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What is Market Profile
Developed by J. Peter Steidlmayer in 1980 and refined by James Dalton through the groundbreaking text “Mind Over Markets”, market profile is simply a way of organizing market generated information by incorporating the “3rd element” of time in addition to price and volume. Normal, two-dimensional charts are just that, two dimensional. They only show you how high or low price has gone and how much volume traded during each bar. Market profile tells us this as well but also keeps track of how much time was spent at each specific price level, thereby giving us a much better indication of where traders deem prices to be fair versus unfair. This creates enormous opportunities for the educated trader who knows how to read market profile.
Traders Who Don’t Start Their Day With Premarket Perspective Vs Traders Who Do
- Don’t understand the difference between price and value, therefore make decisions out of fear because of fast moving prices
- End up making trading decisions solely on guesswork and feel a.k.a GAMBLING, a surefire way to lose all your money
- Are constantly confused and always asking “what is this market doing”
- Make foolish decisions by starting to trade right after the bell everyday
- Run after tiny profits while suffering large losses that wipe out many days of gains
- Stay on the top of their game by being aware of the difference between price vs value
- Are prepared to make money with daily insights and all the key levels marked off on their charts for a successful day
- Know when to go for bigger gains rather than scalp for small moves because the odds favor it
- Are skilled at reading overnight action & will recognize opportunity when everyone else is anxious
- Trade less often and with more precision and with a framework that gets them the gains they desire
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Peter’s Premarket Perspective – Friday, January 10, 2020
The Market Profile value areas and ShadowTrader Pivots for /ESH20 and /NQH20 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
Gap higher once again as we remain in this melt-up phase coming into the Q4 earnings period. /ES +4.00 currently on a true gap higher, putting gap rules into play. We are quite far off of the ONH currently which is one of the first things I noted when looking at the overnight distribution.
Yesterday’s fade to close the gap as expect with minimal motion back within the prior day’s range. I expect the same today. Short term players can, of course play for the gap fill given that overnight inventory is 100% net long. The usual trigger by failing to take out the ONH early would be your M.O., targeting yesterday’s RTH high.
Being once again in all time high territory leaves me with less to say. I continue to be biased long and see no signs of any sellers stronger than the occasional liquidation break. Internals have not been as bullish as I would like on these advances and I am continuing to carry that forward. Additionally, the structure on the last two RTH sessions has not been that supportive of further advance. As I said in yesterday’s report, these are data points against a currently very bullish context so keep things in perspective.
Scenarios
- Being that we are well off of the ONH currently (that can change by the time you read this!), the potential to fill the remaining part of the gap is there. That trade would probably develop very early if at all. If that’s the play, monitor for continuation into the RTH range and target the POC for further gains.
- A market that fades only slightly and wants to at least hold the overnight range if not go even higher, will have a NYSE tick opening strong that won’t breach the zero line for most of the morning session. If such a gap and go scenario should develop, longs targeting the ONH can be taken with stops under LOD or just inside of the RTH high.
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ST discount - Promo Code: SHADOWPeter’s Premarket Perspective – Thursday, January 9, 2020
The Market Profile value areas and ShadowTrader Pivots for /ESH20 and /NQH20 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
Nice true gap higher after yesterday’s Middle East Debacle to De-escalation Balance Breakout (MEDDBB). Gap rules are in play and overnight inventory is close enough to 100% net long to take note of.
The prior all time high which was in an overnight session was taken out again yesterday proving that we are still firmly in the “do what works while it does” phase rather than the “until it doesn’t”.
Structure was just so-so and so were internals. I hope you all notice that while I carry that data forward, I don’t make it my main focus which is to pay attention to context, seasonality, and overall tone. That’s important. Where are we in relation to recent ranges? What time of year is it? Are liquidation breaks swift and short and being bought back up very quickly thereafter? Those are what should be dominating your narrative currently. When you are in a trend, those are what matter. When you are more rangebound, that’s when the market profile nuances shine more.
