ES Trading for 9/24 + Rest Of Week

[Dogpile 10]

Profile Shape from Friday shows 78k+ contracts trading 40.50 -- this is a 'fat' reading and shows price acceptance at that level. The range was narrow -- nr7 = narrowest range of last 7 bars. The market gapped up after a down day but showed no signs of upward continuation (it was expiration so difficult to read much out of it).

 

The week after September options expiration has very strong downside bias and S&Ps have built significant congestion in the 1540-46 range with a selling tail above 46.00.

 

Reviewing the key sectors, XLE is extremely overbought and due for a rest at some point likely first part of this week. I am looking for a downward auction to begin soon and will be actively monitoring it for signs of continuation or the lack of selling pressure. A correction would be healthy at this point and could potentially set up a nice long-side trade later.

 

It appears to me like most of the residual momentum from the Fed buying spike has run its course. We could of course just grind higher -- which would not be so great for us traders as it would imply less opportunities and less range to trade.

 

We are trading high the 5-day range so I am favoring the short-side for now. That said, the key financial sector (XLF) is trading low in 3-day range and could be do for a move up on Monday. Either way, I will not fight upward range expansion off of opening price.

 

Let's kick some butt this week as the low-volume pre-FOMC deadness is hopefully over and we can hope to see better range this week rather than the 'no-volume-then-vertical-spike' action of the last 10 days.

[Dogpile 10]

2 thumbnail attachments to get things going... both charts show the 5-day high-low midpoint: ES.D and XLF. we had a similar 'fed-spike' last March. we crept up slowly on low volume and then spiked up hard on fed-related action (march 21st). We then flushed out those 'late-to-the-party' longs in a cleansing downward move that set us up for a nice advance. I have no clue if this one will play out similarly but the structure is somewhat similar having watched the daily auctions develop first-hand.

 

let's have some good discussion this week. I look forward to something from Ant that helps me think this structure through.... I find Ants stuff to be really helpful in looking at the same data a different way.

[ant 10]

My ES analysis highlights similar ES trading characteristics pointed out by Dogpile, namely the high volume area at 1540.50, the 'fat' profile shape, the NR7 that may lead to range expansion, and a bias to the downside.

 

In the short-term timeframe, the ES has been trading in a 3-day balance area as shown in the chart below. Friday's day structure was a Neutral day with range extension above and below the IB. There was a selling tail and a spike down in the last 45 minutes of trading on Friday. Nevertheless, the ES closed near the lows making the sellers the winner of the day - so technically, this was a Neutral-Extreme day with the sellers being the 'victor'. Currently, in the overnight session, the ES seems to be accepting the prices at the spike low. Since the ES is balancing, attempted direction is not clear and volume analysis is not very helpful, but the profile shape is, which is discussed below.

 

 

On Wednesday (9/19), the ES formed a volume TPO at 1546 with volume of 107458. On Thursday and Friday, the ES never traded back up to 1546. The high volume area over the past 3 days is between 1538 and 1541.75 with volume at each price of that range being higher than that of 1546. The composite profile in the chart above depicts a prominent high volume area and a fairly symmetrical profile indicating balance. The key reference areas of the balance area are the extremes (tails) and the mean (or high volume) of the distribution. Another sign of equilibrium is the 3-bar triangle that developed as shown in the daily chart below, where the high/low of the last day is contained within the high/low of the previous 2 days. According to this LBR pattern, we should be alert for a new high/low and expansion.

 

 

So my expectations are for a breakout of the 3 day balance area soon, and for the reasons mentioned above, my bias is for a breakout to the downside. Based on these observations, the possible trade scenarios I see for tomorrow (9/24) are as follows:

 

1. If the ES opens within the trading range, I will monitor price at the balance area extremes to determine if momentum is increasing or decreasing. If decreasing, I will fade the move to the extreme with a play for the mean of the distribution.
   
2. If the ES opens and starts trading towards the high volume area, I will monitor price as it approaches it. If momentum is decreasing, I will fade that area for a play back to the balance area extreme and a potential breakout.
   
3. Right now, in the overnight session, the ES is accepting prices at the low of the spike down from Friday. So it is possible that the ES might have a gap open down, outside the trading range. If so, I would plan on trading in the direction of the gap.
   

 

During the trading session, we can discuss the support/resistance levels above/below the market. I'm also looking forward to seeing increased volatility this week.

[darthtrader 10]

I love that first chart ant.

I would love to hear how your playing this intraday.

Like right now at 10:16 price was kind of balancing between 1534 and 1535 then started moving up, are you looking to possibly fade price if it hits resistance at that high volume area?

Do you have a intraday TPO chart going right now?

[Dogpile 10]

Noon eastern time look.

 

VWAP < Friday closing VWAP = Building lower value

 

Attempted downside move this morning hit responsive buyers. Move up found resistance in that 40-43 area we discussed.

 

This is difficult structure. There are no sellers but we are pinned under resistance. The market just continues to grind sideways in narrow range.

 

NQ has shown nice range expansion off of opening price -- generally not good to fight this on intraday basis.

 

XLF is lower and keeping lid on S&Ps and offsetting the tech strength to some degree.

 

It looks to me like the market is so far digesting the large spike up with sideways consolidation (sector rotation) rather than a downside flush. I am still expecting (hoping) for a downside flush this afternoon or tomorrow before a potential good move up. That said, until I see some opportunities to join some sellers -- I will just wait patiently. Eventually, we will have digested the move and can look long again -- could come with lower prices or with sideways consolidation -- or a bit of both.

[darthtrader 10]

ahh cool to see the vwap, i really need to get my tools togather.

looks like a nice short if price can break through the vwap with it lined up so close to the bottom of that high volume congestion area on ants chart.

[ant 10]

... are you looking to possibly fade price if it hits resistance at that high volume area?

 

 

Hey Darthtrader, sorry it took me a while to respond. I did take a short at the high volume area but didn't get any follow through. Made a tiny profit though.

 

[darthtrader 10]

cool ant, i don't think i'm ready for that kind of trading yet when its in the middle of the congestion area, that seems tough.

 

you guys get that short when it broke out? that was pretty sick with the market profile area and jerry's stuff all lined up togather. like a price rocket launcher.

[ant 10]

Done trading for the day. Very disappointed with my trading as I missed the big trade of the day. Grabbed one point here, two points there, and broke even on the others, that's it. :crap:

 

Anyway, my trades are attached...

 

 

[ant 10]

Attached is today's profile compared to the composite profile of the previous 3 days. The high volume area, Friday's selling tail, and the lower bracket extreme were key support/resistance levels today.

[ant 10]

Below is a composite profile of the ES starting from 8/18 (FOMC Day), the day when the ES broke out of the lower bracket. The profile shows that there is very little volume below 1529. There is virtually no volume between 1504 and 1512. According to Dalton, and as visible in the second chart, the key reference area below 1529 is around 1508, which is roughly the lower limit of the upper bracket and the upper limit of the lower bracket. Currently, the ES is trading around 1527 in the overnight session. If the ES opens under 1529, I will be considering the short side for a potential big move down, especially since we've been balancing over the past 4 days and are due for imbalance soon. If the ES opens within the 4 day balance area (see chart in previous post), then I will continue to look to fade the balance area extremes, if volume and momentum supports it.

[darthtrader 10]

nice.

how does price tend to act when you get that double distribution looking profile? Will you look to play bounces between the two higher volume areas?

 

also, have you guys ever played around with Dalton's rotation factor idea? Seems like that could be interesting but I can't picture how to fit it in yet.

[ant 10]

nice.

how does price tend to act when you get that double distribution looking profile? Will you look to play bounces between the two higher volume areas?

 

That's a good question. I would trade against both distributions. The market has a tendency to fill in the low volume areas (forming a rough bell curve) before breaking out of that balance area.

 

also, have you guys ever played around with Dalton's rotation factor idea? Seems like that could be interesting but I can't picture how to fit it in yet.

 

I use the Rotation Factor as one of my indicators for determining market direction. Today's RF was -7 indicating more selling.

[darthtrader 10]

thanks ant, that was exactly the type of information I was looking for.

 

I take it you just use the rotation factor as a general bias?

[ant 10]

I primarily look at range extension, excess, TPO count, and rotation factor for determining attempted direction. If any of these conflict with each other, then I deem attempted direction as "not clear" and simply conclude that the market is balancing. I then use other MP indicators to determine market performance. These are all covered in Mind over Markets and Markets in Profile. I go through these in my daily preparation to achieve come consistency in my approach, since it is mostly discretionary. If it was a trend day, then direction is obvious and this "attempted direction" assessment is not required, but I still look at market performance.

[darthtrader 10]

I'm slowly cracking(very slowly) Mind Over Markets. Interesting idea with those 4 not lined up = balancing.

 

damn after market.....1528 looks like it should be very interesting today. What are you going to do though if we open and continue down? Seems like we are kind of in no mans land if that happens.

[Dogpile 10]

I was out during the afternoon session and couldn't trade. Here are a few things I see with 20/20 hindsight (review of yesterday).

 

I note that Ant charted in advance this 1538-42 high volume range and that is precisely the zone we broke from to begin the afternoon trend down.

[ant 10]

I'm slowly cracking(very slowly) Mind Over Markets. Interesting idea with those 4 not lined up = balancing.

 

damn after market.....1528 looks like it should be very interesting today. What are you going to do though if we open and continue down? Seems like we are kind of in no mans land if that happens.

 

Generally speaking, I'm going to go with the trend and sell rallies.

[ant 10]

Dogpile, missed your presence yesterday. Your charts put the day's action in perspective. I like comparing your interpretation of market action with mine. I use it to grade my trading performance for the day.

[Dogpile 10]

<<I like comparing your interpretation of market action with mine.>>

 

I find our styles to be very, very complimentary Ant... It's pretty cool to both think independently and can then collaborate and think about something that may have been overlooked or not emphasized enough. Let's try to post a few updates per day and hopefully can help each other to make a few extra points a day or week.

[ant 10]

Let's try to post a few updates per day and hopefully can help each other to make a few extra points a day or week.

 

Agreed. A few extra points would be great! I will continue to post during the day.

[Dogpile 10]

Good gap down this morning.

 

We did just break from that 38.00 to 40.00 high volume zone and are in a 'down auction' -- so the trend is down. We look for signs of continuation. The profile shape from yesterday shows active buyers at 1531.00. Note this is also where buyers held the market the day before expiration and trapped bears who were getting short down there. Now we appear to be trapping bulls who were buyers at the same price a few days later.

 

S&Ps are currently ~1522 -- so location is poor to be short in the near-term relative to the 31.00 level of 'value' from buyers yesterday. I will be watching closely to see how the market responds to the opening gap. We pointed out how unusual all that volume was at 1546.00. The day marks an important 'excess high' -- a 'Turtle Soup' in LBR terms (market makes 20-day high which is a 'bull trap' as late-to-the-party longs are flushed out).

[darthtrader 10]

hmm...brutal open.

[ant 10]

Could see trend reversal and possible First Cross Buy. A lot of paper buyers this AM. There is resistance at 1528 that we would need to get through.

[ant 10]

If price gets above 1528-1531 with some conviction, I will probably look to get long.