9/11 in review

SPY is up by 0.45%

The gap down was small relatively to the recent ranges, so the open should've really been treated as continuation of yesterday's price action (SW +175, Slope +13). But the numbers were strongly negative going into late morning. The key today was VXX MP and the extension bars which we've seen prior to the first breakout - the time-line:

"11:25 15-20 cents bars up keep on coming as we are getting more and more squeezed. 

 11:27 Tests previous resistance. 

11:28 Exceeds it. SW -1003, Change -34 

11:30 Test major resistance level at 195.3; SW -965 and Change -32.

11:32 Algos have reversed into this breakout. MP bottoms. SW -891, Change -23."

So, when everything looked as a support test at 11:18 - consecutive lower highs and an all ready break to a new low - an incredibly strong bar appears, without any tails at 11:19. But, someone was buying before than that - each time price has moved into lower range, a big green bar appears:

The reason why I pointed it out - everything was ready for a breakdown, price right at the trendline with support right underneath, two small candles...and all of the sudden they stage a whole bar, retrace, another whole bar with continuation - 6 minutes and now we are talking about taking out resistance trendline with the previous high. 

I would say that the exact occurrence at 11:19 is of the biggest importance, exact that price behavior - a FULL extension bar, which takes 3 minutes to partially retrace, and right after we see another one with continuation. That tells us something about demand levels.I also outlined this example in the daily journal with big font using /ES.

The remainder of the trading action was relatively simple. We've bounced higher, but Liquidity led by Dark Pools started selling the highs:

"1:20 Price breaks below the close, I would expect it to retrace the extension which began roughly in the zone of 60-minute high."

Price retraced slightly under the 60-minute high, and at that point of time, I didn't believe in new highs, simply because we had everything on selling. The only positive metric was the VXX MP - which has completely led today's price action.

As price retraced it bounced twice, and then I believed that a further breakdown would happen. But it exploded with another extension at 14:19:

Nothing, absolutely nothing supportive, except for one metric that I have mentioned:

"2:21 A breakout at 2:20; SW -336 and Change +6. VXX MP testing down, SPY MP lower, small uptick in algos."

And only then, as the fader was happening, one minute before that crazy extension into the highs, something got me thinking:

"2:26 From another perspective, there was a long flattening in liquidity. Sometimes that leads to moves higher. So much uncertainty in today's trading...."

And at 14:30 an extension bar of 30 cents happens. The bottom line for this scenario? You really have to look at the price behavior, align it with what you see on the Primary's metrics and pay some attention to accumulators:

We've had a gap up on Wednesday, which sold off and partially filled the previous gap up - a strong down cycle. The next day, however, there has been a strong enough bid right at the lows of Wednesday to drive price higher - regardless of the downside potential, which was partially absorbed (to the point when the Primary even turned for 1.5 hours). From that point, price has moved very strongly in large consecutive extensions, strong momentum, which allowed the Primary to turn up - but it was already gone by then. Obviously, given the swift move the previous day, there were profit takers and cutters of losses, which explained the weak close.

We couldn't go long at the open because of the negative momentum - but we've known that the absolute risk in that situation were the lows formed on the 2-day period (Wednesday/Thursday). Plus, I also outlined in the yesterday's analysis that:

"Given the positioning of the primary and an afternoon reversal today, I would expect it to turn down at the open, and for the price to test the lows (end of the volume null). I do not think that the lows would get successfully broken" 

The key points for today were in that late morning reversal, which has shown that SW easily moved from -1500 to -400, so as the slope - from -80 to -30. If these buyers were able to do that, and they formed another intermediate lower low - that was a strong sign.

After all, we've seen today exactly what is a reasonable ending of this week:

"UPDATE 10:00 SW -1459, Change -75, Slope change down confirmed with strong momentum - but this is really just a continuation of the previous down cycle, and we might see its terminating phase today - hopefully."

 Today was a hard trading day; Friday trading, low volume, mixed signals from different metrics. However, we really had to focus on the fact that was known at the yesterday's close - the lows won't get broken,


What I see as perfect setups for today:

1) 11:30, range breakout, fading SW and the Change:

This comes to mind given the outlined facts that the support won't get broken and the appearance of the extension bars, which ultimately made lows higher and higher.

2) 11:50, 13:43, 14:08; the breakout of the 60 minute range, SW/change reversal:

I love the breakout of the 60 minute range, especially when there was some consolidation before it happens. Today it presented one good opportunity (pre-afternoon), one small fakeout (consolidation) and one great opportunity (the run into the close).


3) 14:20, range breakout back out of the 60 minute range, VXX MP, SW/change, consolidation after the retracement:

While this is also a variation of the opportunity number 2, this arguably had a stronger definition of risk - a break below the lows of the consolidation, and an overall safer setup.


Overall: I filled my deeply out of the money vertical spread during the afternoon retracement, which was roughly $1.2 lower, than the today's close. Given the need of taking the opportunity of theta decay over the weekend, this probably was the most reasonable entry on the day.

BOTTOM LINE

Good (quiet) day, which hasn't shown much buying, but the volumes were extremely low anyways. We had a terminating phase of our 3-day down-cycle, which positions us into a move higher, given the strong support underneath the current price with heavier volumes, than the resistance on top.