As the /ES is trading at a new all time high in the overnight session, there is little to report. Halfback is listed purposely as a Key Level since yesterday’s RTH distribution was nicely elongated. A stronger market should not breach halfback, especially on a breakout day. That being said, I would like to see value at least overlapping to up today to confirm acceptance of these higher prices.
Scenarios
- As the gap is double digits, pay close attention to gap rules #2 and #4. The potential for a fade is there as it always is on any true gap but that doesn’t mean that context will come in to support it. Again, #2 and #4 tell you everything you should be thinking when the bell rings.
- The high was poor yesterday but the close was relatively weak and prices went a tad lower in the overnight session. That tells me that the initial reaction to the poor high which is to back away may already be done and now the trend can resume. For that reason, I think the potential for prices to be supported early is stronger than the potential for a fade and the long bias will probably be the easier trade. That can develop in a number of ways from either a trigger over the ONH with stop under LOD, or by buying any small fade that either comes in partially or fills the gap fully and is a buy at the RTH High. In either case, monitor for continuation higher as there is no upside reference.
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Peter’s Premarket Perspective – Wednesday, January 8, 2020
The Market Profile value areas and ShadowTrader Pivots for /ESH20 and /NQH20 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
Huge range in the overnight session on further news out of the Middle East. Recovery was swift off of the lows and we are now trading on a decent sized gap higher. Currently, I’m seeing indications that we are inside of yesterday’s range so the gap is not true and gap rules are not in play for now.
You’re probably wondering with all the fireworks last night how can there be only two Key Levels listed above? I chose this purposely to get your attention away from the overnight session and onto the RTH sessions which are all that really matter. Yesterday’s distribution was small and the value area was very compacted. This tighter consolidation is within a much larger balance area. As such, I believe that the endpoints of yesterday’s range are the main action points for today’s trade. I’m only concerned with the overnight range in the context that I see it as a very large liquidation break and know that liquidation breaks strengthen a market. See it as the fact that it happened and recovered is bullish going forward.
The main question today to be asking is whether or not this larger balance area is ready to resolve higher or not. While it would be convenient to assume that over yesterday’s high it is and under it is not, it’s simply not that clear because of yesterday’s range being tucked into a larger balance. If you recall, in yesterday’s Premarket Perspective I laid out the case that the odds favored a tight market. This was confirmed by what I saw early on in market internals, tempo, and lack of follow through to early moves. In today’s session, I will simply be monitoring the same parameters to see if the market presents something different. If so, I want to see acceptance outside of yesterday’s range to the upside for long trades and acceptance below for possible short trades.
Though it’s not listed above, you should continue to carry forward the fact that for like the umpteenth time there is still an all time high made in an overnight session up at 3263.50. Odds don’t favor it holding. As this has worked many times in the past, we should continue to expect it be true again unless OTF sellers arrive in the market.
Lastly, with the rather squat profile distribution yesterday, it left a prominent TPO POC at its middle. That level is at 3239.25. Watch it today as a signpost for a market that is not ready to break out of balance just yet. More prominent POC’s (read: more value) act as magnets and not only pull prices to them but tend to hold prices there as the price is obviously deemed “fair” by a disproportionate number of market participants. A market that wants to remain in balance today will probably trade through and around the level multiple times.
Scenarios
- As of now we are trading dead in the middle of a small balancing day. As such, use the extremes of that session as potential triggers for long or short bias in today’s session. Overall, I believe that there should be at least some “shock and awe” at the open from those who may still be short in from the overnight session which would support prices today. If it doesn’t, then I’m going to monitor selling very carefully to see if it’s real or that the market is simply still balancing.
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$20 Buy NowPeter’s Premarket Perspective – Tuesday, January 7, 2020
The Market Profile value areas and ShadowTrader Pivots for /ESH20 and /NQH20 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
| 3249.50 | RTH High |
|---|---|
| 3234.00 | POC |
| 3228.25 | Start of Single Prints |
| 3227.50 | End of Single Prints |
Divergence is the name of the game this morning as the /NQ’s are solidly green while the /ES is just slightly underwater. That divergence is important to carry forward into the RTH session because it usually sets the tone for a more choppy (read: responsive trade so go for smaller moves against inflection points) day that can be rangebound.
