VIX and US futures along with risk currencies confirm shift in sentiment

VIX and US futures along with risk currencies confirm shift in sentiment

As the London forex session gets into full swing, sentiment is clearly displayed on the VIX which is trending lower as risk on sentiment returns with equities push ing higher on US futures markets. And of course currency flows from the yen and other risk currencies confirm the picture.

00:09

Introduction and market context

00:09

The speaker explains that Anna, who is Italian and has relatives in Italy, has been emotionally affected by the grim situation there in recent weeks. After apologizing for the emotional tone, the speaker shifts focus to their trading setup, mentioning the Aussie yen chart and TradingView on the screen as they prepare to start the analysis.

00:41

TradingView indicators and VIX explained

00:41

The speaker discusses various trading indicators displayed on their screen, mentioning the 4100 index which has recently opened and is climbing in real-time. They also note the DAX futures data is delayed on this feed, while the FTSE index appears to be rising. The main focus is on the VIX, described as a fear indicator used to gauge market sentiment.

01:11

Options strategies: puts and calls

01:11

The discussion focuses on using options to gauge market sentiment by analyzing the balance of calls and puts. Recently, there has been significant activity in buying puts, but the trend is shifting towards buying calls as market sentiment changes. Options provide a way to participate in market direction without owning the underlying stock, with the main risk being the premium paid. This strategy allows for a low-risk approach to capitalize on longer-term market trends, especially as volatility affects currencies and other assets.

02:13

Volatility index and market sentiment

02:13

The index has gapped down to 57.9 from a high in the high 80s, reflecting a reduction in risk sentiment. This suggests a gradual, hopefully longer-term, return to risk-on sentiment. The VIX serves as a key indicator of this shift, and the Footsie 100 is performing well, with everything generally ticking up.

02:43

Aussie yen volume and price action

02:43

The speaker analyzes US futures and the Aussie yen across different timeframes, noting the increasing trading volumes as London market hours begin. Using the Ninja trading platform, which aligns with local UK time, they highlight a volume surge during a rally that signals potential market weakness. Despite a strong upward trend, the high volume selling suggests caution as it may indicate a possible shift in price action.

04:11

Volume price analysis benefits

04:11

The speaker explains the value of volume price analysis in trading, emphasizing that it provides advanced signals about upcoming market movements. This knowledge builds trader confidence and reduces fear and panic when the market moves against a position. Volume analysis reveals the intentions of market makers through large volume patterns, helping traders make logical and analytical decisions rather than emotional ones.

An example is given where falling volume during a declining market suggests weakening selling pressure, indicating that a true reversal would typically show rising volume. Overall, volume price analysis equips traders with advanced indicators to assess market conditions and make informed decisions.

06:23

Daily charts and volume impact

06:23

The speaker discusses the relationship between commodity risk and yen risk, likening it to the VIX index as a market sentiment indicator. They highlight an extraordinary day of trading with massive volume, especially on the daily chart, emphasizing the importance of monitoring daily charts for integrated traders to gauge potential market direction. The high volume and price action suggest significant buying activity, indicating accumulation despite volatility and swings.

07:53

The market shows strong buying pressure with more buying than selling, as indicated by the candle closing higher and volume point of control positioning. The speaker cautions that any reversal from the primary downtrend to an uptrend will not be rapid or V-shaped but will involve congestion phases. They note that markets typically fall faster than they rise, which explains a bias towards the short side because declines are quicker than rallies.

08:52

Examining the chart for longer-term trading, the speaker points out the volume point of control as a key level where volume is heaviest. They explain that moving away from this zone leads into lower volume areas, which might allow faster price movement if the market recovers. Key resistance levels are identified at 69 and a stronger one at 74, where historical congestion and increased volume suggest significant barriers to upward movement.

09:49

The trend monitor remains bearish and has not yet transitioned to bullish, though shorter timeframes may show changes sooner. The speaker advises watching for strong price action supported by volume to confirm a sustainable market move rather than a false breakout. Volume is building early in the session, which could signal developing momentum, but caution is still warranted.

