Keeping in mind that U.S. markets will be closed on Sept. 2 in observance of Labor Day, it's only logical to assume that trade volume and overall attendance levels will plummet between now and Friday's close.
5 Minutes Es Volume Profile
Source: eSignal
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As far as Wednesday's auction is concerned, the opening probe beneath Tuesday's regular-session lows was quickly rejected. It was this prompt rejection (lower prices cutting off supply) that gave buyers the confidence to auction prices up toward 1635.25. The drive from the upper-1620s into the mid-1630s, while choppy, did provide traders with several long sided trading opportunities.
In Wednesday's report I discussed the need for buyers to push value above 1635.25/1635.75. And while you can see where value did shift above 1635.25 during Wednesday's auction (highlighted in red), you can also see how that value transition actually ended up exhausting buyers.
Remember, as value is established, price tends to advertise higher to attract sellers and lower to entice buyers. In this case, value was established at 1637.50, but when price advertised lower, no one was home. Simply stated, buyers had run out of energy.
Thursday's Es Trade
Thursday's economic events calendar is quite a bit busier than the previous three sessions. An hour before the open, at 8:30 a.m. ET, we'll get the latest GDP figures, as well as weekly jobless claims data. Suffice it to say that the GDP report will garner far more attention than the jobless claims data.
At 1 p.m. we'll get the results from the 7-year note auction. The 7-year auction isn't usually a market\-moving event, but given the recent volatility in fixed income these results are probably worth keeping an eye out for.
As far as Federal Reserve speakers are concerned, Richmond Federal Reserve Bank President Jeffrey Lacker (policy hawk) is scheduled to speak at 2 p.m., while St. Louis Federal Reserve Bank President James Bullard (policy centrist) is expected to deliver a speech on the economy and monetary policy well after the regular session close, at 7:45 p.m.
5 Minutes Es Volume Profile -- Chart 2
Source: eSignal
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Thursday's primary areas of interest are expected to be 1641.75 and 1626.25. Until value shift above 1641.75 or beneath 1626.25, a choppy, low conviction and two-way auction is to be expected. As long as we're trading between the two aforementioned levels, short-term traders are likely to dawn the hat of a responsive participant.
As stated above, all trading between 1641.25 and 1626.25 is expected to favor the responsive participant. Treating 1632.25 as our short-term pivot, all trading above that level encourages buyers to auction the Es through Wednesday's 1634 volume point of control, that session's regular session high of 1639.25 and on toward 1641.75/1642.25. At least initially, any push through 1641.75 would be expected to be met by responsive selling. Any reaction from 1641.75/1642.25 that subsequently finds in and around 1639 would keep buyers in a position to continue auctioning prices higher.
Failure to maintain a bid above 1632.25 would have me looking back down toward 1626.25. Similar to my expectations of a responsive participant lurking above 1641.75, I will also be on the lookout for a responsive buyer near 1626.25. But should such a buyer fail to appear, my focus would immediately shift down toward 1619 and 1613.50. Barring a major development (dealing specifically with Syria), I will be on the lookout for a more motivated dip buyer to enter the auction between 1619 and 1613.50.
Current conversion formula: Es (September 2013 contract) value X .100255 = SPY Value
1655 = 165.92***
1647.75/1648.50 = 165.19/165.27*
1641.75 = 164.59**
1632.25 = 163.64**
1626.25 = 163.04*
1619 = 162.31***
1613.50 = 161.76**
1607.50/1608.50 = 161.16/161.26***
1600.25 = 160.43**