ES Review & Plan
First let's have a top down look at where we currently are:
The monthly continuous chart shows the phenomenal Fed induced rally of the past few years. Last October's candle stands out as one of the biggest buying tails we've seen on a monthly basis. One timeframing higher has resumed for now:
The weekly candles show the speed of the rally compared to the drop, which is normally the other way round. Measured extension moves are 2069.25 & 2139.00 on this time frame. It's also clear to see the high volume area around 1960, and without a clear break higher we may get pulled back to this level.
The pit session daily chart highlights the gaps left in the move up. The most near was nearly filled on Tuesday by 1 point:
Yesterday's pit session was unusual as it gapped open 9 points from the prior high at all time highs. The globex high was only breached by 2 ticks and the long overnight inventory was corrected in the first 3 periods on a move lower to the VPOC of the micro-composite balance of this week. Volume stepped up at 2010 and pushed to establish value higher on the day than Tuesday. The market is attempting to push away from the value area of the past few days but the breakout so far has failed. If it rotates back below 2010 we should see a move to test the other extreme and attempt to push towards the VPOC and settlement from Oct 30th at 1988.75.
ES Review & Plan
Yesterday opened below Monday's low and attempted to push into it's range but failed a tick below Monday's settlement. We then saw liquidation of weak longs and an attempt to fill the gap left after Friday's BoJ QE surprise by shorts. Sellers weren't strong enough to fill the gap completely, and responsive buyers stepped in. Once it had balanced around 1997-2000, shorts were forced to cover after a push back through 2000 and back to the value area of the past couple of days. A good low was left yesterday with a 7 tick buying tail. There is still a poor high at 2019.25. Volume has not been strong on the rally, however.
The profile shows two distributions, above and below 2000.50. This is a short term bull/bear zone. 1994.25 and 1988.75 remain downside references below that level initially. A move back up through the value area this week would target the poor high left on Monday and further upside.
Upside measured moves from fib wave extensions are: 2024.75, 2042.50, 2065.25 & 2069.25
Ahead of Friday's employment report, today is the ADP employment report at 07:15 cst and the ISM non-manufacting index at 09:00 cst. The dollar index has continued to make new highs overnight following the mid term election results.
ES Review & Plan
Yesterday was a slow, balanced day. Value continued to overlap higher pushing to new all-time highs at 2019.25, but leaving a poor high with no sign of excess. The low left was also poor, though failed to move through the overnight low. Upside targets remain the measured moves derived from wave extensions and downside targets initially focus on the past two day's lows and the gap to the high of last Thursday. A break lower would be healthy for the market to continue it's advance.
It's a light economic calenday but the mid term elections start today and the expectation is for the Democrats to lose control of the senate.
Pit Session
Measured moves on upside
A break away from the balance area of the past two days would target the high volume areas below on a break lower, after filling the gap of the pit session.
ES Recap & Preparation
Friday's open at 2012.50 left an 18.25 point gap above the prior day's high. There was on opening drive lower to 2002.25, which was a tick below a nvpoc from Sep 19th. The odds of closing such a large gap on the same day were low. Once the initial balance range had been established, trading remained contained within it, giving scalpers the most opportunities. The overnight high leaves a new all time high, which has yet to be touched in the pit session. The odds for that remaining the case are low.
Pit Session
The rally of the past 2 weeks has been 200 points at Friday's peak and has left 3 gaps in regular trading hours. These are signs of excess on the imbalance moves higher but nevertheless leaves weak structure. The initial target for shorts is the gap close and vpoc from Thursday. The initial target for longs is the overnight high from Friday.
Pit Session
There are high and low volume node profile levels visible to lean on, as well as prior balance areas for support on the most recent move up:
Globex
With the upside now as new territory, a bullish stampede could push prices higher than expected as large investment money chases the moves. There are some measured targets for range extensions which I'll monitor for any responsive selling action should it get there:
Globex
The natural expectation after such a big run is to let our thoughts take over and short the first opportunity because of the number of days it has risen in a row. However, it's important to trade what we see not what we think and use market generated information to stop our cognitive biases taking over. That being said, if sellers get the upper hand, weak longs will liquidate and we could retrace very quickly to prior high volume support areas. A correction after the speed and magnitude of the rally would put an advance on a firmer footing in my view.
