ES review & plan
Full Globex Session
Another interesting day with high volume/range in the futures and underlying market. Initially there was the attempted push lower in the morning, trading though the single prints formed on Tuesday down to 1975.50. The market appeared to have got itself too short down there, which sparked the huge counter move.
There are a few references on the above chart we may see responsive activity - the first at 1968.00 (50% pullback from the 08/18 high to 08/24 low). This is also the top of the range gap still open and is an HVN on the composite profile. Shorts will want to get back under the old range low and 1938 HVN to target back towards the single prints from Monday. If longs can hold within the old range, 1978.25 and 2000.00 come back onto the radar.
The market is still attempting to find balance lower in my view, but in the process force out as many weak hands as possible. As we approach month end we can also see the move back towards the monthly VWAP. Overnight support can be seen at the 1SD band.
My main expectation for today is for the Friday-Monday gap to be filled and for responsive sellers to then close the gap we are likely to have from last night and push down through to the 1923.50 area. Acceptance above Friday's settle though could see the upward move continue.
ES review & plan
Yesterday remained within the wide range of Monday and failed to push into the regular trading hours gap from Friday's low and Monday's high. The late sell-off was very aggressive and in my eyes a big red flag for today for potentially sharper falls. Underlying volume remains high (5.2bn shares on NYSE) and the Vix closed at 36. Open interest in the September contract is up 10% in the past week.
It's still difficult to show the profile charts due to the ranges but the move lower yesterday left single and some double prints from 1909.75 down to the low at 1860.00, briefly testing Monday's single print range (1866.50-1831.00).
If the market starts to accept within the single print range from Monday, I believe the next downside target is the Oct '14 low followed by a flush through to the composite low volume 1760 area as shown on the chart above. If we do see strong buying interest step in if there's a push back down to the 1865-75 area, then we could have a wide value area range to trade. However, I'm going to be cautious taking any long trades as I have a short bias going into today.
The overnight range is 1850.50-1915.00 versus settlement at 1872.75. Durable Goods are due out at 7:30am ct.
The chart below shows we are back inside the 2nd standard deviation from the monthly VWAP (currently 1875.25) - a move back outside that is another red flag to add to the list for more downside.
Please feel free to drop me a line at giles@divergent-trading.com if you have any comments or criticisms, I'm always open to either.
ES review & plan
ES continuous volume based rollover, back adjusted contract
Monday 24th August NYSE Volume 6.63bn shares
Yesterday's note was very brief, but in light of the fast market the only important areas to me were the long term acceptance and rejection areas as pointed out below.
Main considerations for today - caution. The market is extremely short, though is still imbalanced lower heading towards the lowest volume area on the composite volume profile (1860-70 area). This is a potential major inflection point for a rally. Rallies can be huge and fast in this type of market. Failure there could see a flush though to the high volume 1830 area.
Despite the huge volume yesterday though, the liquidity in the first hour was so thin you were seeing 5-10 point slippages making it incredibly difficult to trade without much wider than normal stops. The explosion in the Vix would have brought in a lot of option credit spread sellers taking advantage of the very high vols.
Overnight we have seen a pullback to the top low volume area previously highlighted and rallied nearly 80 points. Current range 1871.75-1948.50 versus settlement at 1871.25
The Chinese have (unsurprisingly) cut interest rates and the RRR again which helped the market by 20 points but has been given back. Notes and Bonds have been heavily sold off with the equity rally. One of the worlds most respected hedge fund managers, Ray Dalio from Bridgewater, had this to say (via ZH) about the current situation.
For today we have another huge range pre-open but this time with heavily long overnight inventory. The range gap in regular trading hours from Friday remains between 1950.75-1968.00, so we may see an attempt to close that today followed by an attempt to find balance at lower prices. I will be looking to fade this, depending on price action and order flow at the level.
The December (back-adjusted) low at 1945.75 will be a key level for shorts to keep under today. The 30 min chart below shows the monthly VWAP with the standard deviation bands. You can see it has been pushing against the 3sd band since 08/20 and has only just stabilised within the 2sd overnight.
ES review & plan
At last some action after the range bound activity of the rest of the year. It's difficult to post any profiles today due to the ranges, but given the overnight limit down move on Nasdaq we are going to be in a fast market and levels are unlikely to be respected.
Main considerations for today - caution. The market is extremely short, though is still imbalanced lower heading towards the lowest volume area on the composite volume profile (1860-70 area). This is a potential major inflection point for a rally. Rallies can be huge and fast in this type of market. Failure there could see a flush though to the high volume 1830 area.
ES review & plan
We were given some good information by the market yesterday. Initially there was a sell off following the CPI data in stocks & bonds, though bonds rallied hard off their lows. The FOMC minutes show a divided committee still - here's Jon Hilsenrath's take on it. Value shifted lower and the strong selling tail shows we maybe about to test the lower end of this 6 month range again.
Aside from the 'when will they raise' questions, global growth and currency devaluation concerns are starting to weigh heavily it would appear, and there are a few red flags on the longer term technical picture. However, the market remains within this roughly 100 point range still, so it's still too early to call in my view. Short term though, the market is in risk off mode.
Overnight has continued down from a high of 2077.75 to the current low at 2053.50 (see 08/12 naked VPOC in chart above) on above average volume. Settlement was at 2072.75 so will be looking to see if the short inventory gets closed or if we just continue lower. Either way, I'm looking to play from the short side on rallies at the zones potentially.
ES review & plan
Yesterday was another low volume day, this time in a small range within the upper part of the prior day's value though with the VPOC/POC below Tuesday's. I'm expecting the single prints highlighted above to get re-tested today.
Overnight so far has pushed lower, down the top of value of the balance area shown in chart below.
Today we have two big risk events: CPI at 08.30 ET and FOMC Minutes at 14:00 ET. I have a neutral view going into today's announcement. I'm expecting the bulk of trade to occur between the initial buy/sell zones ahead of the FOMC if the CPI number is in-line with expectations (rotating around composite VPOC at 2088.00). I'm not using the bull/bear zone as an automatic buy on re-test as this has been tested several times already which would weaken on another one. As always, context and order flow will determine entries/exits at the zones.
Zones of Interest
Buy/Cover 2080-82.75, 67.25-70.00, 58.00-59.50
Bull/Bear 2073.75-75.75
Sell/Cover 2089.50-92.25, 02.75-04.25, 07.25-09.00, 12.75-14.25
ES review & plan
After opening within the prior day's range, there was a move lower which failed to take out the overnight low by 1 tick. There was accumulation before the trend day higher, through the overnight high and just short of the 08/10 poor high.
There are several areas of thin trade on the profile that could be repaired. The low volume on the NYSE of just 2.86bn shares leads me to think we'll see some re-testing of levels before continuation higher, with the 2088 composite VPOC being the magnet.
Overnight initially moved through yesterday's high on low volume and has pulled back to around yesterday's overnight high. The range is 2093.25-2103.25 versus settlement at 2099.25. US Housing Starts are due at 07.30ct
Zones of interest for today:
Buy/Cover: 93.00-94.75, 88.00-89.50, 81.25-83.25, 73.75-75.75, 67.25-70.00
Sell/Cover: 02.00-04.00, 07.25-09.00, 12.75-14.25
Expectations:
Hypo 1: There's a test lower to the 88.00-89.50 zone before continuation higher to take out the poor high from 08/10 in regular trading hours and target the 07.25-09.00 and 12.75-14.25 zones.
Hypo 2: The move higher happens first before sellers step in and push down towards the 88-89.50 zone
Hypo 3: Sellers try to regain yesterday's move down to the 81.25-83.25 zone
ES review & plan
A look at the longer term picture shows us that this is the longest period the market has spent under it's 20 week sma in 2 years which is a bearish warning for the longer term trend traders. The summer doldrums have removed a lot of the volume but we may see a break of this upper range, one way or the other as volume starts to return in the next month or so.
The lack of a good high in the S&P and the giant flag pattern that's formed in the past 6 months, plus the responsive buying we've seen off the 200 day ma, increase the odds we'll see new highs. 2088.00 is the highest volume traded and longs will want to hold above this level.
On Friday, volume was very low at just 1m contracts and only 2.79bn shares on NYSE traded. The lack of longer time frame money driving prices saw a lot of the day reference levels respected by the day traders. Value was slightly overlapping higher on the day. The path of least resistance is to the upside, however, 2088 is the pivot to hold above and if this fails to hold we may see some weak longs bail out.
Overnight we saw a false breakout to the upside and move back to the composite high volume area. The range is currently 2084.25-94.50 (settle 89.50) and another low volume day is likely as there is little due in terms of economic announcements today.
My zones for today are:
Support Resistance
83.75-85.75 91.00-93
73.75-75.75 (also bull/bear) 98.25-99.75
67.25-69.25 05.00-06.50
59.50-60.50
Hypo 1: continued upside as the market holds above the custom profile value area of past few days and takes out the 08/10 weak high.
Hypo 2: test higher and fail at overnight high and rotate through the range to find buyers at the bull/bear zone
Hypo 3: Fails to hold above 2088 and sellers attempt to take control targeting the 08/12 anomalies and references.
ES review & plan
Value shifted higher on the day on about a third lower volume then the prior day. 1.4m contracts and only 3.2bn shares on NYSE. The morning repaired some of the weak structure from Wednesday's profile, and the afternoon failed to breakout through the 08/11 high (and composite VPOC at 2088.00). It then sold off back to the VPOC into the close.
Overnight so far has moved towards yesterday's low with the range 2073.75-85.25 versus settlement at 2080.50. I'm using 73.75-75.75 as the micro bull/bear zone for today as expecting to either consolidate above it and have another attempt at yesterday's high or reject value of the past two days and break lower.
ES review & plan
Yesterday was the biggest range and volume we've seen for a month (38.75 points and 2.35m contracts with 4.27bn shares on NYSE).
The low was made at exactly the 200 day ema of the continuous contract and then rallied straight back towards the composite VPOC at 2088.00, leaving a very long buying tail on the daily candle.
Looking at the longer term picture out of interest, below is the last 3 months performance of the underlying sector ETFs. The outperformance by defensive sectors relative to the weak energy, industrials and material is not a great sign for the economic outlook.
Yesterday opened within the range gap, just below the VPOC from 8/07. This was rejected and the aggressive push through the overnight low found buyers at the 200 day ema and, after some consolidation in the 2051-56 area, one time-framed higher for the rest of the session leaving a poor high.
Above there is a settlement gap and naked VPOC/POC just below a poor high, so am looking for this to be the initial target and potential push through 2100 towards the poor high made on 8/5 at 2107.00. Below, there was notable volume at 2082.25/50 to watch for support, plus 08/11 VPOC at 2079.75. If this breaks then it could move quickly to the 2073/4 area. Buyers also stepped in yesterday at the 2068.25/50 area.
Overnight has continued higher after an early test down to 2076.00 to a high of 2093.00. On 08/10 there was notable overnight volume at 2090.50-91.50 which I'm watching as a potential pivot. Retail sales and Jobless Claims have had a small negative bias.
2088.00 is the composite VPOC, so a push in either direction to test low volume areas is possible. I'm expecting value to be higher today, though more rotational.
Buy Zones
79.75-83.50, 73.75-76.50, 66.50-68.50
Sell Zones
98.25-01.75, 07.00-09.00
Using the order flow and context when at the zone for entry/exit decisions.