Market Profile Analysis of S&P Futures 03.27.19

Peter Reznicek

The Market Profile value areas and ShadowTrader Pivots for /ESM19 and /NQM19 Futures are posted free every morning

in the ShadowTrader Swing Trader newsletter.

An all over the place day yesterday with gap and hold, then gap and fill, then finding some acceptance within Tuesday’s range, all while leaving a poor high and an excess low on the market profile. Let’s have a closer look….

market profile
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Futures currently trading flat and very close to halfback. Overnight inventory is also very balanced. Thus there is little M.G.I. to go on right now as to how prices will move from the open because the market is in balance. The entire overnight range is within the RTH range as well. I truly believe that if you start every day with just what we just determined in those first four sentences and nothing else, you will understand the market better and trade it more successfully regardless of your timeframe. Get into the habit. Identify overnight inventory and where the open will be in relation to the prior day’s range first every morning.

Once you’ve done that, then move on to identifying any market profile dynamics and nuances that were part of the prior day’s distribution or any recent prior day’s before as well. You do this because you want to know what is potentially “up ahead” if the market travels in one direction or the other.

That being said, yesterday’s high was poor. Since the market has already completed the move away from the poor high (both in yesterday’s RTH session and overnight), I would expect that there are increased odds of repair today. That means that 2835.00 and higher could be in play.

Yesterday’s low was weak. Not poor, weak. It is weak because it is just a couple ticks above the Monday settlement and VAH. If prices were to move to that extreme, I would be on the lookout for a further break there.

In both of the past two RTH sessions, the volume POC either migrated or held at the upper end of the range. I carry this forward as bullish.

Yesterday’s gap fill went beyond the RTH high and found acceptance within the prior day’s range before rallying back out late in the session. This is less bullish than if the gap had just filled and reversed.

Nasdaq futures are much stronger than S&P futures this morning. When I see that divergence before the bell, coupled with the overnight range within the RTH range and mostly within the VA, I’m readying myself for responsive trade if I see the right tempo, internals, and lack of confidence. That means that when I look at any stock or futures to daytrade, I am going to draw horizontal and diagonal lines all over it and look to put limit orders up against those lines and play for smaller moves as I am confident that there will not be trending activity. If you can identify the day type early you are miles ahead of the competition.

Now, pursuant to the above paragraph, there might not be responsive trade. The market might just surprise and have a trending day. That’s fine, but I know that in order for that to happen, a lot of planets need to line up perfectly. If they do, then I am ready for that as well. I know that in order to run all the way to one side of yesterday’s RTH range and higher or lower, breadth has to read a certain way, the a/d lines have to read a certain way, and the NYSE tick has to be skewed firmly above or below zero with little exception.

Again, if you can identify what is actually going on (not what you want to happen because of your current portfolio), then you are almost guaranteed to succeed. For some that will mean making money daytrading and knowing when to stay out of certain plays and when to step on the gas and maximize gains because the environment is right. For others it will mean highly improved entry prices on longer term trades that will add up to huge differences in p&l at the end of the year. Whatever your timeframe, understanding market profile is the key to better trading.

Have a wonderful 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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