The MarketDelta Blog

Earlier today we tweeted out that “cumulative delta is deteriorating..”. This was based upon the fact that cumulative delta was putting in new lows for the day while price was not. Many times we see cumulative delta lead price. Either way, when cumulative delta is making a push and price isn’t, something is going to happen, its just a matter of time.

Why? Well either price will follow cumulative delta and the aggressive order flow will prove to have been correct OR the shorts (as was the case when we tweeted) are getting sucked in at the low of the rotation and will fuel an often quick move in the opposite direction.

Now for a very important observation that is extremely valuable when you see it. Today’s price action up to the time we tweeted was tight and range bound. Just a very well defined 8 point rotation. This lends to more rotation inside the well defined range UNTIL proven wrong. The delta was deteriorating but at a very well defined support. So, the trade opportunity is actually a long at this support level with a tight stop. The tight stop is suggested because if price does start to breakout it should be accompanied by some follow through and range extension. See the Footprint chart of this example below.

If this deteriorating cumulative delta pattern were to occur on a day that was not tightly range bound, then a breakout would be more likely versus a snap back from the well defined support level.