click to enlarge

–Opening within balance and very close to prominent POC.  Expect choppy trade in this area.

–Overnight high is 1649 which has been tested three times since late yesterday afternoon.  Upside follow through would have to develop relative to this level.  Failure to take it out increases odds of early liquidation break.

–1641.75 and 1641.25 are the two overnight lows which are also very close to each other.  Both of those contract levels are very close to value area low today.  Rotational market will defend that, stronger initiating sellers would need price to accept out of value to the downside.

Expect little today in terms of tradeable action.  There will be decrease in volatility as we get closer to the 2pm announcement.  Usually not the greatest day for /ES.  Remember that the announcement is at 2pm, however there is also now the Chairman’s press conference which will also move the market further.

Have a wonderful day….

Peter

Yesterday’s action failed at the highs after some tapering news came out from across the pond.  What the FOMC will or will not do tomorrow remains a mystery, however it’s not a mystery that the market is very sensitive to it currently.  We shall see.

Click to Enlarge

The upside focus has to remain on the high at 1642.50 as we came close yesterday and failed to take it out.  Acceptance above this level sets up a retest of the all time high.  Continued failure and acceptance lower increases the odds of putting the 1600 back into play.  Yes, that’s a large range and not a very exacting prediction but it is what it is.  The market is currently balancing in this area.

Friday’s low was poor and should still be carried forward.  This day also has a VPOC that has not been tested at 1620.50.

Overnight inventory is almost 100% long with just a few little tails below yesterday’s settlement.

We have some excess on the high yesterday.

Overall volume in the NYSE was low yesterday, coming in at about 2.9B shares.  Are traders just jockeying for position ahead of the Fed and not really committing to larger size? Could be.  I don’t believe the aforementioned range will truly be decided until tomorrow at 2pm EST.

Have a wonderful day…

Peter

As I was discussing in the ShadowTrader Video Weekly, I believe the outlook is neutral for now with a lot hinging on how the market reacts to the FOMC announcement on Wednesday.  Let’s look at the daily SPX to give us a top down perspective before moving into the profile.

Click to Enlarge

A move outside of the box to the upside breaks the market out of highs that have held for four sessions.  This would open the market up to more gains and a possible retest of the highs.  Moving out of the box to the downside puts the 1600 support back into play.

Click to Enlarge

You can see in the profile (and also in the SPX graphic earlier) that Friday’s trade retraced about 50% into the prior day’s range.  Overall, the action is not very convincing in terms of bulls nor bears here.  As we know, Thursday’s up move was on very poor structure.  Friday wasn’t much better with the early trade being more of a liquidation break than new money sellers resulting in the “b” formation to the distribution.   Anomalies have been present for the last two distributions and there was also a poor low on Friday which has thus far resulted in the large overnight gap which is the textbook scenario that poor lows produce as traders got themselves overly short without excess on the low.

Keep the above comments in mind about the four day high and watch to see where value develops today.  Equal to higher increases the odds greatly that there will be a move over the four day high, lower sets up a retest of 1600.

Everything above was written around 7pmEST last night when the futures were only up a few points.  I believe it’s all still valid to keep in mind even with the large gap.  Current action puts the futures up about 13 and very close to the top of the four day highs.  The high so far in the overnight session is just one tick shy of the 1635 high.  This is an obvious upside reference for the morning session.  Even with the large gap, an opening drive could clear this area.  Overnight inventory is 100% long and the gap is large.  My thinking here is all about how we act in relation to that 1635.  The easiest scenario to trade would be a partial gap fill early followed by renewed strength that retests the 1635 area again where I would have confidence to then buy the breakout of the four day high.

Have a wonderful day….

I’ll be on with Brad on the SquawkBox all week intermittently in the morning sessions.

-Peter

In yesterday’s writing I laid out a good case for bias either way coming into Thursday’s session.  Obviously the bulls won out in a very big way.  While I was ready for a bounce from the 1600 low six days ago, much of the price action since then has been volatile and consisting of huge retracements.

Click to Enlarge

The last Thursday 1600 low pushed prices over the downtrendline of the pullback.  Then about 90% of that move was erased over two days and yesterday, 100% of that countermove was retraced back to the upside.  Low confidence indeed!

click to enlarge

Profile is not showing much different as Thursday’s rally was extremely stretched out.  Note how thin the profile is all over and multiple small distributions separated by single prints.

In today’s session, treat each one of these like a separate day and see how far (if at all) we retrace and hence where the market finds acceptance.  Anywhere within these upper distributions is more bullish, obviously.

The volume POC migrated higher which is good, but the TPO POC did not.  You can see in the graphic that the fattest part of the profile is way down at 1612.75.  Nothing in yesterday’s structure is indicative of the OTF (other time frame) being in this market.  The stretched out nature of the distribution yesterday is what you get when shorts are covering madly.

