📈Top 5 Over 30📈
Here are this week’s top 5 prints over the past 30 days for the major indices. These levels represent the top institutional presence in indices and tend to be natural magnets for prices, often acting as support or resistance. If you trade the corresponding futures products, you’ll find these useful as well. Mark these on your charts to stay on the right side of prices this week.
Last week we noted that it felt like we were “in the nosebleeds” but longs still controlled all the technicals. Our plan was to seek a two-way tape and fade edges until Weds. The read was good and we got to work the rangebound activity as sellers dipped toes into the 1.79M print and couldn’t follow through and buyers hesitated to push further north until getting inflation readings and hearing from the Fed. Short positioning was quickly unwound Weds leading to a large gap up. Gaps are a form of imbalance and a demonstration of strength and/or urgency. I wouldn’t personally seek a counter-trend position until we see that gap filled. Of special note is the volume being done here at the highs, seen in the volume profile (always anchored to the oldest of the 5 prints). When you’re institutional-sized, you only care about one thing - finding liquidity. You have to seek out counter-parties with whom you can move size and I think the profile is telling us they’re still finding people to do business with. In an auction, price moves down to attract buyers; likewise, price moves up to attract sellers. Have we moved up enough? I think there was enough mixed-news this past week for markets to think about where value should be and we’re going to see some more 2-way trade (I think). [VL Link To SPY Chart]
As part of my weekly prep, I also like taking a look at the TPO chart. You can manipulate price, you can fake volume but time, of the 3 auction building blocks, is the immutable component. (If you’re interested in learning more about TPO, there’s a 6-part study guide published by the CBOT that is widely circulated but also made available in the “reading-materials” channel in the VL Discord. ) I have no idea what I’ll be doing 6 days from now, so I sure as hell can’t tell you what something as complex as the markets will be doing. With that said, in the absence of anything exogenous, I see a good opportunity to balance and develop this area because:
We’ve just been on an absolute tear. 7 of the past 8 weeks have been green for the S&P and NASDAQ and the ranges haven’t been trivial .
We’ve got poor structure at the highs and lows that both have a high likelihood to be revisited and that the auction will naturally seek to repair
Contract rolls are happening and that can often lead to some significant chop
Friday closed inside on the daily. Typically you follow the break of the highs or lows but we’ve already got pretty good balance in the 3 profiles above the gap and I think we just see the edges developed more with price mean-reverting to the center to do more business.
Inflation showing signs of cooling, consumer sentiment was in the gutter and the Fed backing off from 3 to maybe 1 rate cut now…this mixed bag is going to lead to a little price discovery
The gap and the singles print suggest longs are favored and until those are neutralized, I have to agree. I also want to draw your attention to a phenomena about markets that I’m trying to make clear with the green, numbered boxes below and that is that price has a tendency to move in extensions. I’ll talk more about price extensions in future stacks, but suffice it to say for now that I think these are where the battle lines are being drawn and we’ll want to pay attention to price as it tests into and perhaps accepts into lower auction zones. Your pass/fail levels are still the prints which have good confluence with the assumed auction zones and where we’ve seen business transacted by virtue of the volume profile. [VL Link To SPY Chart]
Lastly, I know you’re looking at it and wondering wtf is going on: breadth. It has just been abysmal. Is it a warning sign: maybe. But Mr. Market’s playbook of late has been to let the Mag7 lift indices under deteriorating breadth conditions and then let the Mag7 consolidate while the rest of the market goes through a period of improving breadth conditions. It’s all weird and that’s what it is until it isn’t. I think I’ll share breadth stats on an on-going basis because it is am important market-health-metric even if the market isn’t paying attention to it right now.
Here, we highlight another breadth metric: New Highs minus New Lows which highlights the daily difference between the number of stocks reaching new 52-week highs and the number of stocks reaching new 52-week lows. Above 0 confirms bulls in control, below 0 confirms bears in control and bullish/bearish divergences can be observed like many other oscillator-indicators. As of the close on Fri, it just ticked under 0 to -1. It’s not time for big gulps, but this doesn’t exactly inspire confidence.
QQQ doesn’t have prints at the highs like SPY but everything else bears a strong resemblance - large bullish gap, good development in the profile at the highs and price action that even has bulls crying for a pullback. We’ve also got, what I think, are clear auction extensions. To find auction extensions, I first look for an area of consolidation - bonus points if it contains a print (spoiler, we got one here). I then draw a box around the consolidative price action and copy-paste those boxes one on top of the other. You can also set your Fib tool to multiples of 100% to do the same equidistant projections. In the absence of prints, this gives me clear areas to look for strength/weakness and define risk against. [VL Link To QQQ Chart]
From a TPO perspective, we don’t have as much structure needing repair. We do have gaps and single prints but there is one area marked in red I want to call attention to that is of particular interest to me: the naked POC at $461 circled in red. It was at one point resistive but when price popped over, we could never get back to that fair-price to check it. We’ve now got a lot of price action that has developed on top. There’s nothing actionable about it right now and I’m not targeting it until I see sellers holding lower highs and lower lows in some form. I’ve just got it marked-up on my charts as an AOI - Area of Interest.
As mentioned above, large-cap growth has been the primary driver of late, grossly outperforming value over any period in recent history.
And a different visualization of the same, capturing just this past week’s winners:
Small-caps still looking for a heartbeat here. Last week we saw 4 of the 5 largest prints over the past 30 days tested and bulls unable to hold a single one as IWM closed well below all of them. [VL Link To IWM Chart]