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Double digit gap down back into range which is not that surprising given the poor structure and internalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick. on the way up. Let’s see where this takes us today….
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| 2873.00 | VALValue Area Low and top of single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points. |
|---|---|
| 2859.25 | RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. low |
| 2853.00 | ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. |
At -20.25 currently the gap is a true gapThere is a lot of discussion as to what constitutes a gap. Is it measured to the prior day's close, or to the prior day's high or low. Here at ShadowTrader we believe that it is always and only to a prior day's high or low, thus creating a true gap or space on the chart between one day and the next. Thus a true gap is one that has price opening completely outside of the prior day's range (either above the high or below the low) and anything else is just a gap that has far less import. As a gap is a "reordering of thinking", only a true gap really changes the tone and creates opportunity to trade early rather than later. and thus 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... are in play as long as we open below the RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. low at 2859.25. Note that this is a key level in the section above.
Overnight inventoryA way of measuring overnight activity in the futures market by just noting how much of the overnight activity happens to fall above the prior day's settlement value (4:15pm EST close) and how much falls below. If more activity is above the settlement, then overnight inventory is said to be net long. If more is below, then it is said to be net short. If all of the overnight activity is above the settlement, then it is said to be 100% net long. If all of the activity is below the settlement then it is said to be 100% net short. The overnight inventory situation matters most and has the most impact on early trade when it is skewed 100% in either direction because when the imbalance is very large like that then the odds of an early correction increase greatly. This is due to the fact that most... is not 100% short but enough to take notice. Your focus early should be whether or not and how much this skew gets rebalanced.
Volume has been low over the last two sessions, internalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick. have not kept up with price and structure has been poor. The single print sections from 5/15 are still open for repairA market profile term for "fixing" profile distributions that are missing parts that would make them complete or more symmetrical. This concept is most often applied to poor highs and poor lows which are profile distributions that lack excess on their endpoints and have two or more TPO's across creating tops or bottoms that look flat. Once a new session trades through these levels then it is as though the current activity was "pasted onto" the prior activity to complete the picture. It should be noted that repair can only occur in an RTH session. Overnight activity that trades through areas of poor RTH structure does not repair that structure. so the potential to trade through is there.
On any early rally (or one that lasts longer), the area to watch will be VALValue Area Low at 2873.00. Note that this is where the single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points. that formed yesterday’s “p” distribution end. Look closely at the overnight distribution and see that there are also overnight single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points. starting there on the way up, with a much heavier distribution of overnight trade just below. This an obvious turning point currently. A rally to there can be sold at that level with a tight stop which would give excellent risk reward. A rally that fails somewhere inside of single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points. can also be sold. The tone would change with acceptanceWhen the market profile begins to build out or develop in a certain area, it is said that the market is accepting those prices. This can be measured either in time spent or amount of volume that is transacted. It is generally understood that ShadowTrader defines acceptance as more of a time dynamic than a volume one. A good rule of thumb is to look for at least two TPO periods to print in the accepted area. The acceptance confirms that a significant amount of market participants are transacting at those levels. Acceptance is the opposite of rejection. above that level.
Pursuant to everything in the previous paragraph, how the market acts around the ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. will decide quickly if there is to be retracement into yesterday’s range or not. Aggressive and advanced traders can sell quickly on any hint of failure or going in and back out. Odds, however, generally favor some retracement and then failure if overnight sellers were to be proven right.
Downside continuation straight from the open will be the more difficult play as always. Keep in mind that the ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day. at 2853.00 needs to be taken out for anything more meaningful to develop and start to push towards repairing some of the structure of 5/15. If such a move, target 2849.00 first as it is the first set of single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points. in that distribution.
Scenarios
- InternalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick./volume/structure have not been strong on this short covering rally. The potential for lower is there. Look for some retracement into yesterday’s range up into the single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points.. Any failure is a short setup. Keep in mind that single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points. offer little resistance and the market could move all the way to VALValue Area Low before failing. The amount of retracement back up into yesterday’s range will tell you everything you need to know about the strength or weakness of the market.
- There is almost immediate downside continuation from the open. This is a difficult trade to pull off as there will more than likely be violent zig zags as new money sellers are already “piling on” to overnight sellers. If so, target the aforementioned 2849.00 area.
- Everything that I think should happen is wrong and the opening drive is strong and doesn’t stop at VALValue Area Low. In such a scenario, only look for long trades once you are confident that there is acceptanceWhen the market profile begins to build out or develop in a certain area, it is said that the market is accepting those prices. This can be measured either in time spent or amount of volume that is transacted. It is generally understood that ShadowTrader defines acceptance as more of a time dynamic than a volume one. A good rule of thumb is to look for at least two TPO periods to print in the accepted area. The acceptance confirms that a significant amount of market participants are transacting at those levels. Acceptance is the opposite of rejection. above VALValue Area Low and internalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick., tempoProbably one of the most important and yet overlooked concepts in the market. The tempo is simply the ‘speed’ at which the market is moving. This is also referred to as confidence. Slow tempo is typical of range bound days where there is lots of responsive activity. Fast tempo occurs when there is initiating activity, and market is breaking out of a range. This is not to say that the market can’t have fast tempo on days when it is rotational or moving between the extremes of a value area. It certainly can. Effective intraday futures trading involves gauging the tempo and knowing that opportunities are fewer and smaller when the tempo is slow. See S.O.H., etc are confirming.
Have a great day,
Peter
ShadowTrader Cumulative Tick
Beef up your "quad" and by putting your tickThe net cumulative tick reading on the NYSE or Nasdaq Composite. This is measured by the number of stocks ticking up minus the number of stocks ticking down at any given moment. It is the least used of the internal indicators but is discussed from time to time. Generally the tick readings are only helpful when they are at extremes such as +1000 on the NYSE to indicate that program trading is ensuing. indicator on steroids!
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