We have a very important FOMC decision next week Wednesday at 2pm EST.   I am personally sitting on the sidelines for longer term trade until then.  Day timeframe trades are fine and will be taken in context of market internals, tone, tempo, and profile structure as they appear.  For the longer term, let’s wait and see.

1632 is the overnight low and we tested around there multiple times.  I am watching what develops early in relation to this level.   There could be a liquidation break below it as the structure was so elongated and poor yesterday.  The main upside reference today is simply the overnight high at 1640.

Have a wonderful day.

Peter

I am of two minds coming into today.  Essentially, I’m preparing myself for continuation downwards and also for a short covering rally.  As volatility has risen sharply as of late, we know that these up swings can be large.

First the profile and then we lay out the facts supporting both points of view.

click to enlarge

Bearish viewpoints would include:

-Poor low yesterday (circled) that needs prices to move through it and ‘repair’ it thus adding needed symmetry to bottom of profile

-Tone of selling yesterday was very steady and OTF like as every tiny blip upwards was sold, and the POC migrated lower with price ending up in the lower end of the distribution.

-Technical picture points to path of least resistance to retest 1600 level.

-The Thursday low was almost tested in the overnight session, coming within one handle of it.  The more this area is touched the weaker it becomes.

Bullish viewpoints are:

-The poor low indicates a market that is overly short and ripe for a short covering rally.

-The anomalies (blue arrows) are signs that the market “got ahead of itself” to the downside.  Dalton refers to this as “forcing action”. I like that term as it kind of implies that market wasn’t ready to go that low but sellers wanted it regardless.  Either way, always look at anomalies as poor structure that slightly weakens the case for the current trend.

-The top of the distribution being so stretched out is also poor structure, it’s more of a liquidation break at the top than anything else.

-The overnight low was just one handle above the prior Thursday swing low.  The fact that short term traders acted responsively here and this level wasn’t ignored is bullish in the near term.

-Even though the selling felt “OTF-like”, overall volume in the NYSE was not overly strong, coming in at an even 3B shares.  Stronger sellers would have pumped that number up by a lot.

Note how in my comments above some items appear in both lists as both supporting the bullish viewpoint and the bearish one.  This is how nuances in the profile work and why you must carry information forward.  What means something one day can mean the opposite another day after more market action has developed.  Take the example of the poor low discussed above.  It always has two meanings.   Odds increase that the market bounces away from the poor low first because its pattern shows players are overly short.  Then if prices return to that level you can increase confidence to the downside because you know that repair is necessary.

Overall I am seeing yesterday’s value area as pretty large and am of the mind that regardless what happens if we accept within it and value is unchanged to lower then we make another attempt at 1600 lows soon.  If value is higher then the tone may change.

Take it bar by bar and day by day…

Have a wonderful day

Peter

Market seems to be all over the place between yesterday and today’s action.

click to enlarge

Currently we are gapping up about 7.50 which would put us just above the value area and in the upper distribution from yesterday.  There is obviously very low confidence out there as evidenced by the quirky back and forth action.  Keep this in mind.  Responsive trade should continue to work.  The prominent POC from two days ago is the main upside reference.  Getting back there and not rejecting right away puts the bulls on firmer footing.

There was some excess to yesterday’s low.

Overnight inventory is very close to 100% long.

From yesterday morning lows we’ve got a trendline in place that terminates at 1632.00.  That’s important if we are going to continue upwards.  Acceptance below this trendline may put yesterday’s 1622.50 low into play.

Don’t ever discount the power of not trading even for multiple days.  If you watch closely and take notes and continue to carry your narrative forward, those days have not been wasted.  There is never any need to have to do something when the outlook is not clear.  Cash is a position.

Have a great day…

Peter

Responsive action yesterday with a liquidation break early and a move right to the prominent TPO POC as mentioned as the target area in yesterday’s blog.

Click to Enlarge

Coming into today, we have a large gap to the downside which is somewhat surprising given the action of the last few days and having broken the downtrendline of the pullback.

In the graphic above, we are currently trading (9:03am EST) very close to the bottom of the spike with the overnight low at 1625 which is three ticks below the low of the spike.  The top of the spike shown in the picture (1631.50) could be a resistance point on an early counter rally.  If the market takes that, then the next target would be Friday’s volume POC at 1637.50 which is as yet untested.

A lack of gap fill and acceptance where we are opening with value moving lower will raise the odds of putting the 1600 support back into play.

The gap is quite large, 14 points as of now.  Gap rules apply:

-Go with all gaps that don’t fill right away (with the ShadowTrader caveat that when the gap is larger than double digits use extreme caution).  Better to let things shake out before establishing intraday trades on these days.

-Large gaps often will not fill in one day and the larger the gap, the lower the odds that it will fill completely.

-If the gap fills and value cannot get to at least unchanged, odds of a late day selloff increase.

Have a wonderful day……

Peter

If we take out these areas to the downside, I would be focused on the top of the spike at 1631.50 as the next support point and target for downside moves.

