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Market Profile Analysis of S&P Futures 02.07.19

By February 7, 2019March 2nd, 2021No Comments

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Two day balance with almost identical distributions on the market profile which is leading us in to a large gap down this morning below those two RTH ranges. Let’s have a closer look…

market profile

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Before we get into the usual prognostications, let’s just recap what we know about the last two days, information which needs to be carried forward into today’s session and beyond.

Yesterday’s distribution has a very prominent TPO POC at 2730.75. Prominent POC’s have higher odds of being revisited (think: “high volume node”) than not so prominent ones. Therefore if it’s a fade today, that gives you a nice, faraway target to shoot for.

The two almost identical ranges form a two day balance. Both of the last two RTH sessions could be labeled as what I refer to as tattoo profiles because they are just too perfect and would be the exact shape that you would get if you were to get a market profile tattoo. That’s really here nor there, just know that it’s a sign of a market that is in balance. The settlements are also very close to each other at the 2730 area which is also that POC. Definitely a level to carry forward in your narrative.

This morning we are slated to open on a large gap of double digits, currently minus 16 in the S&P futures and minus 47 in the Nasdaq 100 futures. These are true gaps in both of the futures and as such gap rules are in play. Let’s recap for the new people:
-Go with all gaps that don’t fill right away. That means that if the gap doesn’t start to retrace back towards the prior day’s range quickly, then there is probably a trade in the direction of the gap.
-Larger gaps often won’t fill on the first day or may fill partially. This is important to remember especially if you are of the opinion that all gaps must fill.
-If the gap fills and value cannot get to at least overlapping then the odds of an afternoon selloff increase. We define a gap fill as a touch of the prior day’s high or low, not a move back to the settlement.
-Gaps of $10 or more are often very tricky to trade early and can bring on very choppy and wild price action early as the RTH market digests the overnight move, oftentimes going nowhere fast. And I mean that very literally, as tempo will seem fast, the tape will be moving quickly with a lot of prints, but price will ping-pong in a relatively small range, filling just a little of the gap and the grinding lower in the direction of the gap. Use caution.

Ok, cut to the chase and just tell me what the market is going to do today so I can do it and make some &$!#@ money!
I have no way of knowing that for sure but here are the various scenarios that could play out:
1. The ONL at 2708.75 doesn’t get taken out early and thus the overnight inventory which is 100% net short will start to rebalance quickly. That means you would get long with a stop under the ONL and be targeting 2722.25 which is yesterdays’ RTH low for the gap fill. Keep gap rules #2 and #4 in mind as you attempt this. If you can see that there is acceptance starting to happen within the prior day’s range then aggressive traders can add to positions there, targeting VAL and the POC.
2. New sellers will come into the market early and take out the ONL and continue lower. This is very bearish as it means that the overnight players were right and lower prices are attracting sellers rather than being rejected. If internals are bearish enough, then this is the “go with” trade that has chance of developing into a trending day. Pick your spot and try and hang on as long as possible. If this is to work out, then you should see all of the single prints from the 2/7 session being repaired. That means a move down to at least 2707.00. Keep that 2/4 distribution in mind today since this gap is putting it in play.
3. It’s neither a fade or a go with and prices remain below yesterday’s RTH range but also don’t take out the ONL. Or they do take out the ONL but there aren’t enough new sellers to get prices much lower and prices come back into the overnight range and remain in a small range without enough confidence to rally back into yesterday’s range. This would obviously be the hardest outcome to trade. As today’s gap represents a breakout from a two day balance, I think this outcome has the lowest odds of happening.

Lastly I’ll mention that we need to be cognizant of the VIX dropping below 16 for the last couple of sessions. Just know that if you are a day timeframe player then you live and die by how far things travel. A higher VIX, things travel far, a lower VIX, things travel not so far. If we start to settle into a slow grind higher over a long period of time, this is an important point to remember.

Time regulates all opportunities…