10:39

The discussion shifts to faster timeframes, such as 15-second, 3-minute, and 5-minute charts, which provide early indications of market direction. The speaker notes unusual volume patterns during the London session compared to typical volume flows from Asia to Europe, observing a volume distribution that is almost a mirror inversion of the norm. This irregular volume behavior suggests a unique market dynamic at this time, with overall volume not as high as typically expected.

12:06

Volume patterns across sessions and markets

12:06

The discussion begins by highlighting London as the deepest liquidity market, especially compared to Asia where volume is typically declining. Attention is drawn to whether the current rally will sustain in London or if underlying weakness will prevent follow-through. The focus then shifts to the US indices at the London open, noting that market strength appears lacking. The speaker reviews three key US indices—the Dow Jones (YM), Nasdaq (NQ), and S&P 500—using five-minute time frames on the Globex electronic platform, and begins analyzing the market sentiment reflected in these indices.

13:07

Further analysis reveals that volume data on daily charts for these futures contracts is inconsistent due to wide market ranges triggering various trading mechanisms like percentage breakers. These breakers halt trading to prevent extreme price moves, resulting in truncated 24-hour trading volumes. This explains why volume levels might appear unusual or lower than expected, complicating volume interpretation. The overall market sentiment, including the FTSE 100, is being influenced by these dynamics.

14:14

Despite the volume anomalies, the Nasdaq is identified as the leading index driving the market higher, with others close behind. Current trading is occurring around the volume point of control, indicated by a yellow dashed line, suggesting a congestion phase. This congestion is compared to a previous example involving the Aussie yen, implying a benchmark or reference candle is being used to assess the current market setup and volume profile.

15:07

Price and volume signals of market weakness

15:07

The speaker analyses price action and volume patterns, noting a widespread upward candle with volume and a slight wick as a normal occurrence. However, a subsequent candle shows a compressed price wick with higher volume, signalling potential market weakness. This indicates selling pressure entering the market, though it doesn’t guarantee immediate price drops. The market’s price action isn’t responding as expected given the volume, suggesting underlying resistance to further price increases.

16:09

An analogy is introduced comparing the market to a fully inflated bicycle tire that cannot expand despite continued pumping, illustrating the idea of increasing effort without price movement. This aligns with Wyckoff’s principle of effort versus result, where heavy effort without a corresponding price result signals market weakness. The importance of benchmarking price and volume within the same trading session is emphasized to ensure accurate comparisons.

The ongoing heavy selling is acknowledged, with some buying interest visible around key volume point controls, suggesting market congestion.

17:30

Market conditions are characterized by congestion and sideways movement around volume point controls. The VIX index is stable, showing little change from the open, reinforcing the lack of clear trend direction. The speaker advises patience for trend traders, noting that current market conditions are not suitable for trading trends or reversals, given the ongoing consolidation.

17:55

Trading congestion and breakout strategies

17:55

The speaker explains the importance of patience when trading around the volume point of control, anticipating further market congestion before a genuine breakaway occurs. They emphasize that volume is crucial for confirming the authenticity of a breakout move, contrasting this with traders who rely solely on price action, which cannot reveal the strength or validity of a move. The speaker briefly acknowledges background noise and transitions to discussing a currency strength indicator on a 15-minute timeframe, noting current selling activity.

19:18

Currency strength and market congestion

19:18

The segment discusses recent currency movements focusing on the yen, Australian dollar, New Zealand dollar, dollar, euro, and British pound on a 15-minute chart. The yen is declining with a possible minor reversal, the dollar is flatlining in a congestion phase, and the pound is also in congestion. It explains that pairs like the pound-dollar (cable) are not moving much because both currencies are moving sideways, and for a strong move, there needs to be strength or weakness in at least one currency.

20:16

Further explanation is given about currency pair movements, emphasizing that if one currency strengthens while the other weakens, significant moves occur, such as in the cable pair. The speaker returns to commercial charts showing expected pause points and volume point control, highlighting current market conditions and confirming the sideways congestion in these currency pairs.

20:45

The speaker transitions the discussion back to Anna.

By Anna Coulling – creator of volume price analysis