Tuesday, March 28, 2017

Cognitive Dissonance in the Equities or Simply Out of Position

This week, I'm working on my monthly press cycle for a magazine I write for.   During weeks like this, I am often distracted and choose not to trade.   Nonetheless, I monitor the markets for things of interest.   Today, I spotted clearly what I had been suspecting for the past couple of weeks...

Since President Trumps speech to the Congress, the U.S. Equities markets have rallied into all time highs (white space) where the formation of market profile continents and island formations have been observed on clean canvas.

The equity markets include the ES, YM and NQ (S&P 500, Dow & Nasdaq E-Mini contracts).

1) J. Dalton teaches that markets which travel to precise visual locations (i.e. highs, lows, points of control, etc.) are typical of Short Time Frame traders in control.

2) Observations of the price action during the day finds Short Time Frame traders have been in frequent control during the past 20 days, with price action typically reacting to visual market profile structural features.

3) Price action amongst the three equities appears to be close to being similar.

4) Over the past 20 days:

4a) The NQ has formed a prominent continent and prominent island.   Today, price closed in the NQ island.

4b) The YM & ES has formed prominent continents, mediocre islands, and additionally reinforcing the composite market profile structure "south" of the 20 day Points of Control.  

4b1) This is so prevalent in the YM, that a case may be made that sellers are potentially short in the hole at present.

4b2) Presently, the ES is sitting in a Low Volume Area between the continent and the "southern" volume mass.

Given Item 3, that the price action appears to attempt to move in unison,  the situation has arisen where MP structural "road bumps" in one market will appear as "pauses" in other the other equity markets for what immediately appear to be as no good reason.

For the time being, while the three equity markets are highly correlated and until a Longer Time Frame trader steps in, it seems prudent for the while to monitor price action throughout the day of all three equities - Not simply trade what's in front of you but "what's in front of you".

In the charts below, note the
- Similar price action in the equities for the past 5-8 trading days (3)
- The similar/malformations of the 20 day composite Market Profile (4)
- Today's price with respect of the different MP terrains.
- Also seen the notes within each graphic.