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Market Profile Analysis of S&P Futures 03.19.19

Peter Reznicek
Peter Reznicek
Co-founder/Head Trader, Peter's Premarket Perspective, Weekly Options advisory Email Peter Reznicek
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The Market Profile value areas and ShadowTrader Pivots for /ESM19 and /NQM19 Futures are posted free every morning

in the ShadowTrader Swing Trader newsletter.

Strong gap following a strong close yesterday, leaving yet another true gap on the market profile chart. That and much more in today’s edition of the Peter’s Premarket Perspective beginning right now!

market profile
Mouse over Futures/Market Profile tab on site, select WindoTrader market profile software

In this weekend’s video I’m going to be discussing the three main factors that confirm that a market is in a melt up. As always, I give preference to paying customers so I’m going to discuss this with you here in this forum right now.

How to know that you are in a melt up:
1. The market makes higher highs every day and rarely makes lower lows. If it doesn’t make a higher high it still often fails to make a lower low or does so and then rejects price out of a prior day’s range quickly and builds value unchanged.
2. The only declines are liquidation breaks which happen once every few days and are short lived. These breaks strengthen the market by taking potential sellers out and are often the real reason for strength in the near future just after they happen.
3. Pullbacks are often to very mechanical and visual references, often market profile based.

Let’s dissect each of these factors a bit further. Number one is kind of obvious. A market that is melting up, has to be going up and doing so pretty much every day. The key is the higher highs and failure of lower lows which are proof of a one-sided market.

Numbers two and three are more nuanced and probably not known to the majority of traders. I am assuming that most everyone who reads this blog daily is an active trader and thus knows that the market has been having small liquidation breaks for some time now. Yesterday’s 11am EST move was a perfect example. Some Brexit nonsense hit the wires and the market went into LIFO mode. That’s “last in first out” where those with the poorest trade location (and also shortest timeframe outlook) hit the panic button. When they were finished, the market resumed it’s rally, and returned into beast mode (I think the kids call this sicko mode nowadays).

The third factor also happened yesterday. The aforementioned liquidation break stopped dead on the volume POC of the prior day. This is a very nuanced and mechanical, visual trading level that only momentum traders would pay attention to. If you ask me, the majority of them don’t even know they are doing it, it’s just the way prices act when short term money takes prices back down to areas of high volume. In that type of environment it’s the end of the move. When you see these very exacting lows and highs, know that momentum traders are in control. As my mentor in the market profile James Dalton has said many times, traders do what works until it doesn’t. I believe the key word in that phrase is “traders”. A trader is very different from a long term investor.

Ok, cut the crap and just tell me what I need to know in order to make money TODAY:
–We are currently trading on a true gap of +9.25, gap rules are in play.
–There has been a new swing high made in last night’s Globex session at 2853.00. This is your upside reference. Early liquidation breaks usually occur when ONH’s on gap days are not taken out within the first 30 minutes of trade. Frankly, in this market don’t even bother with trying to fade, the odds are not with you.
–Liquidation breaks like yesterday’s often take more than one day for shorts to cover. This is the real reason that the market is gapping this morning. I have observed many times that it often can set the tone for the next day’s strength and even further days after that. I can’t prove this but I believe that shorts tend to all cover way too late.
–The 45 degree line on the overnight distribution is noteworthy. As with all 45 degree lines, expect that its low “should” not be taken out. A breach of that ONL and acceptance within yesterday’s RTH range might change the tone a bit.

The market may be starting to price in some good news (read: ratcheting the dot plot down to 1 or 0 hikes in 2019) that it is expecting tomorrow afternoon at 2pm EST when the FOMC holds their monster truck rally. The chances of a hike tomorrow are slim to none as evidenced HERE. When you click on that link, go out to all the meetings for the rest of the year and see how the Fed Funds futures are already assuming no hikes at all this year. If so, expect the market to follow on higher as monetary policy is the biggest driver, bar none.

Have a great day,
-peter

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