Yesterday we opened just outside of the previous day’s value area and range.  We opened with an Open Rejection Reverse opening type and pushed lower into the previous day’s range.  We moved down to the previous day’s VAH and the 1314.50 HVA and saw a very strong bounce.  This was a phenomenal trade with two strong pieces of confluence.  Price moved higher through 1322 with strong volume and formed a head and shoulders pattern at the 1326.25 LVA.  This was the trade of the day if you held onto it all day, which could have netted you almost 20 points, if you were patient.  Price bounced against opening price twice and worked out very well for at least 4 points each time.  The third time price retested opening price, it couldn’t hold and we saw a massive selloff with a bounce off of the 1307.50 LVA.  Then we saw a short covering rally at the end of the day for 10 points.

Market Commentary for May 23, 2012

As of 9:06 AM EST, price is just above the low of the previous day at 1308.50.  The overnight session looks to have been a long liquidation as we are back near the lows of the previous day.  We saw a strong entry by buyers at 1302.25 and there may be a possibility that that will be the low for both the overnight and cash session.  As long as we stay above the 1304.50 HVA, that low should be safe.  If we continue higher, I would expect price to test 1314 and possibly all the way back up to 1322.  If we move below 1304.50, I would expect to see 1296.75 with 1290.75 as an extended target below.  I have a slight lean to the upside moreso than the downside but I will not get caught up in a strong directional bias.  If I do, I will be missing trades in the other direction and possibly fade a trend.  Remember, you need to be on top of your trading psychology every moment you’re trading.

Yesterday, we opened with an OAIR and we saw price rotate into large swings until the bounce right before the 1293 LVA.  That was the trade of the day as price continued higher for the remainder of the day for over 20 points.  If you couldn’t get long at the low, there were a couple of places that would have allowed you to get in long: 1301, 1304.75, 1307.50.  If you attempted the short the trend higher, the only way you could have done it is by giving it a really short leash and not taking too much risk but fading a trend day is a recipe for disaster.

Market Commentary for May 22, 2012

As of 9:23 AM EST, price is at 1317.  The overnight session was only about 8 points, which shows that there was much disagreement with the push higher.  Overnight inventory looks balanced so a inventory rebalance at the open is unlikely.  The area above that price needs to get above is 1322.  That is where price broke down last time.  If it can get above 1322, I would look for 1329.75 and possibly 1335.50.  If price stays below 1322, I would look for price to retest 1314.50 and possibly 1304.75.  I would expect price to stay above 1300 for today.

Yesterday was an incredibly strong trend down day.  The range of the day extended past the 17 point range that we had seen for the past 3 out of 4 days.  We had price open at 1323 and saw an Open Rejection Reverse opening type.  Just before the open, we had two swing highs that price couldn’t move above.  This was the third head and shoulders formation to the upside in three days that lead to a huge sell-off.  I was looking at the 1322 level because of the gap that was formed in February.  I mentioned that if price breaks below that level and starts building volume, we should look for at least 1316.  I failed to mention that we really could have gone much lower.  That was an incredible trade if you would have gotten short at 1322 and there were several opportunities for you to do so.  This was a textbook trend day where we had more and more progressive selling lower.  Another great trade would have been at 1317 around 1:20 PM EST.  Price couldn’t break above the support that turned in resistance from the morning around 10:20 AM EST.  Also, this is was the fourth day in a row where we closed near the lows of the day.

Market Commentary for May 18, 2012

As of 9:03 AM EST, price is at 1306.25.  In the overnight session, we moved all the way to 1293.50 but it looks like we’ve corrected that short inventory already.  The low that was put in wasn’t supported by a lot of volume so I would expect price to retest that area during the cash session in the next few days.  I’ll be looking to see if we can get back into the value area of the previous day which begins at 1310.50.  If we can get above 1310.50, I would look for 1314.50 and 1318.50.  If we can’t get above 1310.50, I would look for rotation for a bit around 1304.50 and a possible continuation to 1296.75 with an extended target back down to the ONL and possibly 1291.25.  With price moving down so heavily with no pullback, we’ve moved 30 points already.  Any short trades will be on a short leash and I will be looking for a nice pullback higher.  Also, today is options expiration and there is no news.  We might see a very choppy trading session today.

