Week review · w/c 10 October 2022 · The post-NFP collapse

Weekly reviewLast week's double distribution profile started off with early short covering, following hysteria over the weekend about declining bank liquidity, margin calls and sharp increases in CDS for major players. The Sunday and Monday ON auctions saw session declines, only to then reverse back from a low of 3571 to open above the prior week's balance lows (3596), and in range.

That's where we saw the beginning of a strong 2-day rally, emanating from short covering. The rally culminated in a high of 3820, above 3800, where we saw sellers resolutely defend (a prior cHVN). Thursday into NFP, the auction remained balanced, albeit at the lower range of balance into NFP.

NFP saw a strong selling imbalance, filling in a 3-day gap that had remained, with longs liquidating through the range and the gains from the large short-covering rally on Monday and Tuesday. The auction closed the week at the prior week's VPOC, 3651.

The market wrap

US equity markets fell on Friday after a stronger-than-expected jobs report raised the prospect of more aggressive Fed tightening, but they ended the week higher after the strongest two-day rally since 2020 on Monday and Tuesday. The Dow gained 2% last week, the S&P 500 gained 1.5% and the Nasdaq gained 0.75%.

US Treasury yields increased, with the 10-year note yield rising to 3.89%.

Oil prices rose after OPEC+ announced it would reduce production by up to two million barrels per day to support prices, the largest supply cut since early 2020. The price of West Texas Intermediate (WTI) crude rose more than 15% this week, the largest weekly gain since March, closing Friday at $93 per barrel.

Notable tweetFrom Twitter, 21 September 2022: what has been happening to yields this year, and to inflation expectations going forward?

The week in twelve notesFrom Friday's emotional month end to Friday's NFP open.

1. An emotional end of month: price discovery lower, with no buyers being found at lower prices. 3596, Friday's settle.
2. 3639, Monday's reopen: ON shorts trapped following large declines, and a large PB into the open. The auction reversal begins, and trapped longs begin to cover.
3. A buy imbalance on the open, following the ON rally extension: gap and go. High RVOL and directional delta from the open. 3712 is the gap low.
4. Tuesday's JOLTS data gives some hope of a slowdown in the jobs market. Sellers uncovered above 3800.
5. An open auction, opening below the key swing low from the prior auction.
6. Wednesday's open auction, then sellers test back through Tuesday's spike lows, but buyers are found and the auction begins to rotate back to the upper balance. Notice the low RVOL on the attempt to go lower.
7. Delta rising: a failed reversal.
8. High RVOL and directional negative delta at the highs: buyers meeting selling liquidity.
9. Thursday's open test meets strong selling at 3711. Sellers retake control of the auction and longs liquidate. A 2-way auction, balancing into the main event for the week: a 3-day balance with an RTH low at 3734, and a 3-day balance-island (no overlapping value with the prior balance).
10. NFP watchers were looking to see if the economy is reacting to Fed tightening. The NFP trend is in decline, but unemployment a beat.
11. A large sell imbalance into the Friday open: gap and go, an impulse down to the key HTF target.
12. Friday's open auction OR: large emotional moves into the open following the employment data. The auction is taking a breather, and time to assess liquidity for participants before the next move. NOTICE THE SELLING TAILS ON THE CANDLES DURING THE OPEN.

Weekly profileA P auction reversal. The weekly auction is back in balance, having spent midweek holding well above last week's highs. Monthly auction and daily trend OTFD. The focus will be whether momentum can be maintained to the downside. I will be observing Friday's lows.

Note that VIX remains above: a high volatility regime.

• Buyers failed to push above 3820. Thursday's ON session offered lots of clues!
• Focus on the most recent MGI references.
• During imbalance, PA overlaps prior references as the auction tests for S/R.
• Question: what's the difference between a spike and a tail?

How I review the weekI review the week's RTH before I look at the profiles. Can you see where the price action reverses? Can you identify where price becomes stuck? Look at the overlapping profiles: does this help? Look at last week's references, and look at the shape of the daily profiles.

