Last Week

ES - After Monday’s meeting, price retreated to the 2115-2135 level to build support on the south slope of the 90 day composite POC.   It is clear from observing the drop off in participation above 2182 that price has little action to buy much higher.   Tuesday’s transition to this lower level was carried out by large lot traders, almost appearing as a panic and halted crisply in the vicinity of BREXIT, major trend lines, and Z16 contract lows.   Impressive…..  The gap low observed on Thursday was the return from the Yom Kippur holiday, a day that Jeff pointed out would be key.   Friday wrapped up the week.   There were several legitimate reversion trade entries last week.

The negative slope on the On Balance Volume indicator stands out.

NQ

Price action was similar to the ES but to different MP structural references - Retreating after a two week old newly formed barnacle island near 2.5% below all time highs back into the 90 day High Volume Area and executed a clean landing on the composite 90 day Point of Control.   

YESTERDAY'S Price Action:

To confirm the observations of the On Balanced Volume indicator, I'm checking the Commitment of Traders Report. It looks like Big Money (Smart Money) is continuing to leave the market...

Liquidating: Large Speculators, Asset Managers & Leveraged Funds

Buying: Small Speculators & Dealers

http://www.barchart.com/futures/cot.php#1

Liquidating Large Speculators & Commercial Speculators, Asset Managers and Dealers

Buying: Small Speculators & Leveraged Funds (!!!)

http://www.barchart.com/futures/cot.php#1

SUMMARY - If I were big money, not knowing what’s going to happen, I would be apt to simply stay in this region, filling in low volume areas, unloading supply onto retail investors, and make money simply moving inventory back and forth - Unless of course if something changes…

Rebalancing or Pausing?

Summary - Yesterday, the market made a large liquidation move lower. Today, while the liquidation continued, price was able to hold at value...

Top View Look

Bearish signals are apparent inspecting the negative slope of the On Balance Volume trend

After yesterday’s liquidation the NQ price has clearly been accepted into it’s 90 Day HVA/POC while the ES has slipped below its SMA200 where it building additional support would seem reasonable. Lower volume today suggests balancing (high volume would suggest panic, right?)

One interesting observation is that if we hang here long enough, we may have a chance to hit a major trend line and get to see what happens.

ES Liquidation Pausing on lower volume beneath SMA 200 - Either balancing or catching breath....

NQ at 90 day POC.

Market Profile View:

Summary - Tuesday's price was respected Monday's lows and the Globex levels for highs.

The NQ has trended lower for two consecutive days.   Wednesday’s Low of Day matched that from yesterday coinciding with a noticeable LVP in the composite. Wednesday’s price attempted to go higher upon release of the FOMC minutes but did not get past globex high nor the anomaly from yesterday.

If the NQ breaks lower, targets include the LVA south of the composite twin peaks.  If the high volume price at 4772 fails to hold lower, the MP & Pivots will be examined for further liquidation points.   Otherwise, the NQ appears to find the 90 day POC as support.

NQ support at 90 Day POC.   Possible LVA targets below.

The ES MP shows price did not match yesterday’s low.  As mentioned before, yesterday’s low is important because that level goes back the BREXIT time period and any lower would require pulling out older MP charts for reference.  

However, that might be what the market is needing to do (revisit BREXIT levels) that weren’t fully addressed during Z16 rollover? Because of the negative OBV trend line, continue to watch for lower target levels.

ES Did not exhibit panic liquidation today.  Watch for retesting for further liquidation & expecting LVA filling.

VOLUME:

ES DAILY VOLUME: 88% of average and less than yesterday

NQ DAILY VOLUME: 112% of average and less than yesterday

The ES shows fewer large lot traders throughout the day than yesterday.  This view also shows two ideal SMA bounce entries.  We can see the abundance of residual sell orders resulting from yesterday's action appear in the morning session.   However, the HVA at 2127 did a very good job.   The mid day rally campaign coincided with the release of the FOMC minutes.  In the the afternoon, liquidation occurred (again, stopping at the LOD) (WATCH FOR SELLING IN TOMORROW'S OPENING).

ES with Large Trader Filtering showing support at 2127 and slight selling tail at 14:30

The large lot traders were very apparent supporting price at the morning's low of day when residual sell orders opened the day.   Despite bringing price up midday, the afternoon was spent liquidating.  (LOOK FOR SHORTS IN THE MORNING OPENING TOMORROW)

VOLUME Continued - Despite today's settlement price being relatively close to yesterday's settle, the OBV shows lots of liquidation took place today.

