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Tag Archives: $NQ_F

Trading The Overnight Strength

Equity futures printed an abnormally large range overnight, one that began with a selloff before finding strong responsive buying activity which triggered a rally in the Globex hours.  As of this post, the NASDAQ futures are set to open inside of Friday’s range but outside of the value area set Friday.  These conditions are slightly out of balance and present an elevated risk/reward environment.

The long term control of the auction is buyer controlled.  This can been seen on a weekly chart of the COMPQ, however the daily chart is not as clear.  The daily chart still presents a picture of buyers in control, however that control is being tested as we made a slight lower low on Friday verses March 1st.  This week we will be closely monitoring any sort of bounce that materializes and the potential of price to form a lower high.  This would change the character of the long term auction from being buyer controlled to balance.

The intermediate term timeframe is seller controlled.  We have seen prices make a series of lower highs and lower lows dating back to March 7th.  The price action has been fast and choppy with the momentum edge favoring selling.  Price slid out of balance Friday and closed near the lows.  Above we have a large overhang of supply.  How the market reacts to this supply will be telling this week.  I have highlighted the intermediate term volume composite on the following volume profile chart:


The short term auction is balanced.  We have overlapping value areas and price stabilizing inside of these value areas.  The overnight inventory is long, thus I am looking for prices to press into these overnight longs.  Early on, I will be on watch for a gap fill trade back down to 3621.25.  If you refer to the intermediate term profile above, you can see we are set to open on top of a volume cave.  Price can quickly move through this area which would aid sellers in pressing for the gap fill down.

I have envisioned a scenario for today on the following market profile chart:



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A Slight Chance for Balance

NASDAQ futures are lower overnight after trending all day yesterday.  The sooner one can recognize a trend day the better, for any position taken with the trend is considered a “risk free” entry into the following day, meaning the low of the trend day is likely to be revisited at the least.  That has not always been the case with some of the V-shape bounces of the past, however the sellers did accomplish more downward progress yesterday then we have seen since late January.

The long term timeframe is still buyer controlled.  We are in the process of testing the current swing low right now on the daily chart at 4200 on the COMPQ.  The weekly chart shows a good picture of indecision, but still an auction firmly in the hands of the buyers.  Prices are still trading above last week’s low.  The sellers want to see a weekly close below last week’s low to confirm the outside bar reversal candle.

The intermediate term is seller controlled with a slight potential for balance.  The market formed a tighter balance area spanning March 3rd –to-present which was disrupted by the sellers.  Sellers can be seen printing a series of lower highs and lower lows which yesterday broke through the balance low.  However, if we go back to our longer dated balance spanning back to February 19th one could make the case for balance.  However, this balance is reliant upon holding yesterday’s low on a retest and is thus vulnerable.   I have highlighted this balance on the following volume profile of the intermediate composite:



The short term auction is seller controlled.  This can be seen by the lack of overlapping by value area and value migrating lower.  The overnight auction which was a continuation of yesterday afternoon’s late stabilization is fairly balanced.

Risk of an opening drive is low because we are set to open inside range, and inside value.  Thus I expect some chop.  I have highlighted this current profile and made some observations below:



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Building a Gap Fill Plan

The speed of the NASDAQ market has picked up, but given the uncertainty of trading at these highs as we approach the end of the quarter it makes sense.  They key is a thorough analysis of exactly where we are in the context of time and auction.  The first quarter is nearly over, with many traders already rolling forward to the June contract in index futures.

I will be watching both contracts today to see which has more volume before changing my analysis over.  For today, the prices mentioned are in reference to the March contract.

The long term auction continues to be controlled by the buyers.  They managed to snap their four day losing streak in a session yesterday that had buyers starting from behind.  However when the day was complete and the daily candle printed, a higher low was put in place.  We now have an excellent reference point going forward.  The COMPQ also managed to recapture the 9 period exponential moving average, giving them an even more firm grip of the long term auction.

