We give traders and authors like Larry Williams, John Person, and Jim Dalton all the credit. Yeah, we know some of this stuff is as old as the hills, but hey, history and human psychology have a funny way of repeating themselves. Back in May, we posted our previous ES volume profile. It's time for a refresher.
Williams likes to watch for extreme readings of the net positions of commercial traders. He also likes to use a 52-week moving average as his trend guide. Sorry for not submitting this earlier when our fabulous host was looking for sentiment indicators.
When the slope of the 52-week average is up, the trend is up, and the commercials show us extreme net long positions, Williams tends to favor longs on pullbacks. DISCLAIMER: we have no idea what Messieurs Williams, Person, or Dalton are doing now, we are only watching the charts form with interest.
John Person likes to fade whatever retail traders (small speculators) are doing.
Jim Dalton watches volume-based value areas for clues and insights into the auction process at different price levels. Resistance becomes support, vice versa, and so on an so forth as price discovery ranges around a mean until price breaks out and moves to the next value area.
Using these lenses simultaneously either makes us cross-eyed or reveals an interesting picture. In the weekly chart below, we plot the weekly Commitment of Traders (COT) data.
Red=commercial traders, yellow=small spec traders, blue=large non-commercial traders.
Green vertical lines are extreme commercial net position readings in bullish trends
(positive 52-wk MA slope).
Red vertical lines are extreme commercial net position readings in bearish trends
(negative 52-wk MA slope).
Note where we are now. Traders fading this market are trading against both the commercials and spec traders. It will be very interesting to see who wins.
We have no idea, but a volume profile analysis reveals the following levels above us. We have post-flash crash highs, a little 15 point caffeine shot from there, and then who knows. Bulls will need to break above 1200 to show us they mean business (no, that is not a dare). And, at this point, buying highs unless we can break above and hold 1160s makes us feel a little Latte to the party (sorry, couldn't resist).
Originally published on TradeFlight.com.