Wednesday Prep

A quick look at the monthly, weekly and daily charts above puts things into context and as we can see from yesterday’s move on the daily, the market tested the lowest volume area at the bottom of the major volume distribution on the composite profile.

Yesterday’s open at 2715.50 was a 41 point gap below the prior settle. In yesterday’s note I stated: If there’s an early move back to the overnight vwap in the first hour, it could be telling whether that holds or not to the ongoing action. The 24 hr vwap was at 2723.25 at the open and the initial move higher stalled and reversed at the vwap to make the eventual lows on the day. The heavily short and extended move got aggressively bought for the rest of the session and eventually closed the range gap from Monday. Volume was heavy at 2.8m contracts.

Overnight so far the range is 2719.25-50.00 versus settle at 2746.25. The in-range composite high volume node (CHVN) is at 2728.00 which could become a magnet on a failed move higher towards the 2750-52 CLVA. Pushing through and holding above 52 puts 71 as next target. Failure for 2728 to hold puts yesterday’s reversal into question and could trigger a liquidation move lower.

Zones of interest for today below:

zones.PNG

Tuesday Prep

A weak day overall with a initial failed move higher after the open. Value was lower on the day with the 2760.25 vpoc forming below the prior day low and a poor low left at 2751.00. Price action was messy for much of the session and neither the overnight high or low was breached, which is unusual.

Overnight saw heavy selling across Asia, which has driven European markets lower. The ES range is currently 2757.50-2714.25, with the bulk of trade in the lower half of the range. Last week’s low was 2745.25 and the October low from the 11th is 2712.25. Clearly the market is very short relative to last night’s close and susceptible to a squeeze higher on positive news. Sentiment is negative though and my main expectation is for rallies to be sold if they happen.

Zones of interest for today are below. The 2711.75-14.50 zone is the intermediate bull/bear as a close below there could trigger much more selling. Currently the market would be opening on roughly a 35 point gap lower to last night’s settle at 2756.50. If there’s an early move back to the overnight vwap in the first hour, it could be telling whether that holds or not to the ongoing action.

On the composite volume profile the nearby high volume area is around 2728-34, so any absence of further breakdown or complete reversal could see prices continue to consolidate in that area.

Monday Prep

We got an inside day on Friday following a failed attempt higher early on. Volume has been consolidating around the last two weeks HVN at 2773.00.

Overnight the range is 2749.75-82.00 versus settlement at 2767.50. I’m expecting buyers to hold the 71-73 zone if there’s to be any meaningful rally today or the market may continue to rotate back and forth again. Until sellers can take out last week’s low then my main expectation is for buyers to step in on dips. A push higher could accelerate as buy stops get triggered following the last couple of days action. Momentum and broad market strength are needed for continuation or we may see failed attempts.

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.

https://www.macrovoices.com/mobile-home/468-prof-steve-keen-the-real-risk-is-in-private-credit

https://mebfaber.com/2018/10/03/episode-124-howard-marks-its-not-what-you-buy-its-what-you-pay-for-it-that-determines-whether-something-is-a-good-investment/

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.