On the intermediate term, we are still in balance.  This balance dates back to February 24th and is still filled with plenty of actionable caves and low volume nodes.  There is no clear victor in this balance, although we are now trading above the midpoint which should be considered more of a selling opportunity then a buying opportunity on the intermediate term.  We are currently trading at 3712.25 which is just above the mouth of a volume cave down to 3708.  A complete gap fill would be trade down to 3706 and that should be an easy task for the sellers given the cave.  I have highlighted the intermediate term balance on the following volume profile chart:


The short term swung back into buyer control.  This is a result of a strong responsive buy occurring off an NVPOC dating back to 03/03.  Interestingly enough, if you understand splitting relevant distributions, there is another naked VPOC which is likely to eventually be tested from the morning of 03/03.  However, this is a discussion for another day.  Buyers pressed value higher yesterday and built on the strength overnight.  Given the overnight inventory is long, it would make sense to press into that inventory with sell flow and see if it cracks, especially with the volume cave (gap trade) intermediate term context.

However, it never is quite as simple as just selling the opening print and waiting for a gap fill because it may not happen until the afternoon or it may not happen at all.  The current distribution has a slight upside imbalance that may hash out before we attempt the gap trade down.  I have highlighted this short term imbalance on the following market profile chart:



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NOAA Trading Report for Hurricane Conditions

The key to executing proper decision making during market hours is through observance of the overall context each morning.  Some get their context from the newspaper and colleagues.  I apply auction theory to the NASDAQ and check out what has my favorite traders’ attentions early on.

The long term auction is still in buyer control.  This can be seen on the daily chart which continues to make a series of higher highs and lows.  This most recent pullback, four days old, is yet to breach prior lows.  It appears however the marketplace does want to back-and-fill the gap dating back to March 3rd.  Seeing the futures lower in the AM hour, I suspect we may get a gap fill.  If not, a bit of context would be revealed about the overall demand for equities.  Also of notice is the weekly chart which printed an outside candle last week.  This is a cautionary candle which can signal an inflection point especially if it sees follow through this week.

The intermediate term is in a balanced state dating back to February 24th.  For some time, I thought this intermediate balance dated back to February 13th, but as the balance developed it became much more clear it started on February 24th.  We blew through the intermediate term VPOC at 3695 yesterday afternoon, and with velocity like that you can expect a whip to test the lower end of intermediate term balance.  I have highlighted this intermediate term balance on the following volume profile chart, from which you can draw your own relevant levels (like low volume nodes).  I left it bare to make the visual of balance easier to see:


The short term auction is seller controlled.  This can be seen by observing the value areas which are migrating lower so rapidly they do not overlap.  Sellers like speed and volatility and they have it.  I suspect we will begin to see the NASDAQ balance out a bit, especially above 3661.25.  This is a naked VPOC dating back to March 3rd aka the day we left behind when we gapped higher.  These long abandoned VPOCs tend to exhibit unique support abilities.  If not, there is another volume cave below for sellers to push into (see intermediate term chart above).  I have highlighted a few scenarios on the following market profile chart which would signal balancing:



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Back in Balance

The buyers continue to flex their control of the long term timeframe in the NASDAQ composite.  When we observe the daily chart, we can see their control as a series of higher highs and lows on the daily and weekly chart.

The intermediate term jerked back into balance after three days of showing potential that we would break the gridlock.  The NASDAQ composite has been in intermediate term balance for 15 trading days dating back to February 13th.  Last week’s action added a cave feature to the intermediate term balance, and we watched closely for the moment when price would slash through this low volume zone.  Now the question becomes, do we take the time to auction this level and fill in the cave, or do sellers reject us away from it, leaving behind a shelf of supply, or “bag holders”.  Volume point of control never managed to shift to our upper distribution.  Whether value shifts higher or price reverts back to value will be telling.  Price and value always converge, it is only a matter of how.  We continue to trade in intermediate term balance and unless Buyers can hold Friday’s low, a trade back to the mean at 3674.75 is a distinct possibility.  Here is my view of the intermediate term:


The short term auction balanced.  The sellers printed what is known as an outside day Friday, where price exceeds both the high and low of the prior day.  These can be reversal candles.  The key is follow through.  To me, follow through comes in the form of holding price below 3670.  The short term auction is otherwise in balance.  The following levels are how I envision early balance occurring:



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Race You To The Cliff!

