Market Profile Analysis of S&P Futures 05.30.19

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.

Up ten in S&P futures this morning but not showing a true gap on the market profile as of yet as we are currently trading just inside of the RTH range. There’s a lot of signposts above us so let’s look at all of them so that we can be well prepared for whatever is in store today….

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  Key Levels for Today
2793.00 ONH/RTH/Bottom of Gap
2800.50 Top of Gap/Start of Spike
2779.50 halfback/settlement

 

The ongoing narrative that you update before the bell rings is always the most important thing. It has been proven that human beings will place far too more emphasis on more recent events than on those that are further in the past. This dynamic is especially prevalent in trading and is often our downfall. To that end, I believe this is a good morning to look past yesterday’s action and focus on the days prior because there are a number of significant elements in the recent distributions.

We now have two unfilled gaps above us. These are important and should be thought of as if there were many VPOC’s above us stacking. Markets don’t like gaps and most gaps eventually fill. Carry them forward.

The poor structure of 5/28 is also to be carried forward as it culminated in a spike. As of now (according to spike rules), the lower prices of the spike have not only been accepted but never tested at all. While this is definitely bearish, I like to take the other side of things so that I’m not surprised when prices rip the other way. The other side of the argument is simply that this structure needs to be repaired and more importantly that those traders sold away from value, then followed up with 100% net short overnight inventory, and promptly left another downside gap on top of that. So if you think in those terms, you can see that the potential for a rally is there. Remember that prices rise simply because there are more buyers than sellers. There is a lot of “old business” (shorts that need to cover) above us.

If none of the nuances above come into play today, then that’s a more bearish sign and you should continue to hold on to shorts and favor the downside.

Overnight inventory is very net long (not 100%) but this has far less import when not trading on a true gap.

  Scenarios

  • The potential for a rally is there given my comments above. Use the signpost framework that I discussed in yesterday’s report. The MP graphic above has the gaps and spike clearly marked on it. Judge any rally by how many signposts are crossed.
  • A cross up into the bottom of the lower gap puts the 2800 top of gap and key psychological level into play as a target. I would expect that any test of that significant figure would be rejected. If internals are confirming then this could setup a good counter-trend short against that number. A move up through it puts the spike into play. As always think in terms of what should happen once a level is breached.
  • Remaining within yesterday’s RTH range maintains the bearish status quo and may signal day timeframe balance and responsive trade.

 

Have a wonderful and profitable 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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