The Power of Value Awareness

Friday's trade wasn't as weak as you would think - value ended up neutral, with the market closing in the middle of the profile.  Much of the selling was done by short-term "small money", evidenced by some pretty tell-tale signs detailed below.  Additionally, there exists a poor high and a rejected low - not what you would expect on a day with meaningful downside trend.  In fact, after the poor high was made I was on full alert, looking for for the eventual failure/reversal (something was just not right with the downpush - no staying power).

Friday's half-hour view & zoomed-in view of the reversal at the low

Refer to the above charts in the recap below:

A.  Opening at a 7 1/2 point downgap, the market immediately on the open has the last 3 days of buyers trapped.  What happens in the early morning is very important in establishing how the day will go.  Are buyers throwing in the towel as fast as they can?  Or are they sitting fat, stupid, and stubborn - with little downside pressure off this out of balance open?  The small price decline, followed by a rally up doesn't suggest panic selling is the order of the day.

B.  After managing to rally up, the market now establishes a poor high.  Poor highs can mean two things: 1, the market is too long (not likely given the context), or 2) weak hands are behind the selling (more likely).  If weak hands are selling, odds are they are going to get themselves in trouble at some point & we'll have a reversal that will attempt to correct that poor high by rallying up through it.

C.  After a labored fight spanning multiple periods, the market finally breaks! And... it's pitiful, barely extending the range.  Then reflexive buying bounces price up off of a previously recorded reference of 2085.50, an unrevisited overnight low.  That the shorts couldn't even take that with conviction further reinforces my hypothesis that small money is selling this thing down.

D.  The bounce isn't bought with any kind strength, the tempo in the period following it is very labored (again), with no good upside continuation.  So now the market goes for that weak low, but it has already established the fairest price higher, marked here.

E.  Unable to take the low after 1) breaking down hard, but becoming overextended in the process (remember, value was higher the whole time) and 2) creating a second distribution down here, the market once again attempts to extend the range to the downside.  Basically everyone who is selling down here is doing so at very poor prices, they're "selling low".  A very risky proposition given the all the context that's developed thus far.

F.  And they are unable to extend the range more than a few ticks before short covering begins.  Also, something else was going on, too:

That's right, one-timeframing yet again!  Zoom in on F using the 5-minute chart above, and you'll see exactly when it stopped one-timeframing for the second and final time.  This was the buy - my buy.  The market was screaming that the shorts in the lower distribution are trapped, value is higher, and we are about to go back up to the price area that so much time was spent in this morning.

The actual trade

So, putting it all together, the trade can be summarized as:

Small money was selling the market, and created a prominent point of control.  The market broke down hard below it, attracting more selling - and overextending itself in creating a second distribution.  So now the market is way too short, and the tell-tale sign that the break was over was the failure to extend the range to the downside combined the ceasing of one-timeframing for the second time.  Laggard sellers in the second distribution are now trapped, and the market is likely to rally back up to value.

Finally, let's look at the complete profile:

 When all's said and done, it was a pretty neutral day.  Sure, price was lower, the market declined, but how the market moves is also very important.  I would suggest you go into Monday's open with an open minded, neutral point of view as well.  The market could continue down from here (correcting more of the weak buying that pushed it up) as easily as it could rally, taking out the poor high & filling the gap above.