ES 06-18 / 30. April 2018

Traded volume was 1.278.496 according CME settlement data. 

The mood for Monday started positive (DOW +200) earnings again beating expectations and all was looking good then mid-session US turned on talk China/US trade rift in technology. This was a headline that apparently is being talked why tech shares rolled and the NASDAQ led all core lower. Healthcare and Tech weighed heavily and even saw Verizon, Microsoft, GE all losing over 2% on the day. Israels PM Netanyahu's accused Iran of hiding nuclear weapons activity. His speech supported the down trend, too.  

Bounces in Illiquid Areas

Interesting question came up which is worth to be discussed: "Have you noticed we get pretty solid bounces in illiquid areas on the map?"

When can we speak about one or more liquid areas? 

A liquid area depend on the

• Instrument traded (CL has another liquidity then ZB, ES or Corn) 
• Relative volume size of traded instrument
• Clustering of liquidity areas
• Strength of liquidity area (volume on bid / ask side) 

Some causes why liquidity areas sometimes are broken:

• Sudden liquidity drop. Remember: Crashes are not caused by selling; they are caused by lack of buy side liquidity. (see 3rd pic)
• Strong selling - panic selling due to news or other events
• Removing liquidity in last moment on one side 

We can observe this moves on sell as well on buy sides.

It's like when someone brakes and the braking distance is too long. He crashes through a wall and he's overshooting the mark. 

On Bookmap™ you can see when there are no more sellers to sell into bids (in example above) when you watch best bid side. You see that at 2654.50 and 2654.25 nobody wanted to trade at these prices. Price reversed at this point. 

Besides the panic behaviour another reason for overshooting the mark is, that with the break of a significant liquidity level, uninformed traders jump on board in the very last second and try to buy or sell. Informed traders have already liquidated their inventories. Uninformed traders jumps on board at that moment and buy or sell in the belief that market is going to develop in their direction. 

I am aware that this short summary of possible reasons is not complete. It would be great if you can share your thoughts on this subject in the comments. 

Thanks to Nicholas!