Yesterday’s all out reversal from lows that drove through the single print area like a hot knife through butter (Earth Balance vegan only) is bullish in the short term in that it seems to have negated any news driven weakness of late. One of the most important things that you can carry forward is the fact that liquidation breaks or whatever variety strengthen rather than weaken a market because they take potential sellers out. It’s common for these moves to be taken out quickly and then have the market continue much higher later.
Yesterday’s RTH distribution didn’t have the greatest structure to it, leaving a short trunk of single prints in the middle of the session which I’ve identified in the Key Levels above. The endpoints of single prints are always potential supports or resistances.
The Key Levels listed are few this morning because as always I do my best to only put forth what I feel is relevant for the coming session. Anyone could list them all but that honestly doesn’t provide any edge. So for instance, I know that the ONH is higher than the RTH but I believe that has little import. The huge divergence between the two futures right now is going to be more of a driver of action and tone today than any minor nuances that I could point out. Keep focused on the bigger picture that way and you’ll always be fine. Speaking of, the current activity (Iraq/Iran news notwithstanding) is more than likely balancing off the recent rally that started on 12/3/19. Keep that in mind as well.
Odds favor more responsive trade today given the divergence. Use FAANG’s as another internal today if you are looking at /ES.
Lastly, I want to point something out since I know that we have a lot of newer traders joining us for this free week. Take a close look at the market profile picture above and note where the RTH high of yesterday was. Just two ticks above the POC (which was virgin until yesterday) from 1/2/20. These levels are real and they work. Very few people see them which is what makes them even more powerful for those in the know. Markets move from excess to balance and back to excess, pulling away from low volume areas to higher volume areas along the way. If you can continually just trade from that framework as your starting point, you’ll be in great shape.
Scenarios
- My focus today will be on yesterday’s range and where value develops. As there was range expansion yesterday, ideally bullish traders should want to see value developing in the upper part of yesterday’s distribution. The fact that the overnight session is very balanced and contained almost fully in the upper part of the distribution is a short term bullish sign and indicative of further balance in this area.
- Anything more meaningful (read: directional) would only develop with a drive above the RTH high or a move below that single print section in the Key Levels above. I believe the reversal that characterized yesterday has sellers (shorts) a bit on edge coming into today’s session which may temper downside moves.
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Learn MorePeter’s Premarket Perspective – Monday, January 6, 2020
The Market Profile value areas and ShadowTrader Pivots for /ESH20 and /NQH20 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
| 3221.00 | RTH Low / Start of Single Prints |
|---|---|
| 3229.75 | End of Single Prints |
| 3208.75 | ONL (poor) |
| 3205.75 | VPOC #11 (12/19) |
Solid gap lower this morning to just outside of Friday’s RTH range which puts gap rules into play. Overnight inventory is 100% net short.
The overnight range is quite large coming into today’s session which makes the premarket read a bit more cloudy as there was plenty of activity inside of Friday’s range and also outside of it. As with any larger true gap, your first focus should be on the preceding session’s RTH Low. That is the first line in the sand that will either bring in larger (read: playable to upside with a buy) short covering or not. Remaining below the RTH Low is more bearish, finding acceptance back in range is less so. This particular open has an extra twist to it in that it is against the context of a long line of single prints from Friday. The low of those prints (RTH Low) is also Friday’s open. Movement into these prints should offer little resistance and traders should target the End of the Single Prints if upside continuation is in the cards. As long as we open outside of Friday’s range, gap rules are in play.
On the downside we have a reference point in the ONL which was also poor. I always say the same thing about overnight patterns which is that they have far less predictive power than RTH ones but at the same time should not be ignored. For those of you new to this line of thinking, the poor low is an indication that sellers are nervous at that level and have not been able to find more players to further their campaign lower at that level. It’s almost always a sign of rejection of a certain price and the short term bias is in the other direction. Some of that has already happened in the overnight session with futures bouncing well away from that poor low and settling back into the middle of the overnight range currently.
