Friday Prep

With the move and hold below the overnight low early on it looked like we were in for further downside, though the break higher after the first hour tried to change that but had little upside momentum behind it or broad market strength. When that move failed, the reversal back below the overnight low gathered pace targeting the prior day low and breakout point mentioned as being pivotal in yesterday’s note. The acceleration lower moved into the centre of the recent balance broken out of and lacked the late afternoon selling drives we saw last week.

Going into today, the overnight range is relatively narrow at 2771.00-86.50 versus settle at 2772.25. Yesterday’s VPOC at 2771.00 is also the overnight low. Expecting fairly neutral activity until either the overnight high or low is breached and held above/below.

Zones of interest today:

Thursday Prep

Opening inside the 2810.50-13 zone yesterday, there was a quick tag of the prior vpoc and prices shot lower with underlying stock weakness (see NYSE TICK & Advance/Decline above). The ‘back & fill’ of the prior day’s single prints completed in the first 90 mins stopping to the tick at the prior day initial balance high, where the big breakout started. The dip buyers and short covering managed to rally price back to settlement before a choppy wait ahead of the FOMC minutes then some 20 point swings into the close. The potential for breaking out above the 17.75-19.75 zone looked limited because of the still quite negative A/D.

Overnight so far the range is 2800.25-17.50, within yesterday’s afternoon range and versus settle at 2816.25. Short term remains range bound following an upside breakout after a much bigger selloff. The breakout gets invalidated for me if prices hold below yesterday’s low and then we could see a move towards the recent lows. Until that happens we either remain in this breakout range and/or attempt to push and squeeze higher.

Zones I’m watching today on the split overnight/RTH profiles:

Wednesday Prep

The bullish move in yesterday’s overnight session did not give back after the open and once the breakout above the prior day triggered buy stops, the momentum continued and accelerated higher, with underlying stock momentum and breadth strong. The NYSE advance/decline line had hit 2000 by lunchtime which was a very strong tell that things were more likely to continue, in the absence of any news. The jagged volume profile is in keeping with a trend day and as new shorts enter the market their stops continually get triggered helping the move. Earnings season continues to be positive in general, and NFLX had blowout numbers after hours.

One of the best buying opportunities was the pullback to the overnight high (2774.50) about an hour after the open, as positive momentum and market breadth was sustained and prices were close to breaking out of the multiple inside days which was going to force short covering. I’ve learnt the hard way, as most people do, to not fade these types of days but just get onboard the move on pullbacks.

Overnight so far has seen an attempted move higher and reversal, with the range currently 2805.50-24.25 versus settlement at 2817.75. Yesterday’s profile left several areas of single prints as the forcing action of the short squeeze left little time at breakout points. We could see an attempt to back and fill some of these, though odds favour that the move is either going to consolidate at higher prices or continue higher, over there being a complete reversal (news headlines aside).

Zones for today are below. My main expectation is for buyers to step in on dips and continuation higher if we see the Nasdaq and Russell in alignment. Note that the 50% retracement of the all time high to the recent swing low is at 2829.75, so worth watching order flow closely if it gets there. The 2798.00-00.50 zone has potential to see support on first test. Failure to hold that puts price back inside the last Wednesday’s range and questions the strength of the breakout. As always the underlying momentum and market breadth is going to help context to trades.

Tuesday Prep

Opening inside the prior two days range, price action was really erratic for much of the session, with some wide swings each way. Overall though, there higher highs and higher lows with what looked like an attempted breakout in the afternoon just ahead of the prior days high. This was stopped in its tracks as headlines regarding the Saudi involvement in the Khashoggi disappearance hit the wires and the market puked 30 points into the close.

Overnight has recovered much of the late drop, with the range currently 2745.25-70.25, moving up steadily from the 44.75-46.25 zone. Earnings season continues today with Blackrock, Morgan Stanley and Goldman Sachs already out and Netflix reporting after hours. With the overnight market positioned long there’s potential for a correction to this early on but failure to do that is a sign of strength and increases the chance for an upside break. Either way the short term tone seems to be more bullish after last week’s move and we could see buyers on dips.

Zones of interest today:

Monday Prep

Friday’s range was much narrower than the prior two days and traded within Thursday’s range, though still below Wednesday’s low.

The morning saw some aggressive selling through the overnight low down to 2732.25, followed by some fast and wide rotations until buyers took control in the last hour driving prices a tick below the opening swing high before settlement at 2768.50, which was also the VPOC. This left two major distributions, split roughly between 2758.50-60.50. There’s also a poor high at 2779.25 and bear in mind that the low on Thursday left a very strong buying tail.

We could be looking at a corrective move today after last week’s sell-off, which can move quickly due to the short covering aggressive buying as stops get triggered. If the market can hold above the 58.50-60.50 zone then my main expectation is for dips to be bought and potential to rally up through Wednesday’s single prints and test some of the key breakdown areas from that day.

Failure to hold 58.50-60.50 is a warning that buying is not as strong potentially so we could see a more neutral/bearish session. Holding beneath the overnight low is likely to bring in much more selling short term to target Friday’s lows

The overnight range so far is 2745.25-71.25 with buyers having been dominant from the lows over the past few hours. I’m using 2758.50-60.50 as a bull/bear zone for today with other zones of interest shown below. This week’s US economic calendar is here .

For those interested in the longer term macro stuff, a couple of excellent interviews I listened to over the weekend are below. Both excellent podcasts with some very high quality guests each week.

Friday Prep

Going into yesterday’s open the main expectation was to be: ‘Looking at the breakdown points from yesterday as potential areas of resistance today, or just continuation lower to test that high volume area.’

