So What Is The Market Doing Now?

*Soultrader* · #1 11-02-2006, 01:34 AM

Where are we headed? Are we still consolidating? Was today a warning signal for the bulls? Change in direction?

We saw very interesting action today with the ES, YM , and ER2 all falling below value and never looking back. Does anyone else smell the shift in market sentiment? The past 8 trading sessions has been something new.... we havent seen anything like this in the past few months.

Starting on Oct.23rd to Oct Oct.27, the YM had an overlapping value.

Then from Oct.30 to Nov. 1st we are seeing lower value placement. What is especially interesting is the higher volume on the lower value placement days. From the trend formation in July, volume had been a good confirming tool for the steady uptrend we had. We saw higher volume on the rallies and lighter volume on the pullbacks. Over the past few days we have seen just the opposite with higher volume on the sell-side. A warning signal???

Are bulls now liquidating their long positions? This is something we need to keep in mind. The YM will now go on to test the 20 period EMA and the trendline cluster. This will be a crucial make or break point. Let's take a look at some indicators on the daily charts.

See chart below: The MACD is a great tool for the daily charts. In the chart below, notice the cross in the MACD and the histograms below zero. The RSI is also coming down below the 70 line. A combination of warning signals exist from a technical point of view.

YM Trading Plan

As traders how can we monetize from these pieces of information? Let's try to build a trading plan. Let's take a look at yesterdays action.

The YM saw price rejection above value in the opening 30min. This lead to a decline into value and then a final rejection to the downside. The POC and VAL should act as a key resistance point for tomorrow.

Theres plenty of room for the markets to go down. Any further decline should take us to the 12000 mark offering plenty of opportunities. In my opinion, the short sellers are late coming in into this decline. The longs started liquidating early and now the shorts are jumping in. Why?

This is because we did not have any key price levels to the upside on the dow. The YM took off to new highs with uncharted territory. Shorts need a little confirmation before they can start entering the markets. Therefore, I am not expecting a short covering yet.

My bias is going to be on the short side. So my trading plan will be to look for short setups. The VAL or POC is number one. The previous days low offers another opportunity. 10/31 VAL is also in line with 10/30 single print tails. All of these areas are very close to one another and sellers will be looking at these levels.

Be on the lookout for the upcoming trading days. Try to capture the clues the markets give us. Each infrormation is a small piece of the puzzle. The faster we figure out the big picture, the better off we are as traders.

Good luck and best of trading.

Soultrader

Gav · #2 11-02-2006, 04:31 AM

Very interesting insight of market condition using market profile. Good post!

Gav

TinGull · #3 11-02-2006, 09:42 AM

Cash markets for the most part are losing their daily trendlines, and VIX lost it's downtrend as well...so we should be seeing more downside moves ahead of us. I always love playing the short side anyways

*Soultrader* · #4 11-02-2006, 07:09 PM

Let's take a look at a daily chart again. Notice the high volume coming in on the sell-side again. We are now testing the trendline made from July and will be KEY to watch this level. We clearly are having long liquidation and without new market interest this can be a clear warning signal.

Now lets take a look at the Market Profile chart. We are now seeing 4 days of lower value placement with decent volume. A clear warning signal? I think so.... we need to watch carefully on Friday and the following week. The markets have been moving in a consolidation to the downside for some time. Any break below the trendline and we can finally start seeing some decent trend days to the downside.

I will be very flexible the next following trading sessions. I am looking at short setups but at the same time watching out for any bounce. Technically speaking the charts tell me of many warning signals. Should be interesting.

protrader · #5 11-07-2006, 03:21 PM

looks like we are retesting the high on lighter volumes, going down? See how we end the day.

*Soultrader* · #6 11-07-2006, 03:35 PM

yes. I am looking at it very carefully. Im thinking a possible short covering and a further decline. Will keep you posted.

protrader · #7 11-07-2006, 03:42 PM

i think i may buy some sds , ultrashort s&p 500 pro shares, there a mind twister. trade 200% the inverse of the s&p.

*Soultrader* · #8 11-08-2006, 10:03 AM

Here's some updates. On 11/06 and 11/07 we had a nice rally of over 200 points. We recovered the 6-7 days of decline in only 2 days. Pretty impressive.

Are we seeing short covering? Or did the bulls step in to support the bigger trend? On 11/06 and 11/07 we had a P profile on a Market Profile chart. This definitely alerted me of a possible short covering.

Should be interesting to see what the market does today. Premarket action has dropped prices below value creating a nice little gap. I would be cautious fading this gap though....

Good luck and best of trading.

TinGull · #9 11-08-2006, 12:47 PM

Forming another P profile today. Adding to suspense.

*Soultrader* · #10 11-08-2006, 12:53 PM

Hey Tin,

From my understanding a P profile is only valid following a downtrend. We are forming lower value placement today. So Im not sure what this means... will need to ask ant for this.