Thursday, September 4, 2008

Dominant flow at a key level

Todays action was very unorthodox. After the non-farms payroll got out @ 5:15 we got an early reaction, the unemployment claims came out as well @ 5:30 we got a reversal of a test of the 1272s. The dominant flow came at 5:45 and 6:11 to the downside which led to the test of the 62s.

The s&P500 opened right outside of value to the downside. Which was ominous. What surprised me though is the time it took for the sell off or a retest of the 62s. 6:48 bar got us the dominant flow of the IB. The lack of follow through was deafening. At that point I was thinking that a test of overnight high was possibly in store. Peter Steidlmayer, proposed the market profile with each time segment as half hour blocks. His reasoning was that this was about the time needed to gauge a true reaction of the market. It took substantially longer that that today. If you took a short at or before the open, it was one of the toughest, mentally. Especially since the low seemed to hold for a while and you are shorting against a key level that we have talked about for ages. However, the drying up of the buying interest at the 6:57 bar was a clue to the resting offers and soon enough the paper came in on the down side. Total Delta was -23k.

I failed to point out yesterday and post the 3 day profile which had an increased TPO count to the bottom of the distribution and it indicated a propensity to break to the downside. However yesterdays buying towards the close was convincingly deceptive and it brought it back to the days balance. This is why we need to adapt to a new reality everyday. Yesterday was a hook day. The macro news breakdown possibility that I posted came in the non-farm payroll and unemployment books. The open call right after the news at 5:15 AM pst brought it outside of balance. It created a new forcing point with which longer term participants have to view their inventory or the lack of.

It lead to a sustained and controlled, yet convicted, selling once the 1260s level was broken. Technically, the reaction at the current level of the 30s and potentially 1200s will be a key indicator of where long term participants see value. Todays auction as it stands remains incomplete.

Watch out tommorows non farm employment change report and unemployment change at 5:30 PST. It is going to be well read by all timeframes.

The trades at IB today were the hardest to take and toughest to hold at IB. The best oppurtunity was a VWAP and price never tested the vwap for the rest of the session.

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