiet as we head into the weekend with the most significant events being various Fed members speaking at 9am, 1pm, 2pm, and 3pm.

The Nasdaq is the weakest index this morning, but before we get too far ahead of ourselves, let’s have a look at the monthly volume profile chart to have an idea of where we are trading.  Imagine you were driving from New York to Las Vegas.  Being a resident of New York you are familiar with the roads you need to take to reach the major interstate.  Once on the highway you can use a national map to guide your course.  Once you enter the state of Nevada you would switch to a state map and once inside the city a city map and once inside your casino perhaps a casino map.  The monthly volume profile is your national map.  As you can see below, we are still trading above the largest volume distribution of August.  When we went for a rally in August we left behind a poor structure which the market is now retesting.  The current pocket we are trading in had decent price memory in July, but just above us (the two yellow lines) there was little-to-no history until this month.  This is settling unfinished business.  Price could still head lower but at the least we know we are coming into some solid structure:

Turning to our state map, the intermediate term timeframe, we can see that the last time we traded down at these levels was back in early August and when we did, the region just below our current swing low was traversed rapidly.  The initial surge out of August swing low left a gap behind.  The gap-and-go was strong support when it happened.  We had conviction in the long at the time because of it.  Now we are back here, and the area becomes a candidate for retest.  This does not mean it must happen, however we have an expectation it will and if instead the market cannot then we can see the other side, or buyers, emerging.  I have highlighted this gap and other key price levels on the following volume profile chart:

We are currently priced to gap below yesterday’s range.  Any time the market opens outside of the prior day’s range we know prices are out of balance.  For a moment yesterday we thought balance may be forming however this open suggests we are still discovering value.  Pulling up the city map, I have highlighted the short term levels I will be observing on the following market profile chart:

Trade volume is high overnight in the Nasdaq futures after we printed a 3^rd standard deviation range during yesterday’s session.  The session range overnight is within the realm of normal even under the high volume circumstances.  Prices managed to take out yesterday’s high of the session before finding sellers and the selling accelerated just before we heard from the Bank of England who released in-line Asset Purchases and Target Rate Decision.  Initial and Continuing claims were released at 8:30am the claims were lower than expected suggesting the labor market is improving.  The initial reaction to the jobs data is a slight bounce.  Mario Dragi is set to speak at 11am which has the ability to move markets.

Yesterday’s move was large enough to consider returning the intermediate term timeframe to balance.  Thus I have added a profile to the left of the chart which encompasses the range of recent balance and also gives us a good view of the auction taking place.  I have noted the key price levels on the following chart:

On the short term we can see how elongated the market profile became during yesterday’s large move.  This type of structure suggests buyers sharply rejected lowers prices with a strong response.  Whether they have the conviction to defend their progress today will be key because the expectation is they will, at least for a day or two.  I have noted the key price levels I will be observing on the following market profile chart:

Nasdaq futures chopped about in an active session of trade overnight after yesterday printed a directional distribution-type day.  The primary expectation after yesterday’s distribution is chop with a downward bias.  The wildcard today comes in the afternoon, where the market will receive minutes from the September FOMC meeting.

Yesterday the market went neutral early.  Prices wasted little time range extending higher in the morning and pressed into Friday’s range where we found responsive sellers who pressed us through the initial balance and out the other side.  We were in a neutral print before noon.  When buyers made a second attempt higher they could not and choppiness gave way to afternoon selling.  The neutral extreme type print carries strong directional conviction by the sellers, second only to the trend day.

Below current prices we have the strong buyer reaction from last Thursday.  Whether buyers carry the same conviction today will likely be tested.  If not, then price is likely to continue discovering lower in an attempt to find a buyer.  Below last Thursday’s low we might begin to explore the 8/12 price range where an open gap and naked VPOC exist.  Have a look at the cumulative delta on the bottom of the chart as well which emphasizes the strength of the selling pressure yesterday.  I have noted these prices and other observations on the following intermediate term volume profile:

I have noted the short term price levels I will be observing on the following market profile chart:

Interestingly enough, when we first traded up to 4000 in the Nasdaq futures back in August (at the time we were trading the September contract and the ‘spot’ was a bit different) the market gave the price no thought and simply pressed through it.  Demand was high.  Even more interesting is how the market is currently coming to terms with the millennial mark.  As we approach US cash trade, price is straddling the 4000 handle after building support in the region during yesterday’s trade.

There were some fast selling rotations occurring overnight around the time the Swiss were releasing various economic data points, none of which were particularly soft.  During today’s session look for a reaction to the UK’s GDP estimate around 10am.  Aside from that we have some Fed speakers at 2:30pm, 3pm, and 4:30pm ahead of tomorrow afternoon’s FOMC minutes.