Overnight has been extremely quiet and balanced with a range of 2007.00 - 2012.50 on volume of 135k at 07:30cst
ES Recap & Preparation
Overnight the BoJ have surprised the market by increasing their QE program. They intend to buy 60% more bonds and triple their equity purchases. The second surprise came from the Japanese Government Pension Investment Fund which will increase it's allocation to stocks to 50%; half domestic and half foreign. This has stuck a rocket under stocks, with the Nikkei up nearly 5% at the close and the ES breaking through the all time high briefly touching 2016.75. $:Y dropped to nearly 111.
First, lets look at what happened yesterday. The overnight market was weak, and dipped down to the gap left from Monday's high to Tuesday's low. Buyers took control until late in the day when there was a heavy break retracing 50% of the pit session but found responsive buyers into the close back up to the VPOC. There were exchange issues at lunchtime in stocks and options, and a breakout on the ES saw a record 15,000 contracts trade in 1 second followed by a few seconds of almost zero liquidity...not ideal! Volume was reasonable on the day at nearly 2 million contracts.
The overnight move is likely to leave a decent gap when the cash market opens. The larger the gap, the less likely it will fill that day. If, however, the gap is modest then opportunities to get long at yesterdays high and/or settlement would be favourable.
The overnight range at time of writing is 1986.75 - 2016.75, with most of the trade between 2004-2014.
Any shorts still in the market will be forced to cover and exacerbate the move. I don't intent to try and fade this move at all, just look for pullbacks to jump on board today.
Longer timeframe measured upside moves with this breakout are 2069.25 and 2139.00 based on the 127.2% and 161.8% fib retracements of the 2014.50 to 1813.00 swing.
The area between 1990 and above is light in terms of volume, so we may see some back and fill into this area before a continued rally.
The first measured target above the 2014.50 high is 2024.75 This is a simple 100% A-B:C-D wave projection:
ES Recap & Preparation
Yesterday was a trading day of two halves. The morning pit session was slow and in a narrow range after gapping a few points above the prior day's high. It took great patience if you were long intra-day not to throw the towel in out of sheer frustration. The overnight high at 1969.00 was missed by a couple of ticks early in the day, and this was a key resistance area up to 1971.00 from swing highs prior to the big drop. As stated yesterday, it was a logical area for shorts but would also be a bear trap forcing big covering action if it broke through due to the significance of the levels.
After lunch buyers eventually drove into this resistance area, and after a brief consolidation aggressively pushed through the buy stops for shorts covering and breakout buyers. This took prices 10 points further hitting 1980.75 in the final few minutes.
Short term trends remain up and the weekly bar is trading back above it's 20 week moving average. This article from Brett Steenbarger shows the increase in market breadth on this move. A look at the weekly chart shows the measured breakout target at 2069.25 if this rally has legs:
For today, ahead of the Fed announcement, we've seen the Asian session stay in the upper distribution from yesterday. There is an initial upside level at 1991.75 being an CHVN and swing high from September. Above that, the all time high is back in play.
The 1971-1969 area is now potential support, with a prominent POC and VPOC at 1966.00/.25. Below that the gap at 1959.00 is yet to be filled. Disappointing news from the Fed could trigger a cascade of stops which have trailed behind pullback lows on the way up.
ES Recap & Preparation
The market one-timeframed higher for the duration of last week and attempting to balance before making it's next directional move. The speed and magnitude of the rally favour a correction, but the only evidence so far of weakness is a decline in volume over the past few days. Longs are still in the driving seat, for now. The FOMC minutes will put the transmission in drive or reverse, and probably in sport mode!
Yesterday balanced within Friday's range on the lowest volume we've seen in a while at 1.4m contracts. Cumulative delta was trending higher after the low was made but prices failed to break out to the upside and challenge the overnight high at 1965.75.