We just had a fast move in the NASDAQ futures.

We are back inside Tuesday’s well established value area.  The move through value was rather swift.  Strong buyer response at the mouth of the intermediate term cave.

And I am done talking like a caveman, have a look:





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Fill The Cave

Equity futures are currently priced to gap up after printing over 40 handles in range on the NASDAQ.  As I write, prices are coming in a bit, and by the looks of both the intermediate term balance profile and the overnight profile, the action could be fast this morning.

Yesterday’s context report focused on the intermediate term balance, and whether price would stay in balance on the intermediate term or instead begin exploring lower.  Bracketed (or balanced) trade can be very frustrating noise for the trader if they are not aware it is occurring.  It can result in unnecessary capitulation and overconfidence at the extremes prior to getting faded.  The last two sessions in the NASDAQ have effectively set the floor and the ceiling for our balance zone.

If you have ever seen a live auction, you have seen this action.  Yesterday the market pressed lower in search of buyers.  They were found in the form of a sharp reaction.  Once a baseline bid is established, price can very rapidly move in the opposite direction to form the extremes of an auction.  Now market makers and specialists and hedge funds and retail participants meet and hash out the details of this balance to determine if the value is an accurate representation of the NASDAQ or not.

Long term auction is controlled by the buyer.  This can be seen as a series of higher highs and lows on a daily and weekly chart of the $COMPQ.  Yesterday we nearly brought the long term into a balance scenario, but we managed to print a higher low.  We need to monitor any retest of yesterday’s low very closely, and we need to consider reducing exposure should price be accepted below perhaps yesterday’s open at 4261.42 (on the $COMPQ).

The intermediate term auction is in balance.  This balance stretches back to 02/13 when we broke above the neckline of a V-shape recovery.  We are currently prices to open inside a cave inside the intermediate term auction.  Price will move fast in this low volume environment, at least initially, and often times we spend time filling these voids in prior to exploring elsewhere.  Intermediate term balance is aging, and a move away from it becomes more likely with every half hour that goes by.  I have highlighted this cave feature and some other observations on the following $NQ_F intermediate term volume profile:


We covered tons of ground, in the short term, but buyers are back in control.  This can be seen via the migration of value higher over the last few distributions.  However, the last two profiles suggest a slight downside imbalance exists.  It would not surprise me to see some backfill early on.  Given the overnight inventory is long, it would make sense to press into that inventory and test its conviction.  Conversely, should we see an opening drive, we can begin to consider the long term timeframe reentering the market, and we should join them.  I have highlighted the imbalances I expect to see resolved on the following market profile chart:


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Contextual Dose to Hunt Balance

The first day of the month is statistically favorable to the bulls in both the SPY and the QQQ.  People have written entire books about this stat, divulging in great detail all of the first day of the month scenarios and holding periods.  One of the findings of the study [spoiler alert!] is when the first day of trade for a new month falls on a Monday, the upside results are greatest.  The study also showed a 4 day holding period from the close before month end yields the most favorable results.  This is why you likely saw many traders pressing their longs into a cold war weekend.

Thus, to come to market this morning with price trading out of range, out of value from last Friday’s action puts the market dangerously out of balance.  We still have an hour and 20 minutes to at least return inside yesterday’s range which would slightly reduce the risk/reward environment, but as it stands we are set to open out of balance.

This presents a unique opportunity situation for the intraday trader.  The volatility will allow a disciplined trader to either end their day rather quickly or see several high probability trade setups during the day.  Either way, this type of environment gives much quicker feedback as to whether your trade choices are right or wrong.  As for existing positions, it makes sense to give more weight to the close than the open.  Let the imbalance get slugged out for several hours to allow some signal to show up through the noise.

