ES review & plan

ES continuous volume based rollover, back adjusted contract

Monday 24th August NYSE Volume 6.63bn shares

Yesterday's note was very brief, but in light of the fast market the only important areas to me were the long term acceptance and rejection areas as pointed out below.

Main considerations for today - caution. The market is extremely short, though is still imbalanced lower heading towards the lowest volume area on the composite volume profile (1860-70 area). This is a potential major inflection point for a rally. Rallies can be huge and fast in this type of market. Failure there could see a flush though to the high volume 1830 area.

Despite the huge volume yesterday though, the liquidity in the first hour was so thin you were seeing 5-10 point slippages making it incredibly difficult to trade without much wider than normal stops. The explosion in the Vix would have brought in a lot of option credit spread sellers taking advantage of the very high vols.

Overnight we have seen a pullback to the top low volume area previously highlighted and rallied nearly 80 points. Current range 1871.75-1948.50 versus settlement at 1871.25

The Chinese have (unsurprisingly) cut interest rates and the RRR again which helped the market by 20 points but has been given back. Notes and Bonds have been heavily sold off with the equity rally. One of the worlds most respected hedge fund managers, Ray Dalio from Bridgewater, had this to say (via ZH) about the current situation.

For today we have another huge range pre-open but this time with heavily long overnight inventory. The range gap in regular trading hours from Friday remains between 1950.75-1968.00, so we may see an attempt to close that today followed by an attempt to find balance at lower prices. I will be looking to fade this, depending on price action and order flow at the level.

The December (back-adjusted) low at 1945.75 will be a key level for shorts to keep under today. The 30 min chart below shows the monthly VWAP with the standard deviation bands. You can see it has been pushing against the 3sd band since 08/20 and has only just stabilised within the 2sd overnight.