**Yesterday’s POC at 1642 is prominent and we also have a 45 degree line from low to high which is indicative of a market that got its —- **

Overall, I am seeing here that short term traders in the day timeframe are still in control of this market.  We saw this yesterday with the “textbook” profile action of the move right down to the TPO POC to the penny and subsequent rally.  Thus apply the “traders do what works until it doesn’t” mindset to this market.

Overall volume in the NYSE was light, coming in at 2.7B shares which is bullish to me as yesterday was a balancing day after the two strong up days.  Beyond that, we did cross the downtrendline of the pullback in the SPY.  From a technical perspective it doesn’t feel like a market to me that wants to pull back hard here, and the profile is clearly showing a lack of initiating sellers thus far.  If the ruling reason had changed from ‘buy all dips’ to ‘sell all rallies’ then you would not have had the market come in right to a profile reference like yesterday at the TPO POC and bounce.  You would have had more sellers behind the gap fill liquidation break to take the market lower.

I believe the market has good odds of revisiting those POC levels today as they are prominent and some balancing after the rip from the lows is warranted. That would be my downside target on early weakness if the gap is to come in. Balancing in this area, especially if done above the POC or even just inside Friday’s range would be bullish to me and set up a move over the downtrendline in the SPX daily which would change the direction of the broad market back to the upside on the larger timeframe. I discussed it in detail in yesterday’s video. If you haven’t seen it you can view here:

Have a wonderful day.
Peter

I believe yesterday’s commentary was pretty spot on in terms of identifying that we had a poor low that needed repair and giving ideas about looking for clues as to the selling abating right at our 1600 target which has also been mentioned many times in this blog.  Knowing that we had the support just below us, the poor low the day before was probably the best possible setup for the market to go lower right down to the channel low.  Think of the poor low the day before as “setting it up.”

In the ShadowTrader Video Weekly this coming Sunday, I’ll break down what was happening at the moment when the futures were hitting the low point, which I think could be beneficial to newer traders in terms of analyzing market internals and the profile.   What the internals were doing made me trust the technical low more and get in and hold my futures position until the end of the day.

Now onto today……..

click to enlarge

While I am still holding a few futures long and a some SPX calls coming into today’s session, I need to remain objective and see the negatives in the profile that indicate we saw a lot of shorts covering but not a lot of new money buyers really active.  Note the spike at the top.  It’s quite large and paints a picture of panic buying.  Remember that covering a short is always a market order and rarely a limit order.  That’s what causes closes like yesterdays.  Beyond that, note the lack of migration of the POC higher with price.  It stayed down in the middle of the range.  There are also anomalies within the profile.  Anomalies are those flat right edges and are indicative of forcing action and poor structure.

All that being said, I believe the market could see more upside over time.  So, my focus today must be on the spike which I’ve drawn a box around above.  If we are to get any sort of rally going, then prices should accept within the spike and not move too much lower back into range.  Value was still overlapping to lower and needs to be established higher which it did not yesterday.  Note how not only is there lack of POC migration but the value area is also well below our high close.  I’d also like to see the base of the spike (bottom of the black box in the picture) act as support.  All of these are important things to carry forward in your narrative.  If I don’t get these signals then I would be less bullish.

Everything above was written around 11pm last night ahead of the mornings gap.  It all still applies.  Now coming into the morning session, I’m obviously smiling, and also keeping gap rules in mind.  The gap is of good size at +8, so use some caution.  Remember that on larger gaps it’s usually better to let the market shake out a bit before entering positions.   Pay close attention to yesterday’s consolidation on the 24 hour chart that goes from the close to this morning’s employment release.   The picture is below:

click to enlarge

Any meaningful downside correction to yesterday’s move would only begin underneath the bracket you see above.  Holding above this range today would be a rather bullish signal to carry forward.

Have a wonderful day and please check out my video on Sunday.  You can get it in the ShadowTrader Weekend Update.  Those are all archived on our site.

-Peter

Steady selling yesterday which culminated in a poor low (circled on the graphic), telling us that the market participants started to get themselves overly short.   Their nervousness at the lows makes me anticipate what will happen when we reach the 1600 area.

click to enlarge

As I believe the market will support somewhere between 1598 and 1593 in the /ES, I will be watching everything I can today for signs of weakening on the part of the sellers to be able to get good trade location for an upside move.  This will include the breadth, the a/d line, the ticks, market profile, core sector list, and “jumbotron” stocks.    Remember that a simultaneous analysis of NYSE and Nasdaq internals is of the essence.

Beyond this I would say to remember that moving lower is a process.  As yesterday was an expansion of range, today could easily balance within it as it was quite large.

Respect the poor low from yesterday and be cognizant that it holds two meanings for short term traders.  The first is always that a counter move could occur as these shorts cover.  The second is to carry it forward and look for prices to move below it to “repair”.

Be prepared, be objective, and use all the tools at your disposal all the time.

Have a wonderful day…

peter