Week review · w/c 27 June 2022 · Breakouts from balance into quarter-end
Last week's breakout rallies came out of multi-day balance on the composites, and value and volume are now moving off the lows made into OPEX. Into month-end and quarter-end the auction sits in the middle of the monthly range, between two prominent HVNs at 4116 and 3768, so I am going to be very careful this week.
WK HIGH 3919.75 | WK LOW 3661.5 | CLOSE 3916.25 · 24-hour session
The week in brief
Breakouts have been from composite profiles: balance and acceptance of value, until the notion of value shifts and we move away. Using a composite in this way can really help.
Looking at the composites, I'd narrate the story like this. The auction was driven down into a key event (OPEX). Once participants were done hedging their bets for lower prices, the auction regained its composure and reversed. Value and volume are now moving off the lows created into OPEX.
Day by day
Using composite profiles:
- 9-10 June: B-profile, long liquidation.
- 13-15 June: normal distribution.
- 16-20 June: normal distribution.
- 21-23 June: P-distribution with tail.
The weekly structure
Using compositesUsing 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.
Last week's breakout rallies emanated from multi-day balance areas, which create a 'pressure cooker effect'. The longer the balance, and the more volume conducted inside it, the bigger the potential blowout. Here is a tweet that may help explain large, violent moves in assets.
Tweet highlightVolcanoes and trading! Think of areas of balance as a volcano. Using a composite profile helps us identify the bigger volcanoes. Breakout rules apply when we identify expulsion, and mean reversion strategies apply while it's dormant.
Monthly profiles into month-endNormally I look for a move back towards monthly value after a large move away. This month-end will be of even greater importance because it's also a quarter-end. I have built a quarterly profile, and I'm looking for a directional bias back towards the quarterly POC at 4116. Friday's close was bang on the HVN at 4020 from the quarterly profile.
A large part of the rebalancing seems to have been accomplished into quarter-end. I am going to be very careful this week. Given the lack of clarity in the middle of the monthly profile, Friday's strong breakout rally will be my short-term reference on Monday. I will update Friday's debrief into the Monday open. HTF references will be my immediate focus, using the monthly and 3-month profiles.
A look into the monthly profileThe auction into month-end is in the middle of the monthly range, between 2 prominent HVNs, 4116 and 3768. Difficult to have confidence where this will go! I will be observing the outer ranges of the monthly distributional profile while applying balance rules. We are currently in the 3rd profile from the bottom. Lots of repair work is needed following the large imbalance moves.
The HTF references lack clarity, so I will look at the 3-month profile below.
Levels for next week
MonthlyMulti-distribution, settled just above the monthly mid.
- H 4173 | L 3639 | VPOC 3768 & 4116 | MID 3906
- 3-month VPOC 4116
- Quarterly profile: POC 4116, HVN 4020 (Friday's close)
The rest of my levels are marked on the monthly profile, above and below where we settled.
Data ahead
Manufacturing PMIs, UK and US GDPFrom IHS Markit / S&P Global: the start of the new month brings fresh global manufacturing data in the form of the PMIs. The surveys will provide an important update on broader factory sector performance in June, after the flash PMIs painted a downbeat picture for the major developed economies.
The preliminary June PMI data showed factory orders falling for the first time in two years in the US, with renewed declines also seen in the UK and Japan. The eurozone, closest to the war in Ukraine, saw orders fall for a second successive month. The deteriorating manufacturing demand picture, alongside a worsening trend in services growth, led to an immediate recalibration of market pricing for interest rate paths in the US and Europe, and also put commodity prices under pressure.
Key takeawaysFrom Investopedia:
- Further updates on the housing market are expected with May pending home sales and the latest S&P Case-Shiller Home Price Index, tracking price increases in April.
- The May update to the Personal Consumption Expenditures (PCE) price index is out on Thursday, likely showing an acceleration in PCE prices to a new 40-year high in May.
- The final estimate of first-quarter US GDP growth is out on Wednesday; the reading is expected to be unchanged from the prior estimate of a 1.5% contraction.
- Purchasing Managers' Index (PMI) survey updates are expected later in the week, providing data on the strength of the manufacturing sector and goods-producing industries.
- Updates to eurozone unemployment and inflation are expected on Thursday and Friday respectively.
Events calendarSource: Investopedia.
- Monday, June 27: Nike (NKE) and Jefferies Financial Group (JEF) report earnings; Dallas Fed Manufacturing Index (June); Durable Goods Orders (May); Pending Home Sales (May).
- Tuesday, June 28: Wholesale Inventories (May); S&P Case-Shiller Home Price Index (April); Freddie Mac National House Price Index (April); Conference Board Consumer Confidence (June); Germany GfK Consumer Confidence (June).
- Wednesday, June 29: Paychex (PAYX) and General Mills (GIS) report earnings; US GDP Growth Rate, final reading (Q1 2022); Corporate Profits (Q1 2022); Real Personal Consumption Expenditures (Q1 2022); Eurozone Economic Sentiment Indicator (June); Germany Inflation Rate (June); Fed Chair Powell speech.
- Thursday, June 30: Micron (MU), Constellation Brands (STZ) and Walgreens (WBA) report earnings; Personal Consumption Expenditures (PCE) Price Index (May); Personal Income and Spending (June); Chicago Purchasing Managers Index (PMI) (June); UK GDP Growth Rate, final reading (Q1 2022); Canada GDP Growth Rate (MoM) (April); Germany Unemployment Rate (June); Eurozone Unemployment Rate (May).
- Friday, July 1: S&P Global Manufacturing PMI, final reading (June); ISM Manufacturing PMI (June); Eurozone Inflation Rate (June); UK National Housing Prices (June).
Weekend readingMy piece on delta, gamma and month-end, and some research on month-end effects (the Quantified Strategies piece on the turn-of-the-month trading strategy).
Month endFrom Twitter: in the last 25 years we have had 6 years deemed bear markets, with sharp declines into the last week of the second quarter. For the last week of the second quarter, 3/6 years had a positive gain, averaging 1.64%, and 3/6 had a loss, averaging -0.27%.
Key tweets
Month END: In the last 25years, we have had 6years deemed as bear markets with sharp declines into the last week of the second quarter. For the last week of the second quarter, 3/6 years had a positive gain the average was 1.64% and 3/6 had a loss The average loss was -0.27%.
View on X →Volcanoes and Trading! Think of areas of balance as a volcano. Using a composite profile helps us identify bigger volcanoes. Break-out rules apply when we identify expulsion and mean reversion strategies whilst dormant. Please RT and share
View on X →Key lessons
Trade well and prosper.
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