Liquidation Day - Especially at cash closeout

Other - Pivot points appeared relevant for the High of Day.  All other pivot points too far out of range. Short time frame traders were in control today with respect for visual support/resistance levels.   Today’s flow was very choppy (is this indicative of being in a “fresh trading range”?)   

If I Were Big Money:

The negative trend on the OBV says continue a controlled liquidation holding value up as high as possible. Unfortunately, that would mean the retail traders and dealers are holding.

If I were big money, and couldn't maintain a balance here, a retreat back to contract lows come to mind. Perhaps a revisit to the contract low is in the future anyway?

Otherwise, if I were Big Money, I would also continue to try to hold a balance at these levels through the elections because those could be my orders....

If I were Big Money, I made my major move yesterday, continue my liquidation at these levels today, and will let the short time frame traders work it around here awhile -- Unless something happens.

An Independant Verification

Chris Ciovacco writes in an interesting article, "How Helpful Are 2 Consecutive S&P 500 Inside Weeks? " in Seeking Alpha, where he comments on how we've recently encountered two consecutive inside weeks - An infrequent signal...

Mr. Ciovacco was describing action on the SPY and in his analyses,  zooms out between 6-10 months.

Out of curiosity, I examined Mr. Ciovacco's findings on the ES market, and using eyeball methods, was able to identify two consecutive inside weeks in 2000, 2008 and the recent one in 2016 - I could not locate the one he identifies in June 2007 (perhaps due to the different market, different data feed, etc.)

In the comment section of this article, "brassb" pointed out that 2000, 2008 & 2016 are election years and in other readings, I recall markets tend to "clam up" when the outcome of the upcoming election is unclear (much as we have this year).

However, zoom out to a 20 year view,  striking price action follows the 2000 and 2008 trigger....

See it?





 

Columbus Holiday 2016 - The Day After

Summary

When I was a contractor to NASA, we would get caught up on Federal Holidays and when the government workforce returned, the place was abuzz as they often returned with “bright ideas”.   Today after Columbus Day, I think we’ve something similar….

Prelude: On Monday, Columbus day, volume was half the average as banks were closed.   Price was yet able to climb higher into areas previously rejected as too high.   Watching this,  I had a feeling that smaller operators were moving price higher so that they would establishes short positions without much squabble.   My volume data yesterday did not confirm this as the On Balance Volume reported net selling (perhaps retail buyers were buying at the highs?!?!?!)    

Sure enough at opening bell, price made a strong move back into last week’s popular trading areas (and lower), putting in  very pronounced selling tail.   

Price Action:

The piloting in the NQ and ES coupled with the magnitude of large lot trades demonstrated to me that long term traders played a major part of the price action - Bringing price back into the norm.

The NQ really impressed me making a low of day at the 90 day Point of Control.   If I were big money NQ, I would be happy here with all the uncertainty in the air to simply fill in the major LVAs here.   However, this does not jive with the big picture On Balance Volume.

Equally interesting was the controlled ES selloff to the Pre-Brexit all time high, a level which coincides with the 90 day Point of Control.   Very impressive piloting, indeed….   Bearish is the continuing decline of the On Balance Volume, what may be a complex top pattern, and price below the 90 day SMA200 - Items I’m sure the elections and earnings will iron out. Casio's famous quote comes to mind, "how much longer will this pig float?"

Peculiar about the action today was that while there was considerable large lot trading (long timeframe trader), price paused at nearly each and every S/R level, prior settling prices along the way (short timeframe trader).   Curious was Mr. Dalton would have to say about today if he were still around.   There were several legitimate reversion trade entries today.   Making entries difficult was the jungle of visual support/resistance levels.   My internet is impaired with an upload speed of only 0.2 Mbps making for lagged interactions - I chose to sit out today.   My loss…..

Volume - Inspection of the Institutional Volume Filtering showed large lot traders participating during this price move in the morning and the afternoon.  Coincidental that this level of action occur the day after Columbus day?   NQ volume was 116% of average compared to 125% from Friday (lighter!!!).   ES volume was  148% of average compared to 115% from Friday.   The ES drove the bus today.

On a side notion, while most of the sectors went lower, Utilities (blue) and Real Estate (yellow) went higher in the morning.  Leading the liquidation was Healthcare & Building (white & grey). Perhaps a sector rotation signal?   Not sure…. In the afternoon session, all sectors were liquidating.

Thoughts on trading tomorrow….   We haven’t been in this area for awhile so memories of MP structure may have diminished.   This could make for great opportunities.   To be continued...