Pre-market Update: Lemons
Thursday, November 2, 2023.
Image 1. Wednesday (FOMC) RTH and Thursday ETH as of 8h15 EST
Thursday Missal
I am out for most of the session so today is a short note. To rap up yesterday, a gap open spared a fill by a couple of ticks, singalling byers strength early on. This continued the theme of a drift up into FOMC from the start of the week - in line with our main assumption from the weekly note. We deal in probabilities, so it’s not like we were ‘right’ just more right than wrong which is the whole point of trading and risk management.
However prices moving higher in FOMC is nothing new so chances were leaning to this side. The FOMC reaction was surprisingly quiet, as price had baked in the rate hold as I mentioned in the prior note. I was still surprised at the relatively low volatility in the afternoon.
The day left a double distribution (but triple volume distribution, se image above) with a smaller node above LVN 4250. However for today’s session I will be focused on 4285 as the day pivot, which was our last target for the weekly note. This doesn’t mean we run out of targets, old structure will simply be in play. I have not see the buying volume I’d like with a strong bottom, so this is reminiscent of the short covering rally we saw last month. This doesn’t mean we can’t revisit much higher levels, but we aren’t creating a lot of support either.
Finally, I did not find Powell to be dovish at all, leaving room for the possibility of a rate hike while commenting on the resilience of the labor market as well as consumer spending. He indicated that while the Fed’s policy appeared to be working, the goal remained a two percent inflation target and more work needs to be done. Interestingly he did mention that the Fed did not see indications of a recession at this time, a strong statement many analysts would disagree with.
Plan and Levels
Longs now look to build value (acceptance) over 4250 to build a base to provide momentum over 4300. A break of PWH at 4285 seems likely which ends weekly OTFD and puts some control back in the hands of buyers.
Personally I like the idea of this break as an opportunity to trap weak buyers, for another round of selling into next week, but I will save analysis for the weekly note. My thoughts may change based on the quality of trade into Friday close. Sellers need to close the week below 4220 to potentially negate upside price discovery. The NFP is tomorrow’s big data point so there is room for another surprise.
Buyer scenario. An IB close over 4285 targets 4295, 4304. In case of short covering, 4313, 4322, and NPOC 4331 are further targets. The buyer LIS is 4268 (the 200D SMA).
Seller scenario. Shorts look to hold 4283 to target a return under yesterday’s high 4265. Perhaps less likely, seller aggression could target a return to PD value below 4244 (repairing poor structure along the way to 4250). Finally note the gap just below the PDL at 4215.
Notes. The VIX has taken a significant hit recently but watch for support at 15.92 which may give longs a harder time. A break to 15.01 could see some upper targets reached. Finally TLT strength can see further pressure above 4300.
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