S&P Futures Update for Feb 10, 2014

The monthly and weekly trend are still down, however, if we take out last week's high (made in the overnight session) at 1801.25 it would reverse the intermediate term (weekly) trend. Finding acceptance and closing above the 1800 level increases the odds that we make another run at the all time highs. So far, the market has tested the low of the Lower Balance - got rejected - and is now poised to test the Lower Balance high of 1806.25.



Markets in general move from Trend - to Balance - and then either resume the prevailing trend or reverse course. The daily chart below is a classic example of this concept. It also shows a market that broke out of a 2 day balance on Thursday and has started 1-timeframing up i.e. a Trend reversal. An excess low (1732) followed by a gap up or a balance breakout is usually the most potent sign of a reversal. Markets are also very visual i.e. once price closed and found acceptance in the Lower Balance on Thursday - the destination became the Lower Balance High of 1793.75. Friday's high was 1794. So, what caused this reversal ? - a market that got too short. The profiles below will help illustrate this....




Wed's profile below clearly shows a buying tail - no elongation in the profiles and we closed both days (Tues & Wed) inside the Value Area ( I am referring to the Cash S&P close). On both Tuesday and Wednesday the POC was very prominent and did not move down as price auctioned lower. Thursday's high was very poor suggesting that the auction was not complete to the upside. Short term traders were selling every time price rallied to the 1750 level and were not getting much for their money. Coming into the Thursday pit session, the overnight inventory was long and had already taken out the 2-day balance high - the short trap was laid. The market opened and sprinted higher - breaking out of a 2 day balance.So, what we have witnessed the last 2 days is a combination of short covering as evidenced by Thursday's P shaped profile, and some new money buying given the elongated profile on Friday.





 For Monday, my focus is on Friday's upper distribution and the 1794 level. Friday's profile shows the following:

• a profile that is stretched out with several Anomalies. These tend to get revisited very often.
• A POC that did not move up as price auctioned higher, suggesting that the market may be a bit long at the Close.
• A poor high, however, suggests that the auction is not complete to the upside.

Acceptance above the 1794 level targets the1801 level and above that the 1805-1806 area - refer to the weekly chart above. Staying below 1794 suggests that Monday may be a  balancing day.