Week review · w/c 23 January 2023 · ES pinned between the 200 and 100DMA

Yen pairs were in the spotlight as the BoJ startled some market participants by maintaining the status quo in monetary policy. Japan's CPI grew to 4% YoY in the meantime.

Lagarde took the opportunity to affirm the ECB's commitment to raising rates to fight inflation, along with other ECB members, including Knot, who stated that multiple 50bp hikes are necessary.

US equity markets were little changed but kept investors guessing, with large swings higher and lower after PPI releases pointed to slowing price rises, in the face of Fed speaker headwinds that continue to hawkishly talk rate-cut expectations away. OPEX flows were in focus at the end of the week, with ES price action pinned between the 200 and 100DMA.

CPI this week was weak.

CorrelationsBonds, indices, FX and commodities side by side: the Dow the weakest index, the Nasdaq the strongest, with Dr Copper and gold marked.

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.

Monday and TuesdayAn early 2-way auction: trade the edges once identified. Observe the extremes for breakout and continuation, else fade the edge with a stop. This creates a coiling effect that released on Friday's NFP. Many traders were anticipating a quiet rotational hold/pin into OPEX, complacent. The balance set up Wednesday's liquidation, which followed through into Thursday's Globex session.

WednesdayAuction failure to the upside: a failure on Wednesday's open to clear Tuesday's balance highs. Buyers liquidated below 3996 (the pwk POC), which had remained resolute in Monday and Tuesday's trade. Trend day, closing on the LOD.

Thursday and FridayAbsorption lows, then 2-way trade. Auction failure to the downside: a failure on Friday's open to clear the ON lows, and trapped shorts began to cover. The week's trading never managed to crack below 3900.

Thursday's high broken and the gap filled: the PB to the IB high and Friday's high offered a valid trade opportunity out of the lower balance. Friday's trade was almost a mirror of Wednesday's long liquidation. Failure to break the ON low.

Sellers are trapped above the 100DMA and buyers above the 200DMA.

The monthlyNon-excess at the December high (4142), the December low (3789) and the November low (3736). The December POC is at 3862, the CHVN at 3996 and the pivot SB at 3965, with the 200DMA and the 100DMA marked.

The weeklyLast week's close was still inside the prior 2-week range.

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.

I have a natural edge by identifying areas of balance and acceptance in the auction. 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.