In the 1 min RTH chart above you can see the move up into the late breakdown point/low volume area from the prior day. This ended up being the high for the day and the selloff was more rotational than Wednesday seeing some very wide swings. Again though, late in the session there was an aggressive breakdown and very erratic price action as the order book became extremely thin and looked more like crude. Volume was a very high 3.9m contracts, more than the prior day.

Overnight so far has ranged between 2745.75-2785.00 versus settle at 2745.50, having trended higher for much of the session. Short squeezes can be really aggressive after these types of moves to the downside. Earnings season is here again with JPM and Citi reported already today. I’d say we’re in a short term neutral zone between yesterday’s settlement and high, which I’m reading as expecting more big rotations within this area. Above/below I’d expect to see more of a directional short squeeze/long liquidation move.

Thursday Prep

The open drive lower yesterday below September’s low, following a strong pre-market selloff, was a strong indication that it was going to be a potential trend day as long liquidation and new sellers entered the market below the recent range. Once it had moved down to the 2840 area trade became quite balanced for a few hours as two-sided trade formed the vpoc on the day at 2843.50. After lunch, sellers pressed lower trapping the recent longs and spilling lower in a much more accelerated way. The extent of the move can be exacerbated when the order book thins out due to volatility rising. These types of impulsive moves don’t care about levels the vast majority of the time due to the institutional level offloading and volatility. Volume traded was 3.4m contracts.

There was no respite after the close with the overnight range extending over 30 points lower, giving a 144 point range since yesterday’s overnight high.

The current range overnight is 2747.25-2785.50 versus settlement at 2781.00. The market is clearly extremely vulnerable to short squeezes, which is visible now in the overnight market. I’m expecting these rallies, if they happen, to be sold heavily. It’s worth looking back at the top daily bar chart back in February when we had the selloff, and see how the day after traded - it barely moved back in range and continued a lot lower. Also of note on the daily chart is the large volume area on the composite profile, between approximately 2722-42.

Different situation and day now obviously, but it’s rare for these moves to V bounce and we’re more likely to see continuation in the trend…though anything can happen.

Looking at the breakdown points from yesterday as potential areas of resistance today, or just continuation lower to test that high volume area.

Wednesday Prep

Overall, a balanced day with a break above Monday’s high but failing to move through 2900. Not particularly clean price action and my zone placement was poor today. This is something to be aware of if choosing zones when trading inside prior day ranges and the market has traded through many times before in that time.

The failure to hold above my bull/bear zone at 93-95 leaves me thinking this was just a short term bounce and we could be setting up to take out Monday’s weak low at 2866. Until the market holds above 93-95, I’ve a short term bearish/neutral bias.

Overnight so far has ranged between 2875.50-91.25, with weakness in the past hour or so dropping 14 points. If we don’t see a correction to the overnight short positioning after the open this could be a sign of more serious selling. Some caution might be needed on longs below the 70.50-71.50 zone as that’s back below last month’s low and potential to bring in more sellers again.

Today’s zones below showing the overnight and yesterday’s RTH profiles split out:

Tuesday Prep

Opening yesterday on the overnight lows, there was an initial attempt lower but a lack of underlying momentum in stocks curtailed the move. A rally higher just fell short of Friday’s settlement before sellers dominated and we saw a sharp drop which cut through September’s low. One of the things mentioned yesterday was: ‘There needs to be broad market participation and momentum to the downside to bring in more sellers below last month’s low or else longer time frame buyers may attempt to reverse price action off/within the 69.50-72.50 zone.’

Trade was then very choppy for a couple of hours after the drop, building volume around the then intraday vpoc at 2871 (September’s low was 2870.50). Note a climb in the cumulative delta after midday from not overly negative levels. The reversal was aggressive due to short covering from stops above the lower balance area, and there was a shift in vpoc up to 2889.75.

Overnight so far has sold off with the range currently 2874.50-2894.25 (overnight high 1 tick failure above yesterday’s high). The dollar strength continues and the euro is weaker as the BTP-Bund spread continues to widen after the Italian finance minister failed to steady perceptions.

I’m using 2893.00-95.00 as a short term bull-bear zone and includes the January high (back-adjusted) at 2894.50. Trade could remain two sided between there and the 70.50-71.50 zone but below there could get some heavy selling stepping in. Currently it’s testing the afternoon breakout area from yesterday which I've made the 74.50-76.50 zone for today. Zone for today below:

Monday Prep

Friday’s price action was once again dominated by sellers in the morning session after opening at the prior vpoc and making a brief attempt higher into the 2913-16 zone. This zone represented the edge of the prior day’s single prints and the overnight high.

The move lower sliced through the overnight low leaving single prints between 2895.00-99.50, separating the distributions on the day. The poor low at 73.25 stopped short of the 69.50-72.50 zone and thereby holding within the prior month’s range. The market settled at 2894.00 on high volume of 2.2m contracts, closing just below the January high of 2894.50. Yields were once again higher in treasuries, with the 10 yr at 3.23%.

Overnight so far the range is 2882.50-98.25 (2898.25 was Friday’s overnight low). The bond market is closed for Colombus Day but stocks remain open. The ongoing problems in Italy and the large drop in Chinese stocks after returning from holiday (despite a 1% cut in the RRR for some banks) has added to weakness in European markets.

For ES today, in the absence of economic data, we may see trade inside of Friday’s wide range. The selling of the past few days leaves the possibility of a short squeeze holding above Friday’s settle or if that fails to happen, the probability of a test of last month’s low increases. There needs to be broad market participation and momentum to the downside to bring in more sellers below last month’s low or else longer time frame buyers may attempt to reverse price action off/within the 69.50-72.50 zone.

Today’s zones below: