ES Trading For 9/17 + Rest of Week

[Dogpile]

We enter Monday in an interesting position.

Fridays gap down at the open appeared to begin a new 'down auction' following the multi-day, low-volume 'up auction that completed on Thursday. When a new auction begins, we look for signs of continuation to confirm this (volume and profile shape).

Effectively, the break away from 1498.00 did carry nicely but the entire move happened overnight. The market then rejected this downside move by forming an 'excess low' this morning. Thus, we began an 'intraday up auction' (morning low to afternoon high). However, this up auction was weak as volume was very poor and the profile shape shows that new buying and short-covering was being offset by patient-sellers.

The true profile structure is probably best seen in combining the last 2 days (Thursday & Friday). If you combine both days into one volume distribution, it looks like a very 'normal distribution' -- with a selling tail above and a buying tail below.

A Break from a 'normal' distribution is generally a 'go-with' -- so will have to be flexible for Monday.

The market has been creeping higher on low volume. Generally this type of behavior ends in a buying climax as late-to-the-party investors finally give up and enter at bad prices. If this were to happen, this would then set the market up for a good flush the other way. But that is looking multiple days out.

For now, I have no real bias for Monday and will likely be a patient trader until something more interesting sets-up.

Attached is the profile shape for Friday -- I will work on something more interesting on Sunday. Hopefully, some others can join in and we can collaborate on some analysis and potential strategy for a week that will include;

brokerage earnings reports
a fed rate cut
options expiration

this should make for a crazy week...

[darthtrader]

Dogpile, do you not bother with the TPO/lettered chart MP concept at all?
You proxy that through traditional TA?

I got sick of trying to get into the nuance of the TPO graph last night in Mind Over Markets and just read the last chapter.
I'm half through the book and the information overload is at the point that if you posted a volume distribution of a bracketed market, I would have no clue.

I would love to hear a more conceptual post on how you use MP. I'm more interested in the core concepts I soppose then the details, thats just how I learn.

[Dogpile]

<<do you not bother with the TPO/lettered chart MP concept at all?
You proxy that through traditional TA?>>

I did it by hand for months and now feel like I can read it just fine through a chart and a volume distribution. I feel like TA is just more intuitive than looking at a bunch of letters.

I couldn't make it through Mind Over Markets either. But if you can read the first 100 pages or so - then read Markets In Profile. Markets In Profile is a pretty easy read, IMO.

[Dogpile]

link to Jim Daltons weekly comments:

http://www.marketsinprofile.com/seminars/II-091607.html

"What we are showing is that since the excess low, the market structure resembles the letter “P�; if you combined all the daily profiles into a single long-term profile, this is the structure (shape) you would observe. The interpretation is that shorts were buying to cover (old business) versus new money longs entering the market (new business), which would likely cause the structure (long-term profile) to become elongated. We think that there were numerous shorts that expected the market to retest the excess lows and the failure to accomplish the test began to try the patience of the shorts, who then began to cover. "

"For the week beginning 9-16-07.

Earlier I asked you to remember the 1.4 billion volume number from Friday’s downward auction. None of the up days last week equaled the low volume seen on Friday. This does not leave the market with a strong underlying support structure as we await Tuesday’s interest rate announcement from the Federal Reserve.

As we finished the week at the top of the trading range (there are two ranges, we are at the top of the lower range), this is the main reference to begin the week. Bonds have backed off a little in price in case there is a surprise in the announcement; however, stocks have continued to trade as if there is no risk. Market Logic would question stocks prudence."

---------

Interpretation: Dalton seems to be favoring short-side here but not with conviction.

[Dogpile]

Market gapped down and attempted a further downside move today but eventually ran out gas. We ended with yet another day of miserable volume. The profile shape/volume distribution was yet again fat and symmetrical -- indicating the down auction has no real conviction. PVP, VWAP and closing price all ended relatively close together, singalling a state of 'balance'. Note that we did build lower value for the second consecutive day.

LEH earnings in pre-market tomorrow. Tomorrow is another 'go-with' given the symmetrical profile and lack of volume today. I prefer the short-side still but will likely join in on an initial break higher and monitor for signs of continuation (elongating profile and volume).

ant, are you around? would love your take....

[ant]

Hey Dogpile, how have you been? I've been reading your well thought out ES analysis and I agree with them. Let me give you my perspective, but I think you and I are pretty much in sync. Specifically, that the ES was balanced today, the profile shape was squat and symmetrical, value area was lower the past 2 days, and that we should look to trade with any directional move away from balance. However, with the FOMC meeting tomorrow, I don't expect any directional moves in the morning.

