[FulcrumTrader]

Friday trading in the "ES" had a very rare event that I only see a few times a year. The markets had traded lower in recent days off highs at the 1148.00 level in the S&P500 Emini. Friday pre-market action printed a new lower low to the 1104.75 level right into the +40 point Commercials profit target zone. Commercials who had accumulated heavy SHORT inventory over a several day period at the 1148.00 to 1144.00 zone of price now had price trading right into another zone for profit taking.

As the US cash session opened on Friday the "ES" was able to trade back up to the 1111's where it was then immediately sold. Within the first hour of the US cash session the "ES" printed another new low to the 1101.00 level of price (10 points off the 1111's). Trade to the 1101.00 level brought in immediate short covering into the order flow and then new initiating buyers.......next, we trade right back to the 1111's (10 points off the 1101's).

At this point, I was starting to notice that we were showing very large SHORT position accumulation at the 1110's/1111's taking place. With each price rotation back up to the 1111's I could see the SHORT position was growing in size.......very big size, like over 50,000 contracts!

What makes this type of inventory build very rare is the fact it was happening JUST ABOVE recent lows after a multi-day sell off. Usually this size of accumulated SHORT inventory takes place at fresh new highs, as Commercials start to load up in a small range of price (like they did at the 1144.00 to 1148.00 zone of price). As this very large SHORT inventory was building just above fresh new lows, I was thinking that Equities Funds/Institutions must be building up a very large hedge on the day before they start dumping into the closing hours. Since I knew that Commercials do not typically initiate large SHORT directional trades just above fresh new lows, the Equities hedge game seemed to be in effect.

As the markets traded into the final hours of the day, it is very easy to see that Equities Funds/Institutions transitioned into a full SELL PROGRAM dump mode......and the markets eventually printed 1086.25 LOD for the "ES" just before the end of the cash session. BTW, the 1088.00 to 1084.00 zone of price is the +60 point profit target area for those Commercials who sold the 1148.00 to 1144.00 Delta Zone of resting SHORT inventory.

We ended the last portion of the Globex futures session Friday with a small SHORT covering rally to the 1091's (20 points off the 1111's). It looks like Equities participants on Friday decided to start locking in profits near recent highs for the held LONG positions they have been building up since the March 2009 lows. I am glad we are getting volatility back into this market and I look forward to next weeks action.....should be VERY INTERESTING!

http://www.charthub.com/images/2010/...lcrumTrader_CD

Equities late day SELL PROGRAM dump........

http://www.charthub.com/images/2010/01/22/FT_NYSE_TICK

[DugDug]

Interesting - any thoughts on the fact that now there are a lot more CTA/momentum/trend type traders around whereby they sell more aggressively at new lows. Whilst previous years may have seen institutional buying coming into the market, providing support on a succession of down days, now the sellers at new lows (particularly after 2008) might have more influence.
(I agree - love the vol - I have closed all long term trades and looking to job, duck and weave)

[Gabe2004]

Originally Posted by FulcrumTrader »

At this point, I was starting to notice that we were showing very large SHORT position accumulation at the 1110's/1111's taking place. With each price rotation back up to the 1111's I could see the SHORT position was growing in size.......very big size, like over 50,000 contracts!

How can you see the short position accumulation?
Maybe it is a long position accumulation?

Isn't there a buyer for every seller?

When 50K were sold, didn't someone buy them?

Gabe

[FulcrumTrader]

Originally Posted by Gabe2004 »

How can you see the short position accumulation?
Maybe it is a long position accumulation?

Isn't there a buyer for every seller?

When 50K were sold, didn't someone buy them?

Gabe

It is actually very simple to spot these zones of accumulation in the various futures markets using the Cumulative Delta, and tracking the Delta Volume Distributions going forward from the first day a contract trades. To get to your question you have to remember first, every buyer on the other side of that 50,000 contract accumulation was not necessarily a newly initiating buyer (trade entered to start a new directional LONG position).

Some of the buyers in the 1110's/1111's on Friday were those entering newly initiated LONG positions looking for the breakout back above the 1111's. This group was looking for price to finally trade back north out of that lower range of price and to start advancing back into the previous upper range. This was definitely the case after the market traded down to the new low at the 1101.00 level, and then was able to work all the way back to the 1111's of the day's cash session highs.

The ability of the market after making a new low and then trading all the way back to the cash session highs had new buyers thinking the "bottom" was potentially in. We also had many then covering SHORT positions (BUYING to cover) with this market activity. Those covering SHORT positions very much "in the money" were looking to lock in profits before the market trades back up into the previous upper range of price. With several rotations Friday back up to the 1110's/1111's area of price, we had plenty of newly initiated buying and SHORT covering (BUYING to cover) to take the other side of those accumulating over 50,000 contracts SHORT.

I have been tracking Cumulative Delta and Delta Volume Distributions for 7 years now, and what I observed on Friday was a pattern of the order flow distribution that I usually see as the market transitions directionally from a macro view.

[FulcrumTrader]

Originally Posted by DugDug »

Interesting - any thoughts on the fact that now there are a lot more CTA/momentum/trend type traders around whereby they sell more aggressively at new lows. Whilst previous years may have seen institutional buying coming into the market, providing support on a succession of down days, now the sellers at new lows (particularly after 2008) might have more influence.
(I agree - love the vol - I have closed all long term trades and looking to job, duck and weave)

So far the patterns I have tracked in the order flow distributions these past 7 years have all stayed the same......the only aspect that flucuates on occasion is the total amounts of contracts accumulated or distributed in various ranges of price. For instance, in November of 2007 I saw MASSIVE amounts of SHORT inventory accumulation by Commercials at the recent highs. Now those patterns of price rotational accumulation look exactly the same as how they look today.....it is just the total amount of contracts accumulated will varry with each new accumulation event.

The Commercials still dominate the order flow in most futures instruments and their trade entry and management behaviors have for the most part stayed the same all these years. I have not yet seen any shifts in the order flow patterns I constantly track for with the possible changes from various market participants. For the most part, Commercials are still doing a very fine job of turning MANY on a daily basis in the weaker hand!

[Gabe2004]

Originally Posted by FulcrumTrader »

I saw MASSIVE amounts of SHORT inventory accumulation by Commercials at the recent highs. Now those patterns of price rotational accumulation look exactly the same as how they look today

Thank you for your answer.
Unfortunatelly I don't understand how can you tell if someone is accumulating shorts or longs for that matter.

Gabe

[FulcrumTrader]

Originally Posted by Gabe2004 »

Thank you for your answer.
Unfortunatelly I don't understand how can you tell if someone is accumulating shorts or longs for that matter.

Gabe

If you track the byproduct of the traded order flow with Cumulative Delta (the differential of those entering "market" order trades at the bid/ask) you will easily be able to see accumualtion take place. If you fully understand order flow dynamics in relation to price action, it is very logical and easy to spot on a realtime basis intraday.

Maybe I will make a video for you to understand how a person can watch and track this activity.....I will post it up here latter today.

[Karish]

Very Interesting observation, can you please elaborate on Commercials behavior regarding the +40 points profit target zone.
Thanks