Five Easy Tapes: Open-Rejection Reverse II
CPI Day, July 15
Each week I review key moments from recent price action in the indices. These instances will be analyzed using three methods: the tape / DOM; footprint; and candle chart. Synthesizing the three allows an understanding greater than the sum of its parts, leading to a complete understanding of the auction process. There are many great resources out there, although I am not aware of any that provide such a comprehensive study guide.
Image 1. WSJ headlines
Live Tape
In this and coming examples I will share my screen with the tape and footprint during live trading sessions. Not all of these worked out, the key is to understand what is going on during the session, as well as appreciate when things suddenly change - or your reading was off.
Piece No. 4: the Open-Rejection Reverse on major news
Here at the Crowstack, we’re not surprised by data salads - and we certainly don’t trade them ahead of time. Headlines are where premium (IV!) goes to die.
By and large, these numbers are priced in. Events are as well: consider how oil reacted after Iran launched attacks on Israel. A spike higher before collapsing and then closing lower in the following session!
Both CPI and PPI were largely priced in. Don’t believe me? The market closed 5 points lower relative to the day before the two data releases. Priced to perfection.
Image 2. ES daily chart
Although I discourage trading into events - and certainly not with 1DTEs - that doesn’t mean we don’t trade the price action during events. This is when a lot of money can be made, if your thesis is flexible. That’s what we’ll look at today, with strong clues on the tape, the footprint, and candle charts using the AVWAP.
July 15, Fading the News
The video is recorded 1x speed. I had noticed significant absorption ahead of the open, so my thesis was primed on taking a short on any apparent lack of follow-through to the upside after the open.
Video 1. ES tape / 5m footprint.
INITIAL SETUP: A failure of buyers to trade above the overnight high (ONH) could bring weakness and a gap close.
THESIS: Open-rejection reverse and a return to prior day value. Seller strength on gap close could see a full traverse of prior day value.
OBSERVATIONS: