In my last post on Sept. 14, I suggested that US indices were once again in a fragile state with risk appetite waiting, and whilst we are not at a climactic top just yet, we can expect to see some dramatic moves lower. And so it has proved today with all three of the major indices falling sharply with the YM, the NQ, and the ES all trading just off the lows of the day and with widespread down candles. So let’s take a look at one of these and in this case, it’s the NQ E-mini daily chart.
No surprise on the candle which is wide and down with the index currently trading at 14,934 with just over three hours of the session remaining. More downside to come? Perhaps. However, there are several aspects of the chart which are interesting, not least the associated volume with today’s candle. I accept the session has not yet ended and has a couple of hours to run at the time of writing but just compare the current volume with that of Friday. Here we have a candle of half the range, yet higher volume, albeit today’s session is ongoing. An anomaly? It certainly looks that way unless there is an extreme surge in volume late in the day, but from the current volume, today’s price action suggests a shakeout with market makers not participating fully. In fact, scrolling back on the chart, the spread of this candle has exceeded even those which were accompanied by significantly higher volume.
Second, we are testing the VPOC (the volume point of control) shown with the yellow dashed line at 14,925 where we can expect to find support and see congestion building in the short to medium term as the market settles after this latest washout. Note too how the price has plunged through the low volume node of the VPOC histogram in the 15,200 area which is what we would expect to see. Volume on the Y-axis acts as support and resistance in the same way as price based s&r does. Hence when we approach low volume areas such as this, or high volume areas at the VPOC itself, this gives us an insight into what to expect next. And in this case, it’s likely to be a period of congestion around the 14,900 area.
Finally, as I mentioned on my Facebook page today’s market gyrations could be seen as a shot across the FED’s bows ahead of the FOMC on Wednesday. We shall see.