The break lower early in the session saw responsive buyers step in around the MCVPOC of the balance area from last week:
The upside targets the key resistance and previous weak highs between 1968.75-1971.25. The 78.6% fib retracement of the 2014.50 high to 1813.00 low is at 1971.25. This could be an attractive area for shorts but also where they could be trapped and forced to cover aggressively.
On the downside, acceptance below yesterday's low could trigger a run of trailing stops with the progressively higher lows on the way up. 1918.25 is a major area for bulls to defend but if that fails, the open gap at 1910-1900 would be next and acceptance below that would see the 1850 composite VPOC next major target.
ES Recap & Preparation
Friday saw buyers continue to push value higher. The market has been one time framing for the whole week and the expectation was for some liquidation on Friday but this didn't occur once the high from Thursday had been taken out and buyers held above this area into the close leaving a bullish end to the week.
The market is now in a relatively high volume area and on the upside there is potential key resistance at 1968.75 to 1971.00. With the market still one time framing higher on a daily basis there is no reason to be short of this market yet, even though volume has dropped off considerably in the last few days. I'm cautious, however, particularly in light of the fragility of the market when headlines concerning Ebola cause sudden sharp drops triggered by news algos and the size and speed of the recovery from the lows. The Vix index is back to 16 after peaking at 31 the week prior, and liquidity improved in the ES order book as a result this week.
The monthly candle has so far had a huge reversal leaving a very long tail which is unlikely to remain untested in my opinion.
One time framing lower has stopped on the weekly basis after last week's reversal.
Regular trading hours shows the open gap below but bulls continue to push higher. The 78.6% fib is next measured move to look for response at 1970.
Overhead is key resistance between 1968.75-1971.00
Attempted balance in the latter part of the week leaves a mcvpoc at 1945.25
Friday's profile leaves 3 volume distributions for reference (separated by the blue lines) and a buying tail.
It's a relatively light economic calendar this week but the FOMC meet on Tuesday and report on Wednesday to hopefully give some guidance on the timing of the first rate rise and give clarity to changes to QE, if at all.
Anticipated moves and destinations if levels are accepted or rejected
ES Recap & Preparation
Yesterday saw value move higher after an initial test lower to motivate buyers. The break higher to the CLVN at 1956.25 rejected and prices reversed rapidly on a news story of someone in New York testing positive for Ebola. The panic algos took over taking prices down to the overnight high, which saw buyers hold and push back up towards the VPOC into the close.
The overnight session has so far seen a break of yesterday's pit lows but still within the balance area of the past few days and currently around the micro-composite volume point of control (mcVPOC). While within this balance area I'll be looking for levels to fade around it. If we see a break of balance I'll be looking for pullbacks to join the momentum.
My bias is for a break lower going into the weekend as short term longs don't want to take any chances given the effect of the news headlines in creating panic.The VPOC from Oct 22nd remains untested in the pit session for an initial downside target. The 1918.25 area is the main bull/bear zone where swing shorts were in trouble on the way up. The gap from 1910-1900 remains open and the next target if it breaks.
If, however, buyers continue to drive prices higher, then there is a high volume chop zone between 1956.50-1971.00. Key potential resistance at the 1968.50-71 area prior swing highs earlier in the month. A move above there puts the all time high back in the sights. This high was also made in the globex session only and has never been touched in the pit session.
Volumes in the ES contract has tailed off considerably in the past few days and the VIX has pulled back to 16/16.50 area after peaking at 31 last weak.
ES Recap & Preparation
Yesterday saw a correction to the long inventory with the first clue on the failure to take out the overnight high at 1943.75. Liquidation then ensued 3 hours into the pit session and continued one-timeframing lower through the overnight low and triggering stops from the prior day. There is a weak high left from yesterday which I expect to get driven through where many stops will be resting.
The overnight market has been dominated by European PMIs and has traded the majority of yesterday's range. The upper targets can be seen below on the 4 hour chart. Failure to take out yesterday's high targets yesterday's VPOC initially, the low and then the open gap below.