ES Trading for 9/24 + Rest Of Week

[Dogpile]

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]

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]

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.

ES.GIF

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.

ES-Daily.GIF

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]

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]

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]

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]

	Quote:	darthtrader
	... 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.

ES.GIF

[darthtrader]

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]

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.

Anyway, my trades are attached...

ES-Trades.GIF

ES-LastTrade.GIF

[ant]

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.