Introduction
In this analysis, we will examine the S&P 500’s price movements on July 2, 2024, focusing on order flow and the impact of market dynamics. We will use various tools, including footprint charts and Bookmap, to understand the market trends and identify potential trading opportunities.
Understanding Negative Absorption in Candles
When a candle shows negative (sell-side) absorption, it indicates the following:
Buyers Holding the Price: Absorption means that the selling pressure is being absorbed by buyers. Despite a significant amount of selling, buyers are purchasing these sell orders, preventing the price from falling as much as the selling pressure would suggest.
Resistance Level: This price level can act as a resistance where buyers are strongly present, absorbing the sell orders. This often occurs at price levels where the price has previously halted or rebounded.
Potential Trend Reversal: Such absorption can signal that the market is ready for a trend reversal. If buyers successfully absorb the selling, the price may rebound and start to rise.
Doubts About Further Decline: Sellers may become uncertain about the likelihood of further price declines as the price does not drop significantly despite substantial selling pressure. This increases the chances that sellers will withdraw their positions, causing the price to rise.
Observations on July 2, 2024
Following the 3-hour mark, around a few minutes past (footprint diagram shows 4, but there is an issue with the time zone setting in Ninjatrader), negative absorption can be observed at the 5516.00 price level across four candles. This level can be interpreted as a resistance point, where significant aggressive buying has occurred. However, it is also evident that aggressive sellers dominate around the absorption area at the bottom of the candle (indicated by red histograms and negative delta). This suggests that the price is likely to break downward through this absorption level.
Detailed Analysis
At the 3-hour mark, there was an aggressive bearish candle because, as seen on the TradingView screenshot, the price responded to a previous low. Key levels are marked on this screenshot. The highest and lowest points are identified based on the Bookmap liquidity heatmap, indicating a downtrend. The price touched the upper price level and then moved down towards the lower liquidity price level. Another level is also marked, representing the TMSO level from the previous day (TMSO: Micro Session True Open, indicating the price opening at Q2).
On the footprint chart, it is interesting to observe that the Volume Profile VAL (Value Area Low) level almost coincides with the previous low. The price reacts to this level. The histogram also shows that the delta is at the wick’s bottom, indicating very rapid and strong selling.
Conclusion
The analysis reveals that aggressive selling absorption at the 5516.00 level suggests strong resistance. However, the dominant selling pressure and the response to previous lows indicate a likely continuation of the downtrend. Monitoring these key levels and the volume profile can provide valuable insights for potential trading opportunities. The delta and price movements around these levels are crucial for understanding market dynamics and making informed trading decisions.
Failed Absorption Signals S&P 500 Downtrend – July 2, 2024
This detailed analysis provides a comprehensive view of market trends and potential trading opportunities for the S&P 500 on July 2, 2024. By understanding the significance of absorption and key price levels, traders can better navigate market movements and make informed decisions.
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