Debrief · 7 June 2022 · Fading the extremes of a 7-day balance

The 7-day balanceUpper balance above, lower balance below, and a 7-day balance in between. Balance rules apply: we are monitoring for change, and if not, we look to fade the extremes. 2-way. We are closely monitoring the week's non-excess lows at the extremities of balance. Stops may lurk here.

MondaySellers traded into the prior day's VPOC at 4120. The low of the day was 4107.25, just below the prior day's close and the pWkSettle!

OvernightON inventory was very short into the open and loitering into the key support area. A response was needed from buyers on the open to avoid a release through the balance lows.

The openTuesday saw yesterday's lows rejected by 7 ticks: an open test drive. Crucially, this was at the lower extreme of balance and last week's lows. The response from buyers was clear from the open, failing to break the ON low.

Price action debrief

1. Open test and fail to break through the ON lows at 4076. Drive up.
2. Consolidate below the century figure. PA is tight: a possible entry location for longs or shorts.
3. The PB from the prior weekly lows finds support at VWAP, inside the prior zipper.
4. Small tight holds @4116 and the 4122 area: a possible entry location for long continuation.
5. Resistance found at yesterday's JD afternoon pullback high, the 4140 area. It acted as initial resistance.
6. Reversal into VWAP and the pWkSettle to retest the highs.
7. Tight PA: a possible entry against the prior swing high and LVN.
8. Consolidate at the prior day's high, then eventually an impulsive SPIKE higher. Possible entry point pre-spike.
9. Deep PB into the prior consolidation zone.
10. Tight trend into the close, targeting the poor highs from yesterday's auction.
11. Absorption and PB into the close at the prior spike high.

The closeThe late spike failed to take out Monday's non-excess high, with a strong delta decline into the settle. Buyers will want to maintain momentum above the spike base.

Day typeTrend, short covering, 7-day balance. Yesterday was a short-covering rally, a P profile, and it looks like we are still in the 7-day balance.

Opening bell, 14.30We are opening at the bottom of the ON lows, located at the prior day's VPOC, a key reference point. I want to see whether we get an early adjustment from the overly short inventory off the open, and if so, the targets are on the other side of the ON balance.

14.30We've seen a push through the ON lows, but a lack of follow-through brings a reversal to test the ON high, where we again find resistance. Price pulls back to just below the middle of the range, then makes a firmer test into the opening swing high at 4135.

This is a seesaw market, typical into OPEX (next week) but also typical into larger events: the ECB tomorrow and CPI on Friday. Yields are near the high of the day, with the 10-year pushing above 3%.

Waiting for a change! Be ready, and observe the highs and lows of the 7-day balance. The ON balance follows through into the RTH session, with a brief look below the ON lows and highs before falling back. I do not want to be trading the middle ground. Sellers and buyers are increasing competition for price, creating a contraction in the trading range. But the middle ground is not respected: higher highs, lower lows.

12:00 CTSellers absorbed all the buying activity at the upper extreme of the balance (that was the plan). We saw a push briefly breach the prior close to form a high at 4160, but after repeated attempts to break above, and a long hold, longs liquidated back to break the IB low.

The key to the day's move, and the opportunity, came with a final push to retake the day's highs and break the IB to the upside, but sellers quickly pushed them back down. Spotting that on the tape gave you a great opportunity with limited risk. Check out the footprint chart below if you missed it.

Trade breakdown, using footprint charts: short 4156.75, exit 4125.75.

The stop for shorts goes on the other side of the IB, at 4160, and the target is the other side of the IB low, below 4128. This was the key: the failure to take out the IB high. Shorts want to play probabilities and hold to the other side of balance. Look at those volume bubbles go on the impulse, and delta reversing post spike. Scaling out at the vPOC, 4149, makes sense; hold the rest to target. Below, the prior zipper: expect support there.

OK guys, that's a wrap for me. The debrief will be early, or tonight: I will be all over the ECB meeting.

6.40 CTGerman and US benchmark yields look to be heading up again after yesterday's P profile short-covering rally. Short covering tends to be weak, and liquidation may resume. The same idea applies to all markets. With the ECB acting tomorrow and US CPI on Friday, there is plenty for markets to look forward to. Stay alert!

07:00 CTToday is a relaxing day before the ECB. I will mostly be reading and will forgo taking too many trades: I want to be well prepared for the ECB. Check out the weekly analysis for some reading material on the event. I will be trading BTPs and Bunds for this one, so coverage of ES may be limited over the next 24hrs.

S&P500 futures are in a 7-day balance: 2-way inside balance, between the upper edge and the lower edge. Stay alert: major balance building, high potential. Look to fade the extremes and don't be greedy. The market is awaiting new information, so be ready: when balance breaks, that's when you get paid. Patience and preparedness.