Yesterday, we opened in the previous day’s value and range at 1334 with an Open Test Drive opening type.  This is the second day where we had buying pressure near the open only to finish with a head and shoulders formation and then subsequently close near the lows of the day.  It’s an interesting pattern and I would keep it in mind to see if it happens again this morning.  After 11 AM EST, price rotated around waiting for the FOMC minutes.  It rotated lower and closed near the lows of the day.  There isn’t much to say after FOMC because I normally don’t trade afterwards.

Market Commentary for May 17, 2012

As of 9:04 AM EST, price is at 1323.50.  In the overnight, we started around here, moved higher and then moved lower only to end up in this area again.  There is a lot of movement in both the overnight and cash session.  Based on the volume from the overnight, it looks like the low put in was done with decent volume while the high was done on relatively lower volume.  This tells me that there is a higher probability that the high may be retested in the cash session, but it doesn’t have to be today’s cash session.  There aren’t many HVAs or LVAs between 1314 and 1330 on the 7 year volume composite.  It’s going to be tough to determine high probability trades in this area since it will be difficult to define our risk with LVAs and HVAs.  I will template the last time price was in this area and see where price respected last time but the major challenge is that the area between 1322 and 1326 is a big gap from February.  To the upside, I will look to see if price can test 1327 and then see if it can retest the ONH.  To the downside, I will be looking to see if we can get below 1322 and I’ll be looking for 1316.75 below that.

Yesterday, during the overnight session, we had a very session where buyers pushed price higher to 1344 before sellers came in and pushed price down to 1330.50 right before the open.  It looked like it was long liquidation until we saw the surge of volume right before 9:00 AM EST.  We ended opening at 1334.75 with an Open Test Drive opening type, which touched the closing swing low and moved higher.  On the push higher, it felt like the market was too short on the move down and there was short covering into the open.  With that said, I was very hesitant to trade in the morning because it was difficult to determine which direction the market really wanted to go.  There was a great 1-on-1 trade at 9:48 AM EST but I’ve been burnt by those in the past few months when the market was being manipulated up.  I’m more comfortable with them now because there is finally a normal auction occurring.  There looked to be an exhaustion bars at 9:12, 10:30 & 11:14 AM EST.  I have never seen anything like this before but I will definitely be keeping my eyes open for that same type of price reversal.  We had a great bounce at the 1333 LVA, which almost was good for 10 points.  We had a head and shoulders formation as buyers couldn’t continue the push higher.  There was another great 1-on-1 at 12:29 PM EST.  I’m still surprised at how strong the buying and selling auctions are throughout the day.  This is a trader’s paradise.  The auction were strong enough to create a neutral day.

Market Commentary for May 16, 2012

Price seems to be stuck in the profile between 1325.50 and 1347.75.   So I’ll be looking for price to rotate in this area until I see a surge of volume in either direction.  There is a good possibility we retest 1325 during the cash session because the reversal there in the overnight was not supported by a lot of volume.  The most significant HVA in this rotation on the 7 year volume composite is 1335.50 which we’ve been opening around for the last couple of days and possibly today.  On a 6 month volume composite, 1340.25 is the most prominent HVA with 1336.75 a very close second.  To the upside, I will be looking for price to retest the 1342-1344 area.  If we can move above that area, the next important area is 1347.75.  That is a very strong LVA with confluence over several timeframes.  If we break out of this area to the upside, I will look for 1353.75.  Although that would be near the extreme of the range formed in the past few days.  To the downside, I will keep an eye at 1331.  If we break below that area, I would expect a retest of the ONL at 1325.  If we can break below that area, the next area I will be looking for is 1314-1316.75.

Yesterday we opened up with an OAOR opening after we gapped down almost 13 points lower from Friday’s close. Whenever we have a big gap, chances are that we’re going to auction about at the open because the cash session participants need to assimilate the new information in the market. There needs to be a balancing between the buyers and sellers before price decides which way to go. We saw a rotation around the open with a bearish skew for the first hour or initial balance. Then we saw price double bottom right before the 1333 LVA and price took off to the upside. Price tested all the way up to the 1344 MTLVA and turned around to retest the low of the day. It’s interesting to see buyers push price higher before sellers were able to reverse price all the way back down. It felt like the market participants wanted to get out of their positions because of the uncertainty with the Greece situation and the possibility of them leaving the Euro.

