Here’s an updated Market Delta chart for the day’s trade. Note how volume at bid has consistently exceeded volume at the offer for the ES contract (bottom histogram); how we’ve remained below the volume-weighted average price (VWAP) all morning (red line); and how we have accepted value lower by trading increasing volume at lower prices (side histogram). The reason I have my chart set up this way is that it provides me with a quick, visual sense for the structure of the day’s trade.

Where I see traders making mistakes in trading this market is by focusing on what has been happening in the last few ticks of movement, rather than the emerging day structure. That has kept many traders out of the market–or on the wrong side of it–even as we’ve taken out the S3 level. A thorough market perspective also needs to look beyond the day timeframe; that shows how we have moved below last week’s lows and, so far, have accepted value beneath that level. Given that dynamic, bounces that stay below last week’s range become candidates for selling.
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With the S&P 500 Index e-mini futures market (ES) unable to hold above the 915 level stressed last week, we’re now seeing selling toward last week’s lows, continuing the market’s trend shift. We also continue to see intermarket themes dominate: the strong U.S. dollar versus the euro and weak commodities accompanying stock selling. Meanwhile, the Market Delta chart shows that we’re building volume overnight in the 908-909 level, with the volume-weighted average price higher at 911.50. Inability to rally above those levels will target last week’s lows below 900.
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Here’s how we look (bottom chart) in the S&P 500 e-mini (ES) contract going into the 7:30 AM CT jobless claim numbers. Note the resistance between 912 and 914, as we continue in a short-term downtrend mode. If the 7:30 AM number cannot move us above that resistance level, I’ll be looking for a test of Wednesday’s lows below 900. Note that we’ll have a few opportunities to move this morning, with Treasury Secretary Geithner talking at 8:30 AM CT and Leading Economic Indicators and Philadelphia Fed reports at 9 AM CT.

I find it worth tracking interest rates and the dollar in response to these releases and events and correlating those moves to stocks to pick up on emerging and continuing intermarket themes. In general, if the numbers cannot move us out of a value range that was established up to that point, I assume that the trend that has been in place will remain intact. Once again, I’ll be tracking all of this intraday via Twitter (follow the tweets here).

8:15 AM CT – Update: We traded higher on the jobless claim numbers, but have stayed firmly within the overnight range. Note in the middle Market Delta chart that we’re now trading above the day’s volume-weighted average price (VWAP; red line), as the dollar has weakened versus the euro and 10-year rates have bumped higher. I’ll be watching to see how we trade around VWAP to handicap the odds of taking out Wednesday’s lows in early morning trade vs stay within the overnight range trade.

10:24 AM CT – I’ve added a fresh Market Delta chart (top) to show how we’ve been accepting value above the VWAP (red line) and around the 914/915 ES resistance. This raises the odds that, rather than trap bulls, we’ll flush out bears by taking the market above that resistance. I’m watching TICK and intermarket themes (weak dollar, strong 10-year rates) to see if that scenario unfolds.
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