Market Profile Analysis of S&P Futures 01.15.19

Peter Reznicek

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Good Morning

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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 VAL, 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 RTH 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 high.

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 ONL and also the highest tick of the four days, and on the downside, I would put it at 2560.50 which is the ONL 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 area was relatively small yesterday and as such I would not be looking for responsive trade at it’s extremes. Smaller value areas can be toppled easily.

Overnight inventory 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 (tempo, internals, 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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Have a nice day,
-peter

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Peter Reznicek

Peter Reznicek is the founder of ShadowTrader.net and writer of Peter's Premarket Perspective, a morning market profile blog to help people plan their trading day and organize their thoughts before the market opens. He can be reached at asktheshadow@shadowtrader.net.

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