Market Commentary for May 15, 2012

It looks like we might open very close to yesterday’s open. The 1332 area is very important because the bounce off of that area in early March is what got us going 100 points higher. If sellers can get price below that area and build acceptance, that’s not a very strong sign for buyers. There is a gap between 1326 and 1322 where there is hardly any volume on the 6 month Mid-Term Volume Composite as well. This is a very important area for buyers to hold. If we break this area, I could see price migrating down to 1304, which is the VPOC of the last 7 years. If we can’t break that area, it would be a great level for a long. It would be an incredible asymmetric opportunity with little risk and possibly huge rewards. The area where buyers need to get price above to continue this push higher is 1364.75. Looking at the overnight profile, it doesn’t look like the auction is finished to the upside but when you look at yesterday’s auction, I still have the same feeling. We might see large rotations up and down in the next couple of days to finish the auction in both directions. We’re starting to see VIX above 20 again which indicates there should be a little bit more volatility entering the markets.

We area still in this manipulated move up.  If you look at the “auction” on this move up, it has been very sloppy.  The market participants have not been respecting the HVAs/LVAs and it has made for very difficult trading.  Even though it doesn’t make sense, there was a very prominent investor, John Maynard Keynes, that stated, “The market can stay irrational longer than you can stay solvent.”  I think that this has been the case for the past two months.  When Mark and I spoke last night, he likened the situation to musical chairs.  We’re all waiting for the “music” to stop and we’ve been on edge for quite some time.  It’s a very cruel game for children and for traders.  Again, if the market doesn’t make sense to you, it’s better to sit on the sidelines and be patient.  Yet, I know some of you will question, “What if the market doesn’t make sense to me for an extended period of time?”  Well, the best way to deal with situations like the one we’re having now is to be very patient and wait for those levels that make the most sense to us.

Yesterday, we saw an Open Rejection Reverse opening type with price pushing higher right after the open.  I remember a time when I used to be able to discern where price was most likely headed at the open.  It’s been a very difficult read especially at the open for the past two months.  We moved higher to 1373.50 right before news and then we saw a huge spike in volume at news.  This was a 60K contract 1 minute bar.  It looks like someone dumped a bunch of contracts at that time and feels like a longer-timeframe participant liquidating their long positions.  It isn’t very often that you have such momentum to the downside and the market fights its way higher than the scene of the crime.  After that big spike lower price grinded higher like nothing happened.  It’s amazing the strength and resilience of these buyers.  Buyers pushed it higher to 1375.25 before forming a double top and moving lower to retest opening price late in the day.  At that point, a great 1-on-1 formed and responsive buying came in at the end of the day.  Another thing I’ve noticed is that the 1-on-1 trades aren’t as effective in these markets.  When you see responsive buying or selling in that 1-minute bar, you would expect price to continue in that direction.  But it hasn’t been happening as much as it used to.  I would recommend waiting until those 1-on-1′s are located at significant levels.

Market Commentary for March 2, 2012

As of 9:16 AM EST, price is at 1371.  If we stay in this area, we will open in the middle of yesterday’s value area.  I would like to see if we can get out of the previous day’s value area.  If we can’t, I will look for a reversion-to-the-mean trade at one of the value area extremes.  If price can stay above, 1366.50, I would expect buyers to attempt to push this up to 1376.25 and on up to 1382.75.  If we break below 1366.50, I would look for price to possibly head for 1359.25.

I apologize for not posting a commentary and plan the past few days.  I installed a new hard drive and it took me a few days to finally get everything back to normal.  What a day!!!  We finally saw some other timeframe participants to the downside enter into the market yesterday.  We opened just outside of range and moved up to the 1376.25 LVA and had swift rejection of that area.  That was the trade of the day.  If you would have held all day, you could have gotten close to 20 points on that trade.  There was a great 1-on-1 trade at 11:31 AM EST.  The other great trade would have been the inability of price to reenter Initial Balance.

