The Market Profile value areas and ShadowTrader Pivots for /ESH19 and /NQH19 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
Small gap down today after hitting some technical resistance in the NDX and also just shy of a 61.80% fib level in the SPX. This resulted in a small excess (four ticks) high and rather squat profile with a slightly wider TPO(MP) Stands for “Time Price Opportunity”. It is the smallest unit of measure displayed any market profile graphic, denoted by a single letter. Each TPO represents a point of time where the market being charted trades at a specific price. A single TPO is printed on the chart every time that a certain price is touched during any time period. Typically, the periods are set to 30 minutes. Therefore, every different letter that you see in the market profile distribution denotes a different 30 minute period. POCPoint of Control, also known as the "fairest price to do business". It is the price level in the /ES where the greatest amount of volume in the prior RTH session traded. ShadowTrader measures the POC using volume but the traditional way is to mark off the widest point of the day's distribution where the most TPO's printed going across from left to right, indicating that that was the price where the most time was spent. It's important to pay attention to both the volume POC and the TPO POC. than we’ve seen lately. If it was within range I would call it bullish but being that the value was clean and broken away with the day making yet another swing high, I see it as bearish.
Coming into today’s session, the 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 definitely net shortThe concept of being more short than long in an options spread by creating options spreads where you are selling more structures than you are buying or selling wider structures than the ones you are buying. Example would be a broken wing butterfly. This spread is made up of two structures, one long vertical and one short vertical. In the BWB, the short vertical is wider than the long vertical. When you are long this spread, you are said to be in an options position that is "net short"
but not 100% so. Currently we are slated to open below yesterday’s RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. low so 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... More do apply. Let’s have a short refresher:
-Go with all gaps that don’t fill right away.
-Larger gaps (we don’t have that today) may not fill on the first day or may fill only partially.
-If the gap fills (prices touch yesterday’s RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. low) and value cannot get to at least overlapping, then the odds of an afternoon decline increase.
-Larger gaps of $10 or more in the /ES are difficult to trade early as the market is digesting the big gap which often causes futures to go sideways.
While I didn’t draw it in on 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. graphic above, I am noting that the overnight distribution is somewhat 45 degree lineThe 45 degree line is an interesting market profile nuance. It occurs when a 45 degree line can be drawn from the lowest point of a distribution to its widest point (TPO POC). This is a sign that sellers have painted themselves into a corner near the lows of the session and creates potential for an upward reversal in the next session. As less and less time is spent the closer you get to the low of the session, sellers are essentially initiating shorts at less and less value. 45 degree line lows should be assumed to be secure until they are breached. The pattern is generally only noted in RTH sessions but they have shown to be relatively reliable signals in overnight sessions as well. The obvious question is always whether or not the 45 degree line can be drawn in from the high of the day t...-ish. Not perfect but moreso than not. This has me concerned that even though the market is seriously short term overbought and we are at a clear resistance in almost all of the major averages, there still don’t appear to be any stronger sellers out there. In fact, those that did sell in the overnight session seem to be trapped at the lows at least for now. The RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. session is always a completely different beast, but I’ve proven time and time again that these nuances should not be ignored.
The overnight range has dipped into the large balance area below us but has rejected back out. That is also a “tell” of sorts because I would have imagined that there would be more stops just below that level. Again, more clues. If RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. trade retests the 2600 level, then be on the lookout for a larger move lower to rotate to the opposing end of balance if 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. and internalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick. are confirming. Obviously, 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 2596.50 would have to be taken first.
On the upside, we have a poor lowA poor low is one which lacks excess and is the opposite of an excess low. A poor low will have less than two TPO's of excess at the bottom of a daily range with at least 2-3 columns of TPO's lining up to form a flat looking bottom. It indicates that there are short term or weak handed shorts at that low of day area. We know this because every time prices sell off to the low, they get covered quickly, thus forming the poor low.
The poor low has two forward looking indications. The first is that prices should bounce away from the poor low as there are a number of shorts trapped at poor location. The second is that if the next day or in some subsequent session, the poor low is revisited, then the odds are strong that it will break and move lower. This is called repair as it repairs the ... at yesterday’s RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. low which is the 2612.50 level. Mark that off as a key area which could be a high odds short point on any test of it today. In this level of volatility you could probably risk 2 points for a chance to make about 4x that or more. The best scenario would be a breach of that level which goes a couple points inside of yesterday’s range only to reject back out quickly. In such a setup, your short point would be the crossing back below 2600 with a stop above the high.
Just summarize the whole thing for me and tell me what the course of action is:
-There are strong odds that yesterday could have been the end of the current up auction. While the excess wasn’t major, strong technical resistance has been touched in the major averages.
-All that being said, thus far the overnight action doesn’t point to any stronger sellers being present. The key to today and further on will be how the market acts at the key 2600 level. If we breach and find 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. More, then the target is about 40 points lower, if we do not and the market appears to just want to balance here, then it may be telling us that another leg higher is in the cards.
In closing I would remind everyone (and myself) that sometimes turns take a bit of time to develop. I often find that sentiment doesn’t turn on a dime. This is why the “wagon wheel runs the fastest at the bottom of the hill” (James Dalton) because lots of players don’t act until it’s far too late. That means if you are short here, let things develop a bit. Really, only a rally above yesterday’s RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. would change the tone.
This blog is sent out daily via email at 9am EST every day for $20 per month: CLICK HERE
ShadowTrader Weekly Options Advisory
-Real time text messages on all entries, exits, and adjustments
-Private, members-only webinars every Thursday
-Includes 2-3 "What's Peter Thinking" recorded audio updates daily!$49 per month
Have a great day,