Market Profile Helps Us Trade Around Massive Events Like Dubai Default

Tom Alexander

Tom Alexander

Well, if too much turkey, dressing, cranberry sauce and pie wasn’t enough for a severe case of indigestion lets throw a little sovereign debt problem onto the plate. Get used to it.

Over my 24 year career trading and analyzing markets there have been periodic “events” that popped up here and there that got the financial world all in a dither for a few days, or maybe even a week or two, and then conveniently faded into the past as normalcy returned.

Well, this, my friends, is the new normalcy. The incredible securitization of anything that can be securitized and the leveraging of anything that can be leveraged have led us into a brave new world where we are probably only beginning to understand what will be normal volatility. The nice sanguine periods of months and even years between “events” are likely a long way into the future.

Markets are volatile when they cannot determine what value is. However, auction market principles are dynamic and robust, and more immediately relevant, they are fractal. This is a from of analysis that tells us in the present tense where value is, and if we know where value is, we can know where value is not, and we can form a trading model around that concept. Auction markets have been following the same principles as long as auction markets have been around, and as nutty as things presently seem, this is still a valid, reliable lens through which to view market behavior. Perhaps most importantly it is uniquely objective.

Below is a quick update of several key markets from an auction market/profile perspective.

Dec. Russell 2000

The Russell 2000 is in a Balance Area that began forming last August. It has refused to join the up and away party of the other three US primary trading indices and the 64k question is which way this divergence is going to be resolved, and it will be resolved, one way or the other. Drilling down, the High Volume Node (value) near 592-598 must be exceeded to restore any bullish outlook, and a break down below 544 is a bearish intermediate-term signal.


Dec. S&P mini

It is clear from the profile structure the S&P has a completely different auction underway from that of the Russell 2000. The present phase of development in auction market terms is vertical, or trending, as opposed to the horizontal phase of development we see in the Russell 2000.  The late October-early November lows are critical to the intermediate-term bullish case of this index remaining intact. More immediately 1101-1109 must be exceeded to the upside. There is very little between where the ES/S&P is presently trading and the Oct-Nov lows that offer much potential “support”.

The ES/S&P is presently trading in a phase of horizontal development (balance) of a smaller degree than the Russell. As I am writing this it is testing the low extreme (1075-1068) of the BA.


Dec. Nasdaq 100

The Naz is in a similar position as the S&P.

Naz MP

Dec. Euro FX

The Euro has to close below the 1.4790 area (basis Dec.) as just the initial signal something significant to the downside may be brewing, and that something significant to the upside in the US $ may be in its early stages. Immediate potential resistance in the Euro is the HVN at 1.5054-1.5096.


February Gold

Gold is trending higher (duh, right?). There is no objective reason on the planet to sell it. Selling gold and playing “pick the top” is imbecilic. On the other hand, if one is not already long gold there is no objective way to measure the upside potential against the yet to be determined downside risk.

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