Market Commentary for March 1, 2012

Even though we had a strong downside trend yesterday, the long term bulls are still in control.  As of 9:21 AM EST, price is at 1368.50.  I would expect price to rotate around here for a bit of time before deciding which way to go.  If it moves to the upside, I will look to see if price can break through 1376.25.  If it can, I will look for 1382.75.  If it moves down, I will look for 1360.50 and 1359.25 below that.

Yesterday was by far the worst trading day I’ve had in over a year.  I haven’t had three consecutive losing trades in a single day for quite some time.  These types of days are anomalies but they are bound to happen.  As your trading progresses, you will see less and less of these types of days.  So when a day sneaks in like this, you have several options.  1. Chalk it up to the “trading gods”/statistics; 2. Figure out why it happened and learn from it; 3. Bury your head in the sand and pretend it never happened.  I almost chose 1 and 3 until I started to think through the process of the day and what occurred during the day when I wasn’t emotionally involved in the market.  During my time of reflection, I realized and had mentioned on numerous occasions in the room that I couldn’t understand why the market turned around at 1350.25 and that buyers were uncharacteristically strong.  The level that they turned price around was unexpected, there were no signs of capitulation or responsive buying, and the profile didn’t look quite finished to the downside.  With that said, I had a short bias for most of the morning.  Unfortunately for me, buyers were able to push price up with relatively low volume and sellers weren’t able to push price lower for any type of pullback until J-L periods.  So I remembered several conversations that I had had with Jim Dalton.  He would always mention that a market is not trading in a pure auction process if another financial instrument was affecting it.  I specifically remember him mentioning the Dollar Index and how, at times, it would affect the ES with an inverse correlation.  If you look at the low of the day in the ES, it lines up exactly with the high of the day of the DX.  The reason we weren’t seeing a normal auction yesterday morning was because of the Dollar Index’s influence on the ES.  Luckily, I was able to remember our discussions and found the explanation of why my reads were way off base.  Normally for most traders, they go days, weeks, months or years before they figure out what variables cause their worst days.

Market Commentary for February 24, 2012

As of 9:07 AM EST, price is at 1365.  If we open here, we will be slightly outside of yesterday’s range.  We tested the 1368.75 HVA in the overnight session.  I will be looking for whether the cash session participants accept or reject the previous day’s value and range.  If we reject the previous day’s value and range, I would expect a retest of 1368.75 with a possibility of 1372.50 – 1374.  If we accept yesterday’s value and range, I will look to see if price can penetrate the 1360.75 intraday LVA onto yesterday’s VPOC at 1359.25.  If price continues lower, I would expect to see 1357.25, which is the afternoon pullback low,  the VAL of the previous day, the end of a distribution, and another intraday LVA.

Yesterday, we opened with an OAIR opening type and we saw some really whippy price action for the first 30 minutes of the cash session.  We saw 2 point 1 minute bars that were wiped out by the next subsequent bars.  The auction was definitely not in and was probably on a coffee break right after the open.  After the Existing Home Sales announcement, we saw the auction come back into the picture.  Price has been respecting the closing swing and stayed within that balance area for most of the morning.  There were some solid trades off of the closing swing extremes in the morning.  After price tested the closing swing high, it slowly migrated lower and tested the 1353.50 LVA.  I was looking for a trade at this level and it would have worked very well if you were willing to sit in the market for two hours to take your profit.  Afterwards, price rotated around opening price but was never able to retest the high of the day.  There was a great 1-on-1 trade at 3:41 PM EST, which had confluence at opening price.

Market Commentary for February 23, 2012

Today, as of 9:06 AM EST, price is at 1356.25.  If we open here, we will be right in the middle of yesterday’s value area.  If we open with an OAIR opening type in the middle of value, I would expect us to have a very weak directionally convicted day.  Unless we have some additional news from Europe, I doubt that we will trend higher or lower today.  I would think we would see a rotational day where reversion to the mean trades work very well.  At this level, we are around two HVAs, 1357.25 from 2005 and 1359.25 from 2007.  This is another reason why I believe price will stick around this area.  If we can break below, 1352, that would be a very bearish signal.  If that occurs, I would expect to see 1335 – 1338 in the next few days.  If we stay above 1352 and continue this higher, I would expect to see 1368.75 eventually.