Market Profile Monthly Analysis of S&P Futures Contract
Updated: Sep 21, 2022
Most of the bad news pressuring the market during the last month has been priced in. The previous month's profile shows a significant bounce from the test of 3800. It is critical for this month's profile to remain above 4056. Any break below that level should lead to a retest of 4014, 3970, and 3929. As to the upside, 4200 is key resistance. Any break of that level should see a fast rise towards 4236 and 4262. In case we do reach 4262, I am expecting a significant drop from it.
Today, the important monthly support at 4056 was broken, triggering a sharp drop to my first support at 4014. We should start to see some consolidation around this level, but I am ultimately seeing a later break of 4014 and a drop to 3970. The challenges faced by the economy and the consumers are significant and will further pressure the market.
06/13 The break to the downside gained significant momentum after the worrisome inflation numbers and the very high price of crude oil. The market is pricing a high probability of a coming recession, with very few tools left to fight it. As long as we remain below 3800, the next downside targets are 3725, 3697, 3665, and 3600.
Another down day for the market. My downside target at 3725.00 was reached and we managed to close above it. For now, as long as we remain above it, we should see a further retracement to the upside since the market has become very oversold. My resistance levels are 3753, 3767, 3782, and 3800. That being said, tomorrow we do have an FOMC interest rate announcement and the FED decision will create massive volatility. Any friendly language regarding future rate hikes should help the market go up.
We saw a significant bounce to the upside after Powell indicated the next rate hike might be smaller than 0.75%. However, I believe the existing economic problems are here to stay and there is not much Powell can do to fix them. I believe these short-term bounces will be short-lived and the market will go significantly lower. A rejection below 3800 should start the next leg down towards 3760 and 3725.
So far, all my projections have been dead right. The break below 3800, took the price to my target at 3860. At this point, I believe we should start a short-term bottoming process. In the event of another leg down, I am expecting strong support between 3650 and 3625. If the current low holds and we cross over 3695, we should see an acceleration to the upside towards 3725 and 3760.
The cross above 3695 did take the price to both my upside targets at 3725 and 3760. As long as we remain above 3760, we could see more upside towards 3800 and 3825. If we do reach those levels, I do expect the market to reverse to the downside. The current bounce from the low is nothing but an oversold reaction. The general trend is still pointing down and the underlying economic problems are still unsolved. A rejection below 3760 should take the price to 3725, 3700, and 3685.
The market is trying to build a base between 3725 and 3800. The recent rally in the bond market has helped interest rates to go down slightly, helping the stock market to stabilize a bit. We should be rotating within this range until we decide to either exit the rotation above 3800, or below 3725. Below 3725 we should drop to 3700 and 3685. A break above 3800, should drive to 3825 and 3850. All eyes will be on the new upcoming economic data, to show the impact of the most recent rate hikes.
We have rallied 308 points from the low of 3640. Looking at the monthly profile chart, we can see that 3950 was a significant resistance level and the rally so far stopped there. In the event of a break above 3950, we should see a fast rise to 4005. If we reject below 3685 first, we should start a reversal towards 3841, and 3807.
So far this month's Market Profile chart is showing a rotation within the belly of last month's profile. The main price bracket containing this month's activities ranges from 3850 to 3725. If we can manage to clear 3850, we should see a fast rise towards 3885, and 3909. In case of a drop below 3728, the market could accelerate down to 3685, 3658, and 3640.
So far the market is doing exactly what I was expecting. The break above 3850 took it to my target at 3909. If we look at the previous month's profile, we can visibly see that 3909 represents a big cluster of TPOS (main resistance level). If the up move stops here, we will rotate between 3909 and 3867. If the 3909 area is cleared to the upside, we should see a run to the next target at 3950. Past that, we go straight to 4005. In case of a break below 3867, we should drop to 3850 and 3828.
Since 3909 has not been broken, the price did rotate back down to 3867 as I previously expected. This week we have the release of the highly anticipated inflation numbers, and also it is the start of the earnings season. The market will be highly sensitive to any unexpected surprises. If the current rotation extends itself further down, we should see support at 3850 and 3825. Any sudden break below 3825, could see a sharp drop to 3790. Our main resistance levels are 3885.00 and 3909.
The monthly chart of Jul is aright at its lower-Value area of 3795. If we reject the value area range to the downside by breaking below 3790, we should then see a drop to LAst month POC at 3763, and possibly 3743. If this support lower-Value area holds and the market decides to go up, the next upside targets are 3813 and this month's POC at 3833. However, I believe the fundamentals of the market will be negatively impacted by very high inflation and the rising rate which should pressure prices significantly lower.
My previous downside target at 3743 was met and the price has been aggressively rejected to the upside from that level. This week, we managed to close near the upper Value area of 3368. If the price is allowed to exit the Value area range, the next upside targets are 3385, 3923, and 3950. Any break above 3950 should see an explosive move to 4000. On the other hand, if the price falls from this upper Value of 3368, we will rotate back down to the POC at 3822 and possibly to the lower Value at 3774. This month will show us if the corporation's earnings are affected by the economic slowdown, and how much will the Fed hike the interest rates on Jul 27th.
Since the break above 3925, the market is exiting the entire rotational range below 3925 for a new directional move. 3950 is a crucial level of resistance, if broken we do not have much resistance before last month's upper Value at 3983 and 4000. If we do reach 4000, that should provide GREAT resistance. For this existing directional move to fail, we must return below 3925. If we do that, we will then rotate back down to this month's upper Value at 3885.