Context is more important than ever in this environment, as we do not want to lose sight of the big picture.  The long term is still controlled by the buyer.  This can be seen as a series of higher highs and lows on a daily chart of the NASDAQ composite.  Buyer control of the long term was questioned by the market in early February.  The outcome was a sharp, snapback rally which affirmed demand to be strong and pressed prices to new highs.  A new test of this control would be price trading to 4100 on the $COMPQ index.

The intermediate term is in balance.  This balance spans 75.5 hours of regular trading hours which dates back to the afternoon of 02/13 when we blasted out of prior balance and went exploring higher.  A series of higher highs and lows degraded into balance ahead of last Friday where we attempted to move up and out.  After a failed auction at the new highs, price aggressively reverted back into the intermediate term balance.  After such a move, my expectation is for price to test the lower extreme using the velocity of the failed move to propel us lower.  I have highlighted this action as well as some key levels inside balance on the following volume profile chart:


In the short term, sellers are pressing value lower of the last two distributions.  Their most recent thrust lower was rejected and a bit of a snack back rally has shown up in the early hours.  I have highlighted a few scenarios for this morning, one which sees sellers retaining their grip of the market via being the only active participant (orange) and another potential scenario which sees more balancing occur via a two timeframe marketplace (green).  I have highlighted these observations and a few more on the following market profile chart:


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From False Moves Come Fast Moves

Yesterday price in the NASDAQ composite stretched to a new swing high.  We poked up above and no follow through occurred.  One of our favorite trades as of late has been the false bear technical patterns.  This means, we wait for a technical chart setup which favors the bears occurs, then we watch to see if it follows through.  If it doesn’t, then you pile in, essentially calling the sell flow’s bluff.  The moves occurring after false moves are often vicious. The effect may be similar into the close of this week, should the sell flow continue overpowering demand.

It will be a more difficult task however, for the long term control of the market is controlled by the buyer.  This can be seen as a series of higher highs and lows on the daily and weekly charts of the NASDAQ composite.  It has been a resilient bull, and it certainly is an aging bull, but it’s still a bull until proven otherwise.

Intermediate term, we have a solid balancing act occurring.  This balance area continues to grow, and I continue to profile it for our benefit.  The intermediate term can be seen transitioning from buyer control to balance when a series of higher highs and higher lows became sloppy and now we are seeing indecision.  I have highlighted some interesting levels on the following micro composite of intermediate term balance:


The short term timeframe is controlled by sellers.  They have successfully pressed price and value lower since yesterday’s new swing high and have successfully negated the buying tails we have seen on recent market profiles.  We are set to open inside range, slightly inside value as of this post, which presents a medium risk intraday environment.  If price can sustain above 3675 we would negate the seller control on the short timeframe shift to a balanced focus.  Otherwise, I am preparing for a test of intermediate term extremes to ensure buyers are still as confident as they were on 02/13.  I have highlighted these observations on the following market profile chart:



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Timeframe Roundup

Long term directional timeframe remains in the controlling hand of the buyer, who has been successful in their campaign for higher prices.  This can be seen as a series of higher highs and higher lows on both the weekly and daily charts of the NASDAQ composite.

The intermediate term is still balanced.  Yesterday we printed a lower high verse Monday’s session, and also a lower low.  Interestingly, the lower low was early in the session and was met with strong responsive buying.  However, not enough initiating buy flow came to push a new high.  Instead we printed a lower high and ultimately a higher low coiling before closing.  We can see the market struggling to make a vertical move out of our intermediate term balance on the following volume profile chart.  Should the intermediate term control dictate market direction today, we may see sellers targeting yesterday’s low at 3668.25 and then the low volume node at 3656.75.  I have highlighted this level on the following volume profile chart:


The short term is in buyer control.  Yesterday looks like an ugly candle print on a normal bar chart, but when you view the auction that took place via market profile, you can see the buyers were responsive at the lows and their flow was dynamic enough to press prices up out of our distribution.  Since then, they have held us above yesterday’s distribution and formed balance [acceptance] in our uppermost distribution.  To solidify the buyer control of the short timeframe, buyers need to hold us above yesterday’s value area either by rejecting attempts into the zone, or by avoiding it entirely.  I have highlighted this buyer goal on the following market profile chart:



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