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Good Morning
As I see S&P futures this morning having traded up to 2600.25 in the overnight session and fall back all the way down to VALValue Area Low, I’m reminded that there will be one of three scenarios to play out here very soon.
1. The market will breakout above the 2600 number in an RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. session and keep going.
2. The market will look above and fail by breaking out like in the first scenario but then coming quickly back into range.
3. We will continue to balance in this area and the market will surprise everyone by resolving downwards without making any true excess highA high characterized by a number of single prints that ends a move and is at the top of a daily market profile distribution. The minimum number of TPO's that is necessary to define an excess high is two, however when the excess has only a few TPO's, it is said to be "lack of material excess". An excess high is the opposite of a poor high, which has no single prints and is flat along the high where the TPO's line up next to each other..
Of these, the third scenario is always the hardest to read because it’s hard to trust it when the pattern looks so bullish when you step back from it. Being at this juncture and with four sessions of unchanged value, I just thought it was a good moment to remind ourselves of what could happen here.
Given all that, the references should be pretty obvious; they would be 2600.25 on the upside which is 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. and also the highest 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. of the four days, and on the downside, I would put it at 2560.50 which is 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. from the evening of 1/9 and also the low point of these four sessions. Anything in between is more or less noise and we have as of now not broken out of this range at all.
Confidence and volume remain low out there which is bullish if you see this as a consolidation before moving higher and bearish if you see it as a market that is sputtering and running low on fuel. That dissent in opinion is of course what the market is made of.
The value areaA range where approximately 70% of the prior days volume traded. The range is derived from one standard deviation on either side of the mean which is roughly 70%. See: Market Profile was relatively small yesterday and as such I would not be looking for responsive tradeA responsive trade is a counter-trend trade taken against a specific level. The theory is that when two sided trade is taking place, there will not be enough momentum to push past key levels and buyers or sellers will respond to those areas, essentially pushing prices away from them. This is the opposite of breakout or initiative trade which is more directional in nature and is generally taken in the direction of the prevailing trend. at it’s extremes. Smaller value areas can be toppled easily.
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 basically 100% net long for all intents and purposes. Normally, that would have astute traders looking for a counter move early, but seeing that futures are already down near the low end of the overnight range, that might not be the case this morning.
Whatever your bias or opinion is at this juncture, just keep in mind that we are at one of those spots where large gains can be made if you are willing to stick your neck out at the right time. Balance leads to excess and I feel there’s just too much out there on the horizon news and earnings wise to keep this market caged for much longer.
How to play it (for longer than just day timeframe):
-On a move above 2600 that has legs to go further (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., internalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick., tone), the SPX cash will target the 2627 area which I discussed in last weekend’s video.
-On a look above and fail move, initiate a short right when the S&P futures move back under 2600 with a stop above whatever was the high that failed.
-On a “fall out of bed” scenario (3), initiate a short below the balance low with a stop above the balance high.
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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!
Learn MoreHave a nice day,
-peter
