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Market Profile Analysis of S&P Futures 05.06.19

By May 6, 2019March 2nd, 2021No Comments

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

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Monstrous gap lower on tariff threats from President. Lots to discuss here so on to the market profile……

market profile

Chart by WindoTrader – (702) 800-4628 Speak with Terry about the ShadowTrader Discount

The first order of business on any gap is to always discern whether or not it’s a true gap or not. Today’s gap is a true gap and also the largest that we’ve had in a long time.

The next thing is overnight inventory position, is it net long or short. Today’s is 100% net short. Whenever I think of that, I immediately look at where the current price is in relation to the ONL. The closer, the more bearish. In today’s case, we are nowhere near the ONL which tells me that overnight panic may have taken it a bit too far and that some vicious snap back could be in order. Accent on the word “could”. Remember think in terms of “potential”, not letting yourself ever get locked in to high expectations of just one specific scenario.

Let’s look at a candlestick chart of the futures that shows the Sunday night gap and where we are trading in relation to the lows.

s&p futures chart

/ESM19 – 15 minute (picture taken at 8:26am EST)

The picture above shows very clearly how much we are off of the ONL at 2883.50. I’ve drawn in two trendlines as well from the open which is also the ONH (2917.75). I put them both to illustrate that whether you use the “swing out” method or the “first touch” method of drawing the lines, they are both broken. That is a somewhat less bearish sign (I hesitate to say bullish when futures are down 45) than if we were bumping around at the lows and these lines were intact.

The ONH at 2917.75 is the main upside reference. A market that is going to have a large fade is going to be able to take this level early. If it does, then note that 2931.25 would represent the full gap fill to Friday’s RTH low. As the 2900 level was strong support on Thursday’s low and is not seeming to act as resistance on the way back up through it, my initial thought is that a scenario where buyers see bargains here is definitely possible.

So what so what so what’s the scenario?
1. Early trade doesn’t find any buyers and futures sell off from the open on strongly bearish internals. If internals are bearish, then potential is there for trending day lower. Get short early but have a stop over the high of the day as any reversal could be very violent. Watch ticks constantly in this scenario. They should not get positive until at least 10:15 am EST if trending day is to unfold. If this is the move, note all of the structural nuances that need to be repaired/tested below us in the market profile graphic above. Weak lows, VPOC’s, gap, you name it, it’s there.

2. Opening move is strong and it is apparent that a fade is on. This can happen one of two ways. Either there is an opening drive upwards that trends all morning from the open, or there is minimal selling early that either takes the 2900 just by a little or fails to take it out and reverses back to the high of the day. The second way is easier because you know where to buy on the cross of the HOD. In such a move, target the aforementioned ONH and then possibly the whole gap fill.

3. As with any market prediction, the infamous door number three is always the possibility. This would be a scenario where the market spends the day balancing off the overnight activity and there is neither a breach of the ONL or the ONH and responsive trade is the move. This is obviously the hardest scenario because most traders don’t plan for it, they are locked into either #1 or #2 above. Don’t be that trader.

Currently (8:46 am EST) S&P futures are trading around the 2900 level. I am carrying that forward as I think it will be significant near the open. Those with a longer timeframe outlook may be sellers if they see the market below it early today. That will be a big tell whether or not stronger sellers step in if the market trades below that level today.

Lastly, if you are trading in the day timeframe, remember that targets and stops need to be widened out as volatility will be higher.

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