I want to take a brief respite from the daily barrage of news and focus on market structure today. Market structure to me means more than which “price” the market trades; it also includes overall volume, volume at price, consolidation levels, weekly profile structure, and more.
As any trader is aware, the volatility in the market is gone – it doesn’t exist – thanks to the central planners at the Treasury and the Federal Reserve Bank. Down days, if they occur at all, are over at the close; there is no follow through. Moreover, upside days are usually extremely sluggish, but like “The Little Train That Could,” says “I think I can, I think I can, I think I can,” as it climbs and eventually gets the job done. (At the close, Bernanke answers: “I knew you could” wink, wink.) This type of back and forth trading leads to multiple days of overlapping value areas, daily ranges, etc.
When this happens traders must be aware that most moves (trades) will be short lived, unless you board that sluggish train and have the patience of Job. Intra-day consolidation ranges can last hours. Additionally, daily consolidation ranges are now extending through entire weekly periods before making marginal range extensions.
What can we learn from this? If you have the ability, keep an eye on the weekly structure of the market: is it balancing; is it trending; is the volume high or low at daily extremes – at weekly extremes? I could go on but you get the idea. Moreover, what happens after you identify what is happening?
Let’s take last week as an example. The market had been consolidating all week, which had not only been discussed in the VTR but also mentioned continuously in our Notes from the Pit. Markets can only bracket/consolidate for so long until “something” happens to make it search out new price levels. When this happened Friday, those who watch market structure were surprised by neither the direction, nor the velocity. A break out was expected.
This has been happening for at least 3-weeks now, with a new wrinkle. Three weeks ago the ES consolidated through Friday, despite the January 28th swoon. Although that “could have” led to a further drop, one who reads market structure in totality wouldn’t have expected it because the majority of the week’s volume traded near the high of the week. Friday’s sell-off was an anomaly. The following week was similar in that the vast majority of its volume traded near the week’s upper range, thus suggesting further price appreciation this past week.
Last week is where it gets a little interesting. It is virtually the direct opposite of the week ending January 28th: a week-long consolidation range with most volume occurring near the low of the range, with a Friday spike. This does not mean that the overall market will reverse; however, a pullback early in the week shouldn’t be surprising as the market gets pulled back to this high volume level.
Of course, the Joker in the deck is Zimbabwe-Ben Bernanke & his POMO minions at the FRBNY. With this guy in charge of rigging the market’s straight line ascent, another free-money-for-bankster explosion cannot be ruled out despite market structure.
Trade Date: 2/11/11
E-Mini S&P Trades*
(before fees and commissions):
E-Mini S&P Trades*
(before fees and commissions):
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