Note that there are two overnight lows (between 1/2 and 1/3 and last night) that are at almost the same level. I would watch this more as an “area” today rather than a specific level for that reason. Acceptance below this area would fill the first gap below us (#6) and then target the VPOC #11 at 3205.75.
Scenarios
- My first focus today will be whether or not there will be any playable fade off of the gap down to take prices to the RTH Low as a gap fill or not. If so, the play is to monitor for continuation into the single prints, eventually targeting the End of the Single Prints and potentially higher. This will be not be an easy read today because we are so far off of the ONL already and slated to open at about the midpoint of an expanded overnight range.
- A weaker market (read: shortable) today will be characterized by either a failure to fill the gap or a fill that rejects quickly at the RTH Low and comes back down to the open. In such a scenario, the RTH Low can be a short entry point with stop over HOD, or the subsequent retest of the open can be an your entry point with a stop over the RTH Low.
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Learn MorePeter’s Premarket Perspective – Friday, December 13, 2019
The Market Profile value areas and ShadowTrader Pivots for /ESH20 and /NQH20 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
Pursuant to our discussion in yesterday’s private webinar, I said I would post all the VPOC’s and gaps for thew new /ESH20 contract. Note that as time goes backwards some of the data is spotty because this contract didn’t trade very much way back then. Thus for some of the older VPOC’s I may have chosen TPO vs volume because it simply wasn’t clear where the volume POC was. If we go down there, then it won’t matter because the market will be drilling through all those levels like they were me tearing into some hummus after an intermittent fast.
I’ll also mention that it occurred to me this morning when marking off the levels that they should be numbered in a declining rather than ascending fashion. This way we know how many VPOC’s there are immediately just from looking at the most recent level and when a new one is added, we simply increase the number by one at a level that is very close to us currently. Withouth further ado, here’s the list:
Gap: 3219.25 – 3212.25
VPOC 11 12/19 – 3205.75
Gap: 3191.75 – 3186.75
VPOC 10 12/13 – 3173.25
Gap: 3128.00 – 3121.75
VPOC 9 12/5 – 3118.00
VPOC 8 12/3 – 3080.00
VPOC 7 11/1 – 3061.50
Gap: 3052.25 – 3045.75
VPOC 6 10/31 – 3029.25
VPOC 5 10/23 – 2999.25
Gap: 2977.50 – 2973.00
VPOC 4 10/14 – 2969.00
Gap: 2963.00 – 2948.50
VPOC 3 10/10 – 2933.00
VPOC 2 10/9 – 2918.75
VPOC 1 10/3 – 2888.00
Yesterday was the breakout that took out the prior all time high and the overnight high, now setting another record in tonight’s overnight session. Overnight inventory is very close to 100% net long. As of this writing, there is no a small true gap as we are trading just outside of yesterday’s RTH range. Gap rules are technically in play but the gap is tiny.
We are now moving definitively into the latter part of December which is a very seasonally bullish period, coupled with the fact that the trade war situation is on hold for now. Think in terms of the bigger picture and focus more on that than anything else. That last statement should jump out at you because this is a report about nuances that matter most during the day timeframe. And I’m actually telling you now to switch your focus away from that. Of course you should continue to use the various signposts of the market profile to hone entries during each trading session, but mainly I’m telling you that it’s a bull market and there is little impetus for investors to be selling stocks before the end of year. That’s the framework. Work from that starting point.
The all time high has again been made in an overnight session. Note that every time I’ve told you that this would not be the end of the auction, it has been correct. We should simply keep thinking that until it’s no longer true. That one point alone has been a good starting point from which to base an ongoing bullish thesis on and keep longer term traders in positions through pullbacks. As of now I expect last night’s overnight high to be no different. There is also minimal excess on yesterday’s RTH high.
Scenarios
- Using my comments above as the framework, I expect pullbacks to be buyable in today’s session. Overnight low already tested the POC so there is potential that it doesn’t get tested in today’s trade. As yesterday was an expansion of range and value I will pay