Debrief · 11 July 2022 · Summer markets: a sluggish normal day

Monday's session reminded us just what summer markets are all about. The range was under 35 points: slow, sluggish and lacking in conviction. This is not an excuse to concentrate less, but perhaps a time to take some time off completely.

OvernightThe ON session was very weak. The PB failed to take out the open and close the gap to Friday's close, and Friday's lows were broken in the ON session. The ON low was an important reference.

The openNonetheless, the RTH session opened with a gap to the prior close, but still inside the prior day's range. A test of the ON session balance high was met with a response from sellers: an open test drive, with the open swing higher finding strong supply at the upper edge of ON balance. Sellers broke the 2-day low at 3866 but only auctioned down as far as the 3850 area, where demand was found. Supply at the FS VWAP. A poor, non-excess low at 3851, but sellers were unable to auction lower: carry forward.

IB and the closeThe IB low and high remained intact until a failed reversal to the IB gave sellers some ammunition to retest the low. A weak test of the IB high failed to break above it, and sellers retook control of the auction to test the other side; delta declined aggressively after the failure to break the IB high. The auction into the settlement briefly traded below the IB low, breaking it by a single point, but only just, before reversing higher. Very sluggish indeed.

Normal day (IB broken by a single point: a clue).

The profileMarked on the profile review: the previous balance area, the prior balance (30/6 to 7/5) and the break out of balance. A lack of aggression at the highs: a non-excess high. A lack of aggression at the lows: a small tail.

Overnight into TuesdayON, the auction traded through the poor RTH lows at 3850 (stops expected), running down to the prior NVPOC and forming a low at 3820.75. The ON session broke the RTH session lows, and longs liquidated through the NVPOC at 3830. Notice this low coincides with the VAL from the 6th July auction. A hefty (heavy-bottomed) profile, with ON inventory short. I will be looking for an adjustment into the open or on the open, and a failure to see a response may see further downside. Again, a lack of conviction: the news has not changed much, as we are waiting for more info. We're still trading in the middle of last week's range.

3796-3807 will be an important area of support to watch into RTH: the composite outer edge and the singles markers from the 7/5 auction.

ON session: double distribution. ON H 3865 | ON L 3820.75 | ON POC 3835.

I will monitor the ON lows and spike base at 3820 and 3824, and yesterday's lows at 3850, for a retest of long demand and a move to the previous balance area, 3866-3922. If the auction fails to hold the ON lows at 3820, I would expect a test and repair of the singles markers left from 7/5. I would expect to find some support inside the composite HVN. These are murky waters inside HTF balance. Expect chop.

Not trading today, so no plan, but I would be waiting for the ON singles marker and yesterday's low at 3850 for signs of buying weakness. I'll want to see a positive response from buyers on the open, given the ON weakness. Should this fail to materialise, I would expect a quick liquidation to 3807, 3796 and the NVPOC at 3759. Good luck everyone.

Remember to look at the weekly research every day.

Order flow reviewWhen do large sell orders mean a reversal? When large market and limit orders have limited effect on the movement of price in the direction of the orders. From the overnight:

1. Large sell orders into the prior demand zone.
2. A market stop order, 154 @ 3825. Price does not move in line with the stop order: sellers' supply absorbed.
3. Delta aggression into the lows, no follow-through. Delta reversed.
4. Volume per 5min bar increases to 2x average.
5. A similar effect: large positive delta aggression, but price declines, meaning passive supply in this area. Large buy orders are not shifting price higher.
6. The same again: large positive delta aggression, but price declines. Large buy orders are not shifting price higher.

Delta reversal into the prior lows. The area in the rectangle is important, as demand was found there previously: expect, and look for, support if it's revisited.

A question for you: large order bubbles printed as size traded at price increases. What does this mean?

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