The intermediate term has a clear downward trend in tact as we enter Tuesday.  This can be seen as a series of lower highs and lows.  The most recent low was sharply rejected by a strong buyer response.  However, it had to cut pretty deep to find a vein of buyers who were willing to participate.  Buyers may be working on printing their first higher low since the failed auction on 09/19 this week.  They did however leave a bit of unfinished business below.  When we gapped higher on Friday price managed to close the range gap, or the space between the high of Thursday and the open on Friday.  This increases the probability of a full gap fill to the closing print down at 3977.25.  Should the market begin to soften at any point today, this will be a simple target for the sellers.  I have highlighted this observation and others on the following volume profile chart:

Short term, we printed another distribution-type day where the bulk of volume occurred at or near the lower quadrant of the session range.  This managed to push value lower.  The buyers were active and responsive to defend Friday’s buying tail.  This can be seen as the thin market profile near the bottom.  Note however that the coinciding volume profile suggests much business was done near the lows.  Overall, it provides us many interesting levels to observe and I have highlighted them below:

Nasdaq futures are set to gap a bit higher into the new week after spending most of the globex session working higher.  There were no major news developments over the weekend and the economic calendar is rather quiet this week with the most notable event being Wednesday’s release of the FOMC minutes and also a speech from former Fed chair Ben Bernanke.  Also Thursday we will here the BOE Rate Decision and Asset Purchase Target as well as US Continuing and Initial Jobless Claims.

Last week we saw a spike in volatility on the Nasdaq index where ranges increased.  This could be re-balancing activity as the quarter transitioned.  Solidifying this idea was the general lack of geopolitical activity occurring amidst the move.  The only real catalyst in the news was Ebola.  What we do know is a larger timeframe was at work most of last week and might continue to be active this week.  Overall the long term timeframe is bullish-to-indecisive.

The intermediate term auction is printing a series of lower highs and lows which suggests seller control.  However, we had a strong bounce Thursday which carried over into Friday and this morning which has this timeframe back inside its larger balance.  Beneath current prices is an air pocket from when prices quickly moved.  I have noted the key price levels I will be observing below:

Short term we are rallying after finding a strong buyer Thursday afternoon.  The P-shape of Friday’s profile suggests participants were not rushing to initiate fresh risk into the weekend.  Instead the early rally only modestly extended and then came into balance.  I have highlighted the short term levels I will be observing on the following market profile chart:

Overnight volume in the Nasdaq futures slowed dramatically ahead of the 8:30am release of Non-farm Payrolls and Unemployment Rate and spent most of the session drifting higher.  Prices managed to take out yesterday’s high and sustain trade above those levels ahead of the release.  As one might expect, volumes increased after the 8:30am numbers which showed unemployment rate unexpectedly dropping to 5.9% but a mixed message overall with average pay still compressed.  The initial reaction is higher prices.  At 10:00am we have ISM Non-Manufacturing Composite on tap.

As we head into Friday, the intermediate term timeframe is in seller control.  This can be seen as a sequence of lower highs and lows on the following chart.  You might have noticed yesterday that there is only the blue volume composite on the right edge of the chart.  That is because we have no micro-balance forming.  Instead price is loose and discovering value.  When the market trades lower it is searching for motivated buyers, yesterday’s strong responsive buy suggests we might be done looking for buyers, at least on the short term.  Once they are found the auction begins in the opposite direction until buyers dry up and seller response exceeds demand.  Since the bulls lack control on this timeframe, they are currently guilty until proven innocent by printing a higher low and higher high at the least.  I have marked the key low volume nodes and a few other observations below:

During the first three or four days of the month there is an expectation for increased demand in the marketplace.  At this time, many of the institutional funds receive cash inflows from regular folks making fixed contributions to their 401k and other investment plans.  There are studies proving this phenomenon.  The question is how much funding is put to work and what is its impact on the marketplace.  I have noted the key short term levels I will be observing on the following market profile chart:

Nasdaq futures had another busy overnight session where volumes continue to run at an above average clip.  The main feature of the overnight session was a strong rotation of buying which began just before 5am and just above yesterday’s low of the session.  Synchronizing loosely with the move was economic news from the Euro-Zone where there PPI numbers came in a bit softer than expected.  At 7:45am the ECB announced it would keep its Bank Rate inline with expectations and as we approach cash trade Mario Draghi is speaking at a rate press conference which is stirring prices lower.  We have factory orders at 10am and our premarket seller is again active.

Since this chart took out a significant reference zone yesterday, let’s revisit the weekly chart of the Nasdaq composite.  Price is currently pushing below an area previously inhabited by sellers.  Thus, the market was not yet able to convert this resistance into support.  After rotating the gap zone and printing some long legged dojis we have decidedly pressed lower.  Bear in mind however, there are two trading days left in this week which might significantly alter the appearance of our current candle.  The long term trend is still up, however this small move could be the start of a neutral environment on the long term:

Intermediate term we have gone into seller control.  This can be seen as a series of lower highs and lows.  The question now is where this cycle will end and how the next leg will print.  There was a very complete feel to yesterday’s trade where we saw a very motivated move, a pullback around the midpoint, a secondary thrust, and then a corrective set of waves.  That daily move settled out a naked VPOC that was left behind at 3967.25.  That’s good news, the market is still auctioning in a very methodical manner.  An argument could be made that the turn is in, however the task of bulls is to prove their innocence because this timeframe is seller controlled.  I have noted the key price levels below:

Finally, I have noted the short term levels I will be observing on the following market profile chart:

Nasdaq futures are down to start the new quarter, and as we approach US market open prices are trading near yesterday’s low.  Late yesterday afternoon the markets were informed the Ebola virus had made its way into the United States.  Other overnight news included mixed manufacturing data out fo Europe, inline manufacturing data from China, and USA ADP Employment change coming in slightly better than expected.  The last four days we have had an aggressive seller working in the premarket session not long before cash open.  They are again active today.  At 10am we have ISM manufacturing as well as Construction Spending.  Energy traders will likely focus on the Crude Oil and Gas/Distillate Inventory numbers at 10:30am.