Here are some more details of my observations (see chart below), which may repeat some of your points. The ES gapped down and then traded up toward yesterday's POC, where the ES reversed and put in a selling tail. The sellers then auctioned the market down with some confidence towards yesterday's low. This is an initiative response from sellers since the ES was trading at or below yesterday's value area. Near yesterday's low, the buyers came in an put in a buying tail and auctioned the market up. The ES reversed prior to reaching today's selling tail. A few observations regarding the strength of the sellers vs buyers... The length of the selling tail (5 TPOs) was longer than the buying tail (2 TPOs), the morning auction down moved with more confidence and covered more distance than the up auction in the afternoon, sellers rejected the prices near the today's high (i.e., the selling tail provided resistance), and again we had initiative action by the sellers. If I had to pick a winner in today's tug-o-war, I would say that it was the sellers. This and the fact that the ES started a down auction within the bracket last Thursday gives me a short bias. Note that today's low also coincides with the high volume area of the composite profile shown in the chart below.

Let's take a closer look at the composite profile in the chart below, which covers the last down auction and the last up auction in the bracket. Note that the ES stalled today near the high volume area and that a 'ledge' has formed in the composite profile. According to Dalton, a ledge should be traded like a breakout. A directional move below the ledge will play well with our theme of a breakout from today's balanced profile. But we still need to monitor activity near the ledge because it could provide support as well. It looks to me like the market needs explore prices in the lower half of the composite profile before the ES can move up with confidence (especially in this low volume environment that we're in). I'm also keeping in mind the low volume area of the composite profile which could provide support. So unless tomorrow is a trend day (which I doubt), I think we can see the ES trade between 1497 and 1480. If the ES trades below the 'ledge' tomorrow and price is accepted below it, we could see an auction to the bracket low over the next few days. Given that tomorrow is Fed Day, perhaps these reference points will provide support/resistance after the announcement.

EDIT: Forgot to mention that there was also selling range extension in the ES today.

ES.GIF

[Dogpile]

today we had a gap up which potentially began a new up auction coming out of yesterdays 'balance' (VWAP=PVP=closing price yesterday). market formed a ABC-down pattern but was building higher value (VWAP>VWAP[1]). This is a bullish continuation pattern.

price climbed above 1498.00 -- a key prior pivot. price had been above this level a few times before only to form selling tails. thus while price had been above 1498.00, value (VWAP) had yet to breach 1498.00, until today.

the difference this time was that VWAP pulled above 1498.00 as mid-day approached. this signals price being 'accepted' above a known point of excess -- above 1498.00 had been an 'excess high' as the market had gapped down from this level last Thursday.

The FOMC cut fed funds 50 bps which surprised the market and sent the futures into a vertical move up.

Very strong volume and an elongated profile are characteristics of continuation -- and we got this. The day after a trend day often finds a good flush in the opposite direction of the trend move but this retracement should find support at some point as there is very likely residual upside momentum that should last into tomorrow if there is a good flush down. Typical day-after-trend-day action would be for the market to also 'balance' mid-day and should eventually break-out from this balance -- with the likely direction being up.

One caveat to the environment now is similar to what happened in Feb-March of this year. The market had drifted up on weak volume until today. Now the volume comes in after price had already been marked up 40-50+pts.
Thus, many longs have entered at relatively bad prices. While there should be residual momentum for tomorrow, we might need to shake these 'late-to-the-party' longs out of their positions at some point -- perhaps Thursday -- this is expiration week after all and these weeks tend to be volatile... Such a downside flush might then set-up a good buying opportunity for Friday or Monday. But this is all looking a few days out. For now, the auction is up.

Notably, XLF broke to a 20-day high today. We will need a down move at some point but this 20-day high is significant longer-term, IMO.

[darthtrader]

great stuff.
Everytime I'm ready to give up on Mind Over Markets I randomly read a part of it then run across some gem. I just ran across the ledge part in ant's chart and Dalton's great movie theater/volume analogy earlier tonight. Seems like chipping away at it is that only way to read it. Someone always buys me books for christmas so I'm just going to wait and get Markets in Profile then.

Good point about alot of longs with bad location. Then on the other hand though maybe there was alot of higher time frame buyers on the phone with their brokers after 5pm. Tomarrow seems pretty tough.

[brownsfan019]

Dog - so have you traded any of these threads you have here? Are there possible trades here that I am not seeing? I was just wondering b/c James and I are doing well with our candlesticks over here - http://www.traderslaboratory.com/for...html#post19708



I always like to compare different strategies to see how they are performing in current market conditions. Of course, looking in hindsight is easy so I've been trying to post my thoughts in real-time over at that thread.

[Dogpile]

<<so have you traded any of these threads you have here?>>

I trade for a living every day. I participate here partly to try to help explain to myself what is going on and treat it as kind of a trading journal as I can look back at the profile shape from past days or my comments and see what I was thinking at the time. The other part is in hopes of finding other traders to interact with. I have daytime contacts so I don't necessarily 'need' other traders -- but it would be nice. This is kind of a homework site for me.

This particular thread is more about 'context' -- I kind of juggle my trade set-ups based on the context. I have been trading lightly lately but anticipate far more trading now as the market opens up its range and volume (money flows) come back.

I just think in terms of price action relative to VWAP (ie, 'value'). I define patterns relative to VWAP/value. I don't know anybody else doing it this way. Everybody seems to have their own way. This way just speaks to me. I will check out the candlestick thread.