The Market Profile value areas and ShadowTrader Pivots for /ESH19 and /NQH19 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
Good Morning
In yesterday’s post I laid out three scenarios for the breakout of balance. We ended up getting two of them in one session as there was a 10am look above and fail followed by a look above and go soon after. While we did close about 10 handles above the breakout level, buying action was pretty lackluster and internalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick. were weak. I am a big believer that this sort of information should be carried forward in the same way that one would market profileA way of reading the market that recognizes either time spent or volume traded at a particular price level. A market profile can be either made up of “TPO’s” (time price opportunities), or volume. TPO’s measure how much time was spent at a particular price, while volume-based market profiles measure how much volume traded at a particular price. Generally, market profile is used in the trading of futures, especially the /ES. ShadowTrader utilizes volume based profiles. patterns.
Coming into today’s session, S&P futures are gapping up +7.75 currently and as of now are trading just inside of yesterday’s RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. range. Hence gap rulesGuidelines to follow on any day that the futures open outside of the prior day's RTH range. Only opening outside of range is a true gap and puts gap rules in play. 1. Go with all gaps that don't fill right away. This means that if early trade doesn't start to correct the imbalance, then prices will probably move in the direction of the gap. 2. Larger gaps can often fail to fill on the first day or may fill only partially. 3. If the gap fills (meaning the prior day's RTH high is touched on a gap up or the prior day's RTH low is touched on a gap down) and value cannot get to at least overlapping, then the odds of a late day rally (on a gap up) or late day selloff (on a gap down) increase. 4. Gaps of larger than $20 in the /ES are difficult to trade and should be avoided early in the day as t... do not apply.
Value was a clean break from the prior day’s value but not from the four day balance area as a good portion of yesterday’s value remained within range. Much like the current goings on in Britain, I continue to give this market a “vote of no confidence”.
I have purposely taken the market profileA way of reading the market that recognizes either time spent or volume traded at a particular price level. A market profile can be either made up of “TPO’s” (time price opportunities), or volume. TPO’s measure how much time was spent at a particular price, while volume-based market profiles measure how much volume traded at a particular price. Generally, market profile is used in the trading of futures, especially the /ES. ShadowTrader utilizes volume based profiles. snapshot relatively wide so that the entire four day balance range can be shown. Note that it is about 38 points from low to high. Whenever we have a clear horizontally bracketed range like that, the expected move outside of that range should be equal to the range itself. This means that the target for the SPX should be roughly 2638. The 61.80% Fibonacci retracement from the 12/3 high to the 12/26 low is at 2627 and the declining 50 ma is currently at 2631. So there is a confluence of resistance all coming together just above us as I’ve been mentioning in recent ShadowTrader Video Weeklies.
What should we expect today?
-That is hard to say but it should be obvious what the bulls need to happen in order to keep this rally going and that is to stay well above the balance high of 2600. A lot of technical work was done to muscle over this level and coming back below it would be bearish and possibly set up the move to the opposing end of balance.
-The ONHOvernight High. A term mostly used in describing the futures market which has an overnight session and trades almost around the clock. To be precise, in the /ES this is the high made between 4:30pm EST and 9:30am EST the next day. is currently at 2617.00 so that is the upside reference that needs to be taken in order for prices to move higher.
-Overnight inventory is about 98% net long so keep that in mind as the market will favor an early liquidation breakA sudden selloff in the market that has the following characteristics:
-Often happens very early or late in the day
-Comes out of a pattern that doesn’t suggest such a break should occur
-Has no definitive catalyst or news that drives it
-Has much faster tempo than the one that has already been established
-Is often short-lived and will retrace 100% soon after or the next day
A liquidation break happens when short term traders get overly long and all panic out at once. It is different from a stronger, more lasting correction in that there are usually only very short timeframe players involved, usually those who got most recently long at poor location. to correct that imbalance. A good possible trade would be to buy any early pullback with the intention that futures will not come down to 2600 and should continue higher as yesterday was day one of a breakout. Any failure of the 2600 level would be bearish.
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Have a nice day,
-peter