Even though the fundamentals are still bad, you can't fight directional moves.
We almost reached the first target of 3983 which is last month's upper Value. However, since we have gone substantially up from this month's low of 3725, we could start a rotation between 3925 and 3983. This would make sense since investors are evaluating the corporations' earnings being released all this month. A break above 3983 should lead to 4000 and 4030. A break below 3925 should rotate back down to this month's upper Value at 3885.
The 4030 target from my previous post has been met today. Since we closed below it, the level above 4030 to 4043 is now our main resistance zone. If the buyers manage to break above it, we should then go to 4070. In the event 4070 is reached, I am expecting a severe rejection to the downside from that level. Also, this month's Value area high is slightly below 4000. Since we have exited outside the value area range, we are supposed to remain and trade above it. The moment we reject back below 4000 while returning inside the Value area range, we should see a drop to 3983, 3955, and 3925.
What a spectacular end-of-the-month rally! The moment the price was accepted above 4070 which was a significant resistance, we saw an explosion to the upside. The next big resistance levels are 4167 and 4200. However, with most earnings behind us and a very overextended market, this month should see a significant pullback. Our minor support is 4090, if broken we should drop retest 4070. The moment that level is successfully taken out, we could see a very fast drop to 4028. If in August we enter into the value area of Jul (4028) we should see the drop accelerate to Jul POC at 3986.
So keep a close eye on 4070.
Ever since the price was allowed to enter above 4070 in July, the market returned into the upper rotation of June's profile contained by 4070 - 4170. Often time when you return back into a previous rotation, the price has a tendency to travel to the middle and sometimes to the other extreme of it (4170). This time it happened to be a full retracement of that rotation all the way to 4170. Unless we break that level to go to 4200, otherwise 4170 is now a major resistance and should hold a short-term high. From here if we reject 4150, we should go retest this month's upper Value at 4128, and if we break below it, we should then drop to the POC at 4101, and 4090 the lower Value.
This entire month of August has been a gigantic rotation within the same rotation we had in the month of June, going from 4070 to 4195. As long as we remain within this range, this back and forth will continue. However, we are seeing a rejection tail above 4171, possibly indicating this month's top might be in. If that's the case, the next downside targets should be 4135, 4110, 4100, and 4085. Any retest of 4171 MUST be defended by the sellers. Failure to do so could let the price to reach 4200.
Ever since the buyers cleared 4200, the market has been in a directional phase with brief pauses in between. However, we are approaching significant levels of resistance. The last time we reached 4305 during the month of May, the market dropped straight to 4100. I am posting the picture below.
A lot of the current rally is all based on hopes. Hope that inflation has picked, hope that the FED will be less aggressive with future rate hikes, hope that the recession will be short-lived, hope that price of crude remains low, hope that the housing market won't crash..
But the reality is very different. China's economy is drastically slowing down, with a massive housing crisis in hand. Europe is already in a recession with a lot of uncertainties going forward. The U.S is also in a recession and with future rate hikes, consumers will be further squeezed. This market has priced in a lot of unfunded optimism and any disappointment could lead to a severe reversal.
From here the main level of support is 4280, if we break that level, the reversal should start. In case of further euphoria to the upside, I have 4355 and 4395 as the next upside targets.
When I left for vacation on Aug 24th, the market was trading above 4300 and we had a 580 points rally from the low of 3740. At that point, I warned a huge drop could be ahead based on the drop in the month of May from that same level. Sure enough, the drop took place and so far we have deleted all last month's gains and corrected 420 points of the last 580 points rally. The trend is now to the downside and the next downside targets are 3866, and 3812. The main resistance levels are 3936, 3967, and 4017. September should see a further down move even if we see intermediate bounces in the process.
After the big drop in the month of August, September was unable to follow through to the downside and went rotational a the low of August's profile. Since the break above 4017, we have exited the September rotation to the upside, and we are in a new directional leg-up. Also, we have been able to reenter last month's Value range at 4087, which should lead us to its POC at 4153. Once that level is reached, we should encounter resistance. If the sellers fail to defend 4153, the next upside target is 4185.
The market optimism is once again very high. Inflation, rate hikes, the slowing earnings..... all are dismissed and the focus is only on the buy side. All I can say is, that the economic data better support this euphoria or else another huge drop is coming.
The retest of 4153 last month's POC was severely rejected by much hotter than expected CPI numbers. In one session the market erased most of the Sep gains. At this point, the FED has no other choice than to hike the rates a few more times. This will further increase mortgage rates, credit cards, auto, and business loans. The impact of such a rate increase will certainly drive the economy into a severe recession since consumers and businesses will be negatively impacted. At the same time, the rate hikes will have no impact on bringing the cost of food and many other items down. In another word the consumers will be squeezed to death and will reduce spending. Lower consumer spending will impact most businesses.......
I am expecting this market to go much lower into the end of the year. R # are 4017, 87. A break below 3866, should lead to 3812, and 3720.
Today the FED jacked the interest rates by another 0.75% and plans to hike 2 more times in the near future. This will further increase borrowing costs from mortgage rates, to credit cards to business loans... The impact on the housing market and the economy will be extremely negative and the likelihood of a severe recession is extremely high. Furthermore, I do not believe this series of rate hikes will bring inflation anywhere near his targeted 3%. In my opinion, things are going to get much worst and the market will go significantly lower.
As of right now, we have exited the previous rotation above 3866 and we are in a new directional leg down. The next downside targets should be 3723, 3674, and 3639.
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