Last week's profile is included. It helps if you can define references that are meaningful. These include key swing lows and highs from major events like NFP, the weekly POC, VAH and VAL, the 5/20/50/100/200 MAs, VWAP, open, last, settle, HVNs, LVNs and gaps.

Why look at the weekly and monthly?Using the composite profiles gives me a lot of clarity in understanding the market. Understanding the story and the basic mechanics of what is going on simplifies almost every other aspect of my trading, especially timing.

By identifying areas of balance and acceptance in the auction, I have a natural edge. I can identify value and the pivots of change. In balance, I look to fade the extremes. When activity leaves an area of acceptance, I monitor the strength and conviction of the move, using volume and value as my guide. As a general rule, if a move is genuine, volume and value will move away from prior acceptance to a new area.

Monthly profiles: OTFDThe monthly auction is currently at the upper edge of the Biden election imbalance that followed the covid vaccine announcement of November 2020. Look at the difference between the pre-ATH auction and the start of the selling imbalance in early 2022.

Key takeaways

• Corporate earnings season begins with quarterly results from big banks and financial firms; JPMorgan Chase, BlackRock, Morgan Stanley and Citigroup are among the companies scheduled to report.
• Other companies expected to report include Taiwan Semiconductor (TSMC), PepsiCo, Delta Air Lines and UnitedHealth Group, among others.
• The Bureau of Labor Statistics (BLS) releases its CPI and PPI, tracking consumer and producer inflation respectively, for September.
• The U.S. Census Bureau releases September retail sales on Friday, showing whether consumer spending held up last month.
• The University of Michigan releases the preliminary October reading of its Consumer Sentiment Index (MCSI) on Friday, a key measure of consumer confidence.

Events calendarTuesday, October 11

• Pinnacle Financial Partners (PNFP) reports earnings
• NFIB Business Optimism Index (Sep)
• IBD/TIPP Economic Optimism Index (Oct)
• Consumer Inflation Expectations (Sep)

Wednesday, October 12

• PepsiCo (PEP), Infosys Ltd. (INFY) and Wipro Ltd. (WIT) report earnings
• Producer Price Index (PPI) Inflation (Sep)
• FOMC Meeting Minutes (Sep. 20-21 Meeting)

Thursday, October 13

• TSMC (TSM), Wells Fargo (WFC), BlackRock (BLK), Progressive Corp. (PGR), Walgreens Boots Alliance (WBA), Fastenal Co. (FAST), Delta Air Lines (DAL) and Domino's Pizza (DPZ) report earnings
• Consumer Price Index (CPI) Inflation (Sep)

Friday, October 14

• UnitedHealth Group (UNH), JPMorgan Chase (JPM), Morgan Stanley (MS), Citigroup (C), PNC Financial Services (PNC), U.S. Bancorp (USB) and First Republic Bank (FRC) report earnings
• Retail Sales (Sep)
• Import & Export Prices (Sep)
• Business Inventories (Aug)
• Michigan Consumer Sentiment Index, preliminary reading (Oct)

Weekend readingExcellent work from @MacroAlf. I really do like to follow the economics and understand what regime we are currently trading. Thanks for the help.

WTI. Following on from last week's production cuts, at first it seemed the cuts would have little effect on current production runs, as the group was already under-producing by some 3mbpd. The 2mbpd cut was against existing quotas, and the crude complex initially brushed off the event. Oil then squeezed into Friday as the meaning behind the cuts became clear to markets. Janet Yellen thinks OPEC is bad, and so does the rest of the world.

£145 to fill up my car, but that probably has more to do with Truss collapsing the pound. Oh well.

Oil's trajectory is up, but heading into resistanceOil dips on recession fears, then production cuts of up to 2 mbpd begin to surface into the event, the OPEC meeting. Friday's close is into the CHVN. Expected consolidation zone; poor structure below that may test back. Above: 96.92, the August highs; 96.18, singles; 95.75, the POC of 29/8.