Market Profile Analysis of S&P Futures 01.17.19

Peter Reznicek

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Good Morning

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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 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 inventory is definitely net short but not 100% so. Currently we are slated to open below yesterday’s RTH low so gap rules 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 RTH 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 profile graphic above, I am noting that the overnight distribution is somewhat 45 degree line-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 RTH 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 RTH trade retests the 2600 level, then be on the lookout for a larger move lower to rotate to the opposing end of balance if tempo and internals are confirming. Obviously, the ONL at 2596.50 would have to be taken first.

On the upside, we have a poor low at yesterday’s RTH 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 acceptance, 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 RTH would change the tone.

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Have a great 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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