Week review · w/c 17 October 2022 · The post-CPI collapse

Wild end to the week. Post CPI data, the auction found strong responsive buying at the key century lows, the 3500 area, triggering short covering, but the auction failed into the prior NFP gap, triggering responsive selling on Friday's data.

U.S. equities suffered losses at the end of a choppy week as investors' enthusiasm for Thursday's turnaround rally faded. The S&P 500 and Nasdaq posted weekly losses of 1.5% and 3% respectively, while the Dow ended the week 1.2% ahead.

The hotter-than-expected inflation news on Thursday gave U.S. Treasury yields an erratic week. The 10-year note's yield rose to almost 4%, its highest level since 2008.

Crude oil dropped over 7% this week after rising 15% the previous week. The drivers were worries about slowing demand as Chinese cities reinstated COVID-19 lockdowns, and a rise in U.S. crude inventories of 9.9 million barrels, according to the Energy Information Administration (EIA). West Texas Intermediate (WTI) crude finished the week at just over $85.

On the overview: GBP up; crude, gold, the yen and the Bund down.

Into the weekA PB into Friday's close (32 low to close 52), with the settle at 3651.25. Sunday's open was weak and auctioned lower to test key low references (the spike base and prior lows) from 29 and 30 Sep, at 3617.

Monday to WednesdayThe auction into Monday's open held below the prior week's settle before stopping above, into Friday's double distribution pivot. Then the prior ETH lows at 3585, and a test of Friday's settle at 3653. Monday to Wednesday was a balance into the key CPI data on Thursday: 2-way. Wednesday's auction failed to break the initial balance, and shorts covered into the data event.

Thursday: CPIThe CPI data was a surprise beat. Look at the gaps in the data: prior mapped-out areas were sliced through like a hot knife through butter. Don't fade! At the CPI HVN node, emotional traders and volume chased price late, and initiating shorts were trapped into the RTH open.

Open test OR: a large gap, and a look below the ETH lows. A key century figure tends to be a reflection point, and buyers responded to the lower price at 3502: responsive buying on Thursday's open. The RTH opening sequence of trading activity was the reverse of how the ETH profile established: a fast, low-volume move through the HVN, then chop and higher volume covering poor structure, filling in.

Sellers were trapped, and a short-covering rally began above the CPI lower HVN range: shorts in trouble, emotional. The auction sliced through the 3-day balance to close near the day's highs. The auction should not be traversing ETH singles so easily if sellers are in control. The RTH established back in balance: don't fade.

FridayFriday's ON traders continued to auction higher but found strong selling at the NFP gap. The gap to the prior 3-day (4-6 Oct) balance low closed to within a tick at 3734, and the auction then failed into Friday's open: responsive selling on Friday's open. Gap references are strong, but OTF traders tend not to care too much for references. Key clue. The open tested the ETH spike base, then OTF lower into the close, at the lower edge of the prior balance bracket. Settle 3599.

The weekly profilesPost Jackson Hole, value has steadily declined as value is re-evaluated by participants. On the weekly profiles I have marked the pre-NFP bracket and the post-NFP bracket, the gap that remains from the RTH session at 3734, the tails from the responsive buying on Thursday's open and the responsive selling on Friday's open, and a poor structure area in this week's profile.

I 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.

The bigger pictureOn the weekly chart: Covid begins, the Pfizer high at 3636, Biden wins, the post-Biden LVN, Fed QT and JH, with a falling channel drawn from JH.