MarketDelta Footrpint Analysis

As a follow-up to the last post on potential heavy supply in the market, let's examine this mornings trade on a transaction level basis. The tool of choice for such analysis is the MarketDelta Footprint chart. An example of this chart is shown below.

My apologies for not having a trading blotter to post, but I was doing some mentoring and unfortunately not trading myself today. However, I can describe the trades that were taken, and why. If you refer back to the prior blog post, you'll see the lower edge of the Daily supply zone was right around 1316. That was our first line in the sand for a short.

You'll note on the Footprint, at roughly the 1316 area, on the first bar (when price was going up) volume printed 7348X12417. At that time, that was sufficient volume to shift the VPOC right up to our 1316 level. At the time (before price continued up to a high of 1318.25) the VPOC shift was followed immediately selling pressure, as witnessed by volume accumulating on the bid. That was our signal to go short.

The weak part of the trade was market internals. Currently, the one thing I focus on is the NYSE TICK. The TICK just refused to budge, and when volume started coming in on the offer, and overwhelmed what had already printed on the bid (which was the basis for our entry) we bailed on the trade for a very small loss (I believe it was 2 or 3 ticks per contract; trading a 3 lot).

The second stab worked out better. This trader's plan called for a second try IF the price level to be traded was based on a Daily time-frame analysis (and not a smaller time-frame) and the lot size was reduced to 2 contracts.

The same VPOC shift pattern occurred again, this time with even more selling (note the -7049 in the red box above the footprint bar, which shows how much net buying or selling came in since the high was made). Gratification was not instant, because the TICK was still printing positive. However, price stop moving up, the selling volume which came in was not mitigated by further buying, and price began to sink. Once the TICK started printing negative, we could breath and just manage a winner.

If you're interested, the exits were at 1315 (due to a stall in price accompanied by the TICK printing positive again) and then again at 1313, which was the origin of the up move.

Today's' price activity (at the time of this writing we've further dropped to 1308) is supporting the notion that the overhead supply is holding sway. I'll still be watching for smaller time-frame supply levels to form and trade off of. Be careful if/when price retraces to 1290ish (and the other stacked daily demand levels immediately below) as we never know in advance how price will react to the demand.

Heads Up For Important Potential Turning Point

Next Sunday, during the free webinar I'll go a bit into how I assess the type of levels that are mentioned below. But for now, I wanted to give everyone a heads up that in the coming few days the US equities markets may see a significant reversal. A reversal that could last some time. I stress "MAY". All good traders understand and know that accurate predictions are IMPOSSIBLE. We simply look for a confluence of clues to suggest future probably behavior.

 In my approach, those clues are gleaned from an understanding of market logic, how pure-price supply and demand effect market participants, and what sequences in the ensuing order flow confirm my hypothesis. Note the weekly chart of the emini SP500 below. The zone marked Weekly Supply is an area where a strong imbalance between buyers and sellers was present. I also note that there is no weekly demand zone present. That implies that should price turn anywhere near this supply zone that it could fall a long ways.

On the daily chart, there are two key observations to point out. First, you can see a Daily Supply zone which coincides with the weekly zone. This type of pattern sets up what is sometimes call Time Compression Effect. This simply means that a multiplicity of different time-frame traders are likely to be taking the same actions, all at the same time. Being that price movement ultimately is driven by liquidity squeezes, if time compression is in play on such long time-frames, don't be surprised to see some strong, if not violent moves.

On the other hand, I also prepare for what might happen should the market continue to rally. This is especially important due to the green shaded areas on the daily chart. These areas are hurdles the market would need to break through in order for a fall to proceed. If, per chance, one or more of those daily hurdles actually has such a high imbalance of buyers present that it overwhelms the selling, I need to be prepared. At the webinar next Sunday, we'll get into how I assess these levels a bit. Until then, good trading to all of you!

Hello Fellow Traders,

Based on overwhelmingly supportive feedback from my most recent webinar (subject was VPOC shifts and the video can be viewed by visiting the MarketDelta video library) I have scheduled a webinar where we will review the SP500 for an overview of the current supply/demand situation and potential prices to trade at. The webinar will be held Sunday, January 22 at 3pm Chicago time. Please register using the button below.

Hope to see all of you there!

Bob
Webinar was recorded and is available at: http://www.youtube.com/watch?feature=player_embedded&v=IPyP18FKvds Audio quality is poor, but bearable.