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:

Friday Prep

Going into yesterday’s open, the overnight market had traded lower and was attempting to move back up towards the prior day’s low. As stated in yesterday’s note: ‘a move higher that fails to move back inside yesterday’s range is bearish..’.

The first move after the open was a test of the 2924.00-2925.50 zone (marking the lows from the prior two days) and this was immediately rejected, giving a heads up. The first break through last week’s low (2907.50) saw a pause and bounce from the 05-06 zone back up to the overnight low, giving another good opportunity to get on the short side. Once broken through the prior week’s low, the breakout high from January was next target, which saw roughly a 10 point bounce off it. New lows were made in the afternoon with cumulative delta showing a divergence, eventually moving back to vpoc (2907.75), settling at the same level…1 tick above the prior week’s low.

Overnight has ranged between 2900.75-2915.50 so far, ahead of a keenly watched employment report at 07:30 cst. Despite the breakdown in the daily and weekly bars, the monthly remains neutral, inside September’s range currently. It was at least the beginning of some range expansion and volatility, which is a welcome sight with lots of rotation opportunities.

Zones of interest for today below:

Thursday Prep

As mentioned in yesterday’s note, the move higher towards the all time high needed strength and momentum or we could see a short squeeze and false breakout. We got the breakout above the 40-42.50 zone but there was no follow through or sustained momentum. After bouncing between the two zones for much of the day, the break lower was sharp, trapping longs, and left single prints and a double distribution on the day (testing the overnight low in the last half hour), along with a selling tail off the highs.

The fact that ES had held up for so long was surprising as the bond market had taken a pounding, with a breakout higher in yields across the curve after stronger than expect ADP payrolls numbers.

Overnight so far markets globally have sold off, with ES range at 2913.25-2931.75, versus settle at 2931.50. Volume has continued to be heavy in the 10 year, with the cash yield around 3.22% currently. Whether this continues today, ahead of tomorrow’s employment report, remains to be seen.

I’m cautious about getting too bearish until we see acceptance below the 2907-08 zone, as mentioned earlier this week. Clearly, a move higher that fails to move back inside yesterday’s range is bearish but acceptance back inside the range could squeeze shorts.

Zones of interest for today below (showing yesterday’s RTH and the overnight profiles):

Wednesday Prep

The early part of the session yesterday saw a test of the overnight high and reverse lower to 2924 before a short squeeze back to the 2930-31 zone. There was a weak attempt higher, as can be seen in the neutral TICK and negative cumulative delta. This led to a collapse in price and retest of the day’s low late on, before a reversion to the mean (vwap) into the close. The day finished inside the prior day and left with a poor high and low. VPOC and settlement was at 2928.50.

Overnight so far, the range is 2925.75-40.00 so far, close to Monday’s high of 2942.00. Longer time frames remain bullish and short term has been more neutral though is close to breaking out higher once more. Fundamentally I think we’re in for a serious correction, but I have to ignore this when trading intraday and just follow the flows and momentum as they are at present. Until there’s more evidence of a breakdown, I would expect pullbacks to be bought and continuation higher. I mentioned the 2707-08 zone yesterday which I think is pivotal to any potential breakdown.

Zones of interest for today below. The all time high is at 2947.00 - a lot will depend on the underlying strength if it gets there today, though a forced short covering could see a spike leading to a false breakout.





Tuesday Prep

RTH

RTH

The first day of the month/quarter opened on a wide gap higher to the previous day’s high and settle. If we don’t see an early attempt to fill the gap then we’re more likely to see continuation in the direction of the gap. There was a break and hold above the 2936-38 zone, with volume building there and the day’s VPOC left at 2939. However, the underlying sustained momentum turned negative on the TICK quite early on, giving a warning that further continuation was much less likely (see chart above) and this had been a false breakout higher.

Once the market had broken below the vwap and vpoc, with negative underlying momentum, the gap fill attempt was back on following the liquidation break.

Overnight so far has ranged between 2917.50-30.75 versus settlement at 2930.00. There’s a prominent HVN at 2919.00 on the composite volume profile, so watch how price & order flow reacts if it gets back there

The biggest test short term for the ES in my view is if we see a move down to the 2907-08 area which is now looking weak following the multiple attempts to break it. If that area breaks we could see much more selling pile on, but again, context is key relating to price action, order flow and momentum (which is critical if using the zones)

Look out for a short squeeze higher to potentially retest the vpoc from yesterday at 2939.00 if prices hold above the 2930-31 zone. The market remains in the middle of a pretty congested area from the past week or so which means I need to be very selective and patient. Zones of interest for today below:

Monday Prep

Friday’s last day of the quarter saw some quite erratic moves over the afternoon but left a relatively small range and within the balance of the prior days. A prominent VPOC was left at 2919.00.

The quarter and monthly bars were one-time framing higher, with the weekly bar inside the prior week and daily opening below the prior day’s range and moving back inside for almost all of the RTH session.

The 2907-08 area has been tested several times now so if we do seem a break lower the chances have increased of that area breaking on another attempt.

With the news over the weekend regarding the Nafta deal, trade overnight has ranged between 2922.50-2937.75 so far, above Friday’s high and currently looking to gap higher. Friday’s settle was 2919.00 and high at 2925.50. Failure to close the gap early on gives buyers the upper hand and puts the all time high back in sight.

Zones of interest for today: