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Market Profile Analysis of S&P Futures 05.24.19

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.

The “h” pattern which stands for “hell for shorts” reared it’s head again yesterday on the daily SPX chart. causing a sharp short covering rally from a poor-ish low that closed right at halfback. Let’s see how that played out in the market profile….

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  Key Levels for Today
2832.25 RTH high and 5/20 RTH low
2839.50 ONH
2825.00 VAH

 

Decent sized gap this morning which I believe is just follow through off of oversold “h” pattern. As of right now, the gap is not true as we are trading just inside of yesterday’s RTH high which is a key level. Note that it was listed as a key level yesterday and yesterday’s RTH high was right to it.

Overnight inventory is 100% net long. Beyond that, the ONH is also quite a bit higher than current price as well. This tells me that the short covering may have start to run its course and be dying out. Regardless, the signposts are the same for early trade. The RTH high is the main focus just after the bell. Do we come back into range and start to drive lower, or reject out quickly as more shorts start to cover?

2800 in the SPX cash is still in play. It is noteworthy that yesterday’s low in that index was 2805.00. This, coupled with the pattern is what brought in the short covering. Note also that there was lack of material excess on yesterday’s low with only two ticks there.

Yesterday’s price action has left a large gap on the upside on the charts. Remember that any overnight activity does not contribute to filling this gap at all. A gap is only filled with day timeframe prices. I like how WindoTrader has added that feature that puts red or green arrows between the highs and lows to make the gaps stand out more. Kudos to Terry and Eric over there for that!

This upside gap is significantly large and should definitely be carried forward. The fact that overnight activity did not fill it fully is also a nuance to add to teh narrative. I think a stronger market should have actually been higher overnight as there is little resistance in that gap. Staying completely within yesterday’s RTH range and not marking any prices inside of that gap today would be very bearish to me. A bullish scenario would be to reject immediately at yesterday’s RTH high and move definitively towards the ONH, break it and target the full gap fill which would be to 2852.00.

This is the last trading day before a market holiday. As such, volumes may taper in the afternoon which can lead to erratic action.

  Scenarios

  • Double digit gap on 100% net long o/n inventory is always the potential for a fade. That being said, I don’t discount the fact that we are already well off of the ONH and that we are trading just inside of the prior day’s high which could be supportive. As the gap is not true, that also lessens its import and also the import of the inventory position.
  • I’m going to focus my attention on the 2832.25 level and what price does in regard to it. Above more bullish stance, below more bearish stance. If the move is up, target at least the ONH, if the move is down, target at least the VAH.
  • For what it’s worth, I don’t believe at all in the theory that before a holiday “people don’t want to go home long”. I just don’t think that markets work that way. Volume might be low and things could get choppy, but people don’t sell just because a weekend (be it long or regular) is coming.

 

Have a great day,
Peter

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