S&P Futures Update for Aug 2, 2012

Perspective: As we begin August the S&Ps continue to trade within a 8 month balance with August being an Inside Month. The longer the balance exists the better the chances that the breakout will be dynamic. Looking at the Weekly Bar Chart above (and to the right) shows that the S&Ps have settled back within a 4-week Balance i.e. a Failed Breakout above the 1375 level. It may be too early to confirm the breakout failure as we still have the ECB news conference and Employment Data ahead of us this week. However, it is definitely something to be prepared for as it may present an asymmetric trading opportunity.

If the breakout failure is confirmed and we continue to auction lower - the first downside target would be the Gap below between 1358.75 and 1360.50. If the market rallies based on news tomorrow and Friday - it will target the series of close highs between 1381-1387.50 as there are likely to be stops above. Taking out those highs targets the 1400 level. Lets look at the Profiles below - 

The profiles show that despite the making lower highs the last 3 days - both Value and the Fairest Price to do business is unchanged relative to Friday's upper distribution. The merged POC for Mon, Tue, Wed is 1378 while Friday's POC was 1380.75. Most of the trade this week has occurred below last week's close of 1382.50 implying that traders are short going into the major news this week. Today's profile shows that POC failed to migrate lower as the S&Ps were selling off - the classic 45 degree line - implying traders may be short in the hole. I would treat the last 3 days plus Friday's Upper Distribution as a Balance area and prepare scenarios for trading Balance i.e.

1. Remain within balance; 
2. Look outside of balance and fail; If the market fails on one extreme, the destination trade becomes the opposite extreme. 
3. Look above or below and accelerate.