Monday – Rotation achieves a balanced auction and the closing price prints well above fairest price.
Tuesday – The initial balance is small, easily upset, and the market is capped at Monday’s high. Short-covering and buyers enter at Monday’s Value Area Low (VAL) but few bids arrive … with downside range extension a result of weakened buying volume.
Note: Short covering often follows sustained selling and liquidation breaks. The “Value Area” is where ~68% of the day’s business is conducted.
Wednesday – A picture perfect auction with higher demand around 4200, and a market closing above fairest price. Buyers in control.
Thursday – known as a “Double Distribution Day”. Longer-term traders extend range to the downside.
Note: The lower value area represents a more significant reference level.
Order flow traders establish a second balance area and attempt to re-test the morning’s initial point of control.
Note: “Double Distribution Days” often represent an early sign of exhaustion.
Friday – Rotation and an initial balance around 4250 gives way to a retest of Thursday’s second (lower) distribution area and Point of Control (POC). Heavy volume with little “Time at Price” is an auction market process driven by long-term traders (“Commercials”) … as opposed to order flow traders. A “Selling Tail” results and the market ends the week with sellers in control.
Implications: Friday’s close not only arrived at the level of last February’s low (~4125) … but also marked a return to a High Volume Node (HVN) established within an auction Key Reference Area (KRA) … last tested in April-May of 2021. That Auction Bracket Low (ABL) printed at 4075. Taken together, should the current washout continue to the downside, expect high activity at 4075. Should buyers fail to enter the market at 4075 … specifically, long-term holders with buying conviction … a further drive down would be likely.