March 14, ES Plan and Missal: Pricing the Priceless
PPI, fool me twice?
Image 1. Yeah but would the market flinch? Watterson, Calvin and Hobbes, 1995
Tomorrow pre-market has the release of PPI and likely the resolution of the 5200-5250 auction (balance) following Tuesday’s higher-than-expected CPI print. We may very well see another bid whatever the result may be. All news is good news in a bull market.
We are inclined to place narratives on the price action in the market, and while there is often volatility released following a period of uncertainty, the market does not move because of news. That is simply a function of supply and demand. If there is demand - despite whatever the CPI or PPI print - and little supply, price will move up. If demand dries up, we need prices to fall to an attractive level to see a bid.
Sure the market may be overvalued based on P/E ratio, historic trends, or overvalued relative to your opinion, but none of that matters if demand remains and sellers are willing to wait for higher prices. Rates don’t seem to matter, Fed balance sheet roll off doesn’t make a dent, neither does persistent inflation and a hawkish monetary policy. So what matters? How do you price the priceless?
As a rule, let others price it for you before you react.
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Minister’s Missal
Today was a good example of just that (letting other price for you). Following the strong push to the upside on CPI nearly breaking into new highs, buyers were not yet ready to explore prices above the prior day.
The tight range in the overnight session perhaps was indicative of the indecision to come. The RTH IB was quiet, with buyers rejecting an attempt to see price below the prior day value, and supported by the 5230 level that was key for sellers to break for lower targets. A rotation back through open in the afternoon however gained no traction.
It was here that multiple rejections of price above the open led to a crowded long trade. This resulted in a quick liquidation in L period once structure broke, seeing weak longs exit. But support was found just under my pivot (LVN 5221) from the plan, which then bought back up to close the day at value (POC).
Image 2. Tuesday and Wednesday RTH
Heading into PPI we saw a balanced session with range expansion in the afternoon, although we returned to value despite putting in a red day. Balance makes sense after an aggressive move on Tuesday and ahead of PPI. Learn to use these clues to your advantage and avoid frustration - balance was the most likely outcome given context. I will reserve my thoughts heading into PPI, levels are largely unchanged, although I will be interested in Wednesday’s open 5243 for Thursday’s pivot.
I will share a premarket update if I feel it necessary.
Price Action Analysis
Note the wicks in the chart below. Numerous attempts by buyers to explore prices above the opening level are rejected, resulting in a tired trade. Without traction, longs exit as sellers then initiate to the downside on volume.
Image 3. 5m candle chart buyer absorption
The footprint gives us an x-ray of this action. Note the declining volume and persistent presence of sellers at the highs. Seller initiation is clear on the heavy red deltas. Buyers attempt to reclaim prices above 5240 but their efforts are exhausted, leading to a liquidation of weak longs.
Image 4. 5m footprint chart buyer absorption and buyer liquidation
Thursday Plan and Levels
Pivot 5243. The PPI is released at 8h30 EST.
a) Support at 5229 and an hourly close above the pivot targets 5256-58 where sellers may step in, momentum potentially targeting 5271 to 5285 above.
b) A break of 5229 targets PDL which can gate to 5207-5202, with further targets 5190 and 5180.
c) Coming into the session, watch for VIX above 14.40, which can support selling. A fail of 13.35 can help buyers push into new ATHs. AAPL with hourly closes above 174 and NVDA over 915 can support buying, as well at BTC over 74k.
Any updates will be shared premarket.
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