Price action on the major US indices yesterday could best be described in one word, indecision, with all of the E-mini futures closing with a doji candle of one variant or another. For the ES, it was a long legged doji, whilst for the NQ and the YM, the body of the doji candle was narrow and defined, as the markets paused and reflected, following the bearish price action of the last few days.
If we begin with the Emini YM the doji candle here tested the deep support region in place in the 16,360 area as shown with the red dotted line, closing the session at 16,395 and balanced neatly on this level. The depth of this region is also clearly visible on the volume at price histogram on the left of the chart. Moving to the volumes of the last few days, the wide spread down candle which initially triggered the fall, was associated with high volumes, and it is interesting to note that the following day volumes were identical, yet the price action was narrow and testing the support level outlined above.
In other words, a test of supply. Monday’s down candle saw lower selling volumes suggesting that the current move lower was running out of steam, which was confirmed in yesterday’s trading session. For the YM this is now the line in the sand, and if this fails to hold, then we may see a further move lower to test the next level of potential support in the 16,210 area. To the upside, the resistance level in the longer term is clearly defined in the 17,100 (as shown with the yellow dotted line), but for any recovery to be sustained we need to see a move to regain the 16,600 region coupled with strong and rising volumes.
The Emini NQ tells a similar story, although the move lower here has been less dramatic, with the index finding support in the 3850 region which was tested once again yesterday with the lower wick of the doji candle. Once again, it is the associated volumes which hold the key with the wide spread down candle of 31st July being surpassed in terms of volume on the following day, but with a narrow spread candle, suggesting buying at this level, a signal that was repeated two days later with yet another narrow spread candle on well above average volume. The pivot low at this level is also suggesting support, and once again the volume at price histogram defines the depth of support in this region which is now a key level for a return to the bullish tone of the last few months.
Finally, to the ES Emini which reflects the YM in almost every respect, which closed yesterday’s session with a long legged doji candle, but once again, we have falling volumes under a falling market, suggesting the current negative sentiment for equities may be coming to an end. For the ES, if the current level is breached in the 1905 area, then a further sustained level of support awaits in the 1860 to 1880 area, which should then provide the platform for a bounce back and recovery in the medium term.