7/27 Current Market Perspective

Let's review what's been going on in the market the last week or so, and look at some interesting things that happened today.  In a nutshell, I'll show you the day timeframe references to be aware of, and how the market often trades off them - before coming back to & through them. Refer to the following tick chart, with lines drawn from each reference to its eventual violation:

Opening at a downgap, the market dumps down hard until it hits a price it can't get through.  Exactly hitting it a few times (a warning that it really wants to go through, but can't do it quite yet.  Think of it like an market profile intra-period poor low.) it then bounces up to exactly the open (a day timeframe reference). Selling back down, it can't reach the low price again, so we go back up to the open, blowing out everyone who was leaning on that weak reference.  We then have a repeat of what occurred at the low, though in reverse - buyers can't get through that 65 level.  So the market then sells off again, going to another day timeframe reference at halfback (with the same exactness as the open, almost to the tick)!  Reversing off that reference, the sellside stronghold at 65 is blown out, with the gap now in focus at the next reference.

Knocking on the door, it can't get through - even when it lurches up one last time (the tick bar the annotation is pointing to), the buyers just can't break down that door.  What then follows is quick selloff that slows until we get a slow downwards churn, targeting that half-back reference that hasn't been taken out yet.  After that it even manages to get some of the buyers from the early morning who were leaning on that low described in the first two sentences.

So, who was dominating the auction today? That's right: short-term and day-timeframe traders.  Their behavior is shown in 1) the exactness of the trade at known day-timeframe references and 2) chop and churn and lack of follow-through/conviction in the price movements.

In fact, they've been dominating the auction for quite some time now.  They were pushing price up from the moment the Greek crisis was "resolved" to the highs, and they're still in control of the auction on the way back down.  Let's look at a longer-term chart to see their footprints in the recent market activity:

That's a lot of weakness behind the big price moves as of late.  What this means is that the market is more likely to bounce back up than keep going down in the near future, considering the amount of weak money that's loaded up on this chart.  The game since the highs has been sell and sell again.  Look for this to start to weaken as other-timeframe money starts absorbing their sells.  Some things to look for: profiles will start to lack elongation, value will stop its descent downwards, and shorts are likely to become "short in the hole".

Which brings me to today's profile, shown below:

The three main takeaways are pointed out, but let's also point out what didn't happen: The market could've opened on that downgap and trended down all day.  The market could've formed multiple distributions and brought large volume in on a liquidation move down.

What did happen? Weak money pushed the market around but didn't really get anywhere, leaving a weak high, a prominent PoC & very fat profile "body", and a poor low.

Some may be asking, why is the high weak?  Because it was one tick shy of filling the gap.  It's the same exactness we witnessed earlier when the market went one tick through the open and halfback.

Allow Jim Dalton to explain:

The mechanical failure by a single tick should still be noted as it represents a weak high for today. It is a good high because there is a single tick selling tail; however, it is a weak high high because it is so mechanical.

In review, today was clearly a balancing day with lower value and an unsecured high and low.  Carry this information forward to tomorrow's trade.