Furthermore, German Bund futures ripped through prior all-time highs this morning which resulted in a powerful reaction lower in German equities.  Macro conditions are running high however the correlations have not significantly impacted individual equities yet.   And as we approach cash open the Russell is attempting a slight bull divergence on the very short term timeframe.

Again visiting the long term chart of the Nasdaq Composite, we can see prices are in a zone where sellers initially held us down.  Since then, we broke higher, rotated through the dot com gap, and are now retesting the zone from above.  This long term timeframe remains buyer controlled and in a support zone.  Long term bullish:

The intermediate term is balanced with a slight downward bias.  This balance will be 33 sessions old today and we can see a pattern of lower highs and lows emerging.  With the open gap below sellers have something to shoot for.  Thus the intermediate term is neutral-to-slight-bearish:

Finally, the short term came into overlapping balance yesterday verse Monday.  The auction yesterday was very clean and methodical and balanced.  As we are set to open near the low of the session, we will have a fairly early indication of whether prices are trying to head lower or instead accepting and continuing higher.  I have highlighted the price levels I will be observing on the following market profile chart:

Nasdaq futures are surprisingly firm despite bad economic news out of Europe overnight.  Perhaps taking a page from the QE playbook in the United States, index futures rallied overnight on weaker-than-expected CPI , Employment Change, and Retail Sales to name a few.  Volume and range are running at a normal clip unlike yesterday and prices are currently set to gap up and out of yesterday’s range.  On today’s docket we have Chicago Purchasing Manager index at 9:45 and Consumer Confidence at 10:00.  Fed’s Powell is set to speak at 10:45 but is likely to be a low impact event.  After hours we have China Manufacturing PMI numbers.

Yesterday we looked at the weekly candle chart and observed how the long term remains buyer controlled as we thoroughly auction an old gap zone.  Today let’s look at the monthly volume profile chart which shows an interesting structure on the month.  We tested lower to the lowest volume point on last month’s chart and sharply rejected away.  The overall structure of this month is a robust distribution of acceptance.  If we are to move higher from there, there would be a sold structure beneath us:

Even though we are questioning the longevity of intermediate term balance, it remains in place as we enter today’s trade.  For sellers to hold onto their edge inside this balance, we likely need to see prices roll over and take out yesterday’s intraday higher low at 4021.75.  This move would be the first step toward accomplishing a lower-lower trend continuation.  A range and price gap still remains below which might entice the move.  There MCVPOC is just above current prices at 4066.  This liquidity is likely to act like a magnet as we trade nearby.  I have noted these observations as well as key LVNs below:

Finally, I have noted the key short term levels I will be observing below:

Sellers dominated the globex trading session overnight by sustaining a downtrend throughout trade.  Sources suggest the unrest in Hong Kong may be weighing on investors’ minds as we start the week.  However what matters most is the fast approaching month end.  This month saw shifting tides across the macro spectrum and as that money sloshes around bigger waves occur.

If you recall, we discussed a gap on the Nasdaq Composite chart which dated back to April 2000.  When the dot com hysteria came tumbling down it included a quarterly gap down which never filled.  When we came into the gap at the end of last August prices ripped through to the other side in a scant two weeks.  Since then we printed three hammers with the wicks increasing in size as uncertainty grew.  Then last week we fell back down through the bottom of the gap before finding buyers in a zone where sellers were initially defending.  This is how an uptrend works, until it doesn’t.  I have highlighted these long term observations below:

Intermediate term, we have been monitoring a balance which developed, showed sell side imbalance, moved lower and corrected itself back into symmetry, made new highs confirming the balance but also possibly a failed auction, and since then we are showing signs of a downtrend.  If we make a new low, and especially if it entices more supply into the market, we could very easily transition into a seller controlled intermediate-term timeframe.  See below:

Finally, drawing our eyes in close to the short term auction, I had made some modifications to the profiles to show us a clear picture of the auction.  Thursday was the most sell flow I can ever recall seeing since becoming intimately involved with the Nasdaq futures around March this year.  It was 3 straight hours of relentless selling.  When responsive buyers did emerge, printing two impressive 12.5 point and 10 point rotations, each was sold into.  It took six more 10+ point rotations to stabilize the market.  However, the market did stabilize on the short term, and the resulting print is an enormous long liquidation, b-shaped profile.  Then Friday we popped out of the low balance and printed what amounts to a short squeeze P-shape.  As we come into cash open, the overnight sellers have rejected the small upper value and put us back inside the lower balance zone.  How we navigate this region early on will offer us objective clues into short term direction.  I have highlighted the key price levels below: