Review + Context

With weekly one-timeframing ending last week, the relentless upgrind from the 1800 lows has suffered it's first sign of weakening.

Let's look at what's been going on the last few days of downtrend:

As you can see, the day-timeframe is still in charge of the auction.  Despite promising overall volume on April 29, the market repeatedly couldn't gain momentum and also stalled out around the known day-timeframe references.  This signifies stronger money is not behind the moves; they are primarily occurring due to inventory imbalances - too many traders are facing the same direction so to speak.

Starting with 4/27, the market exhibited poorness at the high and the low, a rare situation.  The following day failed to take out the poor high after multiple attempts, and the game was apparently up - buyers quickly dumped positions.  Momentum traders piled on, and before you could say "short in the hole" the market panicked down to a second distribution at the lows after that huge break that took out the previous low.

At this point the market is dangerously short.  But, that doesn't mean the downtrend is over yet - one characteristic of short term herd mentality is taking prices to extremes before reality sets in.

The following day opens at a downgap, which although filled on the open is quickly sold down to new lows.  Looking outside a previously established distribution low at 47.25, the market fails, quickly trading back into said distribution - only to stall out at half back on low buyside volume.  The rally wasn't attracting enough buyers to have any staying power, so back down we go.  Once again demonstrating who is in control of the market, the market bounces off the  nearest reference (the current low), establishing a poor low.  Unable to take it out in the following half hour, the sellers (who are too short) finally throw in the towel.  Buyside volume picks up and the market rallies all the way to... the opening print (another day-timeframe reference).  Weak!

 The failed attempt to go lower is noted, and short covering continues into today.  I considered most every sell underneath 77.25 weak and late, so with most all of those positions squeezed out at this point I consider the market neutral again.

Which means it's time to monitor for the next directional move.  A case can be made for both directions:

Continue Rally:
-2071 Upper dist low is an important support reference - best this stays intact
-2077.50 weak high needs to be fixed,
-2089.25 prominent poc needs to be revisited,
-and the combination of poor and weak highs around 2094 also need to be fixed

Resume Break:
-Re-entry and acceptance into today's lower dist high at 2069.25,
-2065.75 prominent poc needs to be revisited,
-2059.50 weak low needs to be fixed,
-and finally the poor low that this rally originated from at 2045.75 needs to be taken out.

Wednesday's Prep

Nothing like the Fed to juice equity prices.  After trading very slowly in a narrow range in a state of anticipation, the market exploded to the upside after Yellen's speech text became available.  How many times have we seen that show before?

However, the market wasn't as strong as price would lead you to believe.  Let's review:

My first observation is focused on value: despite a rally that crossed the majority of the range, the fairest price remained lower.  This really takes some of the air out of the bubble (no pun intended) going forward.  The market was unable to establish fair prices as higher. 

Furthermore, the triple-distribution profile structure doesn't inspire confidence that this rally will last - usually the excessive price movements will be retraced in the following sessions (refer to the market on 3/19 as a recent example of this).

Daily chart view:

Today closed at the high of the trading range.  I believe balance trading rules are in effect coming into tomorrow:

1. Remain in balance.  
This would see price staying within the range, under the high and above the low, and likely trading down to at least within the middle distribution.

2. Look outside the balance and fail.
This would see a price probe above the 2048 range high that is met with a wall of selling.  The profile should not show price acceptance (that is, more than one or two time periods-wide) above the high.  Remember how time regulates the opportunity - if price looks 'n fails it is a hot opportunity that shouldn't last long.

3. Look outside the balance and accelerate.
This would see a price probe above the 2048 range that is met with more buying, accelerating price higher and over time finding acceptance above it.  In this case, the range high becomes the reference to buy at or near.
Note: this scenario can involve opening in an upgap situation, gapping away from balance.  Monitor the market for continuation after the open to determine if it is likely to be a look 'n accelerate situation.

Of the three potential scenarios, my intuition tells me scenario three is the likely one to occur tomorrow.  While today's rally wasn't as strong as it appeared on the surface, there are simply no strong sellers yet in the current market - meaning, price hasn't yet auctioned high enough to attract sell interest.

Reference I have above the market include:
2050: psychological price
2055: Dec 30 downspike base
2058: Dec 30 prominent point of control
2061: Dec 30 high
2067.5: Excess high

Monday's Prep

In the interest of avoiding the long weekend "hangover" effect when the bell sounds the open on Monday, here is the current state of the ES:

 

 

 

 

 

3/24 In Context

As you can see, there is a case for going up and a case for going down.  Starting with the rally continuation scenario:

1. Mainly weak and day-timeframe money has driven the market up off the 1800 early Feb lows.  Currently, the market is up over 200 points, with no notable pullback yet manifested.  While buyers are weak, there are no sellers.

2. Thursday attempted to move down, opening with a 10pt downgap.  Unable to take out the 3/17 weak low, it churned sideways, attracting little sell interest.  This is an important observation - price is an advertisement mechanism, it flashes opportunity.  Time spent at price "regulates" that opportunity, that is it shows us if it is fair or unfair.  The fairer price is, the more TPOs will accumulate at that price, with the fairest price being the widest closest to the center of the extremes (high and low).  The less fair (expensive or cheap) price is perceived, the less time the market will stay there.  Consider the single prints in A period as a demonstration of this principle: those price were considered low, which we can easily see in retrospect.  The market did not spent hardly any time at those prices, they were rejected as "fair".

3. Weak money is responsible for selling the market.  Consider the piss-poor 3/22 high, the 3/23 suspect high, and value/prominent poc that didn't move down with price also on 3/23.

However: the weak A period low and the BCG weak lows, together with low volume and sluggish/grind tempo reveal who was buying the market: the short and day-timeframe money.  In other words, traders who are on the weak hands end of the spectrum. 

4. Despite this, the market managed to rally most of the day, even one-timeframing into the close.  This tells us shorts were being forced out after the market failed to take out the low in the G period liquidation.

5. The market closed the gap at the end of the day, accepting into yesterday's range and leaving a buy spike.

Now, let's consider the opposite scenario:

1.  While there are no sellers, that does not mean there won't be any in the future.

2.  Psychologically, fear is much more intense than greed.  Should stronger-hands sellers enter the market, the weak hands will easily be run over, and the liquidation break will be intense.

3. There is evidence of weak hands buying the market all the way down to the 1800 lows.  It is also likely that should that price area be revisited again, it will not hold like it has the previous visits.  It has simply been hit too many times at this point, the odds favor it finally giving way.

4. Thursday's profile shows a weak low and a point of control that did not move up with price.  Traders are mostly long at poor prices.


For now, let's look at what's closest to the current market.  References below the market are detailed in the 4/21 post.

The first reference I am looking at is the spike base.  If Monday opens above it and continues to accept in 3/23 range, it is a support level look at getting long at.  After that, there is a 2033.25 prominent point of control, and then the piss poor high from which this sluggish break originated from.

Should the spike base not hold, look at the weak A period low discussed above, ant the references below it discussed in the 4/21 post.