hi friends,
WILD day of volatility today that not only persisted during regular trading hours (RTH) but also bled into after hours.
Powell is on tomorrow, the general consensus from fintwit is a dovish-type statement that will cause a rally move towards 4600. One rate hike is priced in & if this is met or less than expected, look for confirmation in an upwards move in price action and flow.
If two are raised & a hawkish stance comes in, expect prices to correct to expected “priced-in” prices.
Either way, this is a binary event at 2PM EST to be determined through what comes through his lips & confirmed on the chart.
The main focal point for today’s big move is what I want to highlight underneath
Excess from Monday’s short squeeze rally faded overnight, however we did see the ‘turn-around-tuesday-move’ bid at the open > 4340 briefly towards 4350 area before failing to hold the highs & led to a retest of the prior value low and/or Monday’s LOD.
There were 3 main things at the time of this development
1) 2 outcomes when prices were under 4300 —> either saw retest of the lower end of 4200 or a “look-below-but-fail” type of move
2) cumulative delta read ticked +2k buy delta at the low but turned to about 10-16k+ buy delta before the move higher
3) mixed sentiment from market participants
The main focal point I wanted to highlight was the obvious divergence between the cumulative delta & price (delta up, price down)
At the time, I personally thought it may have been a bit of a too obvious read which led me to sit on my hands and wait for prices to either faulter lower or break over 4330 & 4340 for confirmation but this delta divergence is a setup I have used multiple times in the past, especially when I first dove into order flow.
You can see below myself being wary of the market generated information (MGI) but the MGI itself did not lie so something to keep in mind when having analysis paralysis like I did here where the entry could have been 4300 w/ a relative tight stop but I waited until it went bid over 4330-40 or made an attempt at the lower lows.
Now you may be wondering, what is cumulative delta?
Cumulative delta is the sum of market buy orders - market sell orders.
A positive cumulative delta read implies there are more market buy orders than market sell orders & a negative cumulative delta read implies there are more market sell orders than buy orders.
But the delta read alone will not tell you much as it is needed to be combined with price, flows & context.
In this example, we had a notable increase of the cumulative delta from 8k to 18k with prices oscillating back & forth between 4300 and 4330, progressively move lower & mixed sentiment within a 30minute or so time window.
One can assume this was an accumulative move for a move higher & confirmed only when it moved over 4330-4340, void if it began to trade and accept lower prices.
This move essentially led to an upward thrust to 4400 which at the EOD came down to 4300, very surprised we saw a +100pt move towards the lower end of the range in a matter of 15 or so minutes BUT this type of setup is also a probability rule I use as well as many other value area users.
The 80% rule.
This rule, by definition, states when the market opens or moves above or below the value are but then returns to the value area twice for two-hlaf hour periods, tehre is an 80% chance of filling the value area.
In this example, the teal horizontal lines are my value area bounds where the value area high is the top teal line and the value area low is the lower teal line.
When prices moved out over the value area high, it was considered a move out of balance & into imbalance where participants to continue the party needed to hold prices above the value area high for an extended period of time for price acceptance and/or higher prices to come into play.
However, when prices retreat back INTO the value area & stay under, that is generally a BEARISH sign that prices are unable to find acceptance outside of the initial value area highs, thus the target becomes the midpoint, vwap & lower end of the value area range (Seen below).
So What’s Next?
here is a weekly view of the market profile on ES atm
You can see we have been pretty much range bound this entire time with rejections at 4400 and 4420-27.50.
The range of the value area is 4275-4370, but this can also be extended to 4230-4400.
Until there is a confidence breach to the upside or downside of this range, it is range bound til proven otherwise, namely acceptance over 4400 and 4420 or acceptance under 4230.
IF the market decides to go bid on a dovish Powell and the anticipated ascent towards the 4500-600 range comes into play, prices need to first break over the existing weekly profile high of 4427.50 & accept into the prior weekly value area range starting at 4460.
However, if let’s say powell is hawkish and prices agree with him & we begin chipping away under 4230 and take out 4212 & accept, we have a gap underneath us in the 4000 zone to look to fill.
We have some moderate bullish order flow overnight in anticipation of a dovish Powell with ES ATM being 4361.
But again, and the two sessions of extreme volatility that has occurred to remind us that extreme volatility can occur at any point in time especially with VIX > 30 (this is one to monitor) so being a “bull” or a “bear” really is better depending on the time frame, time, type of trade & risk/reward.
For tomorrow, I want to see prices hold above 4356 for a bullish continuation targeting 4370, 4400 & 4420.
Anything under 4356 looks to retest within today’s value area range which include 4330-4340 & 4300.
Prices will only be exacerbated to upside or downside depending on what Powell has to say.
Personally, I will be sleeping in until 2-3 hours before Powell presents his speech.
I will do my best to provide intraday updates both on tweeter & discord as usual.
If you have any questions or concerns, please comment below and subscribe if you haven’t already <3
Cheers
Solid analysis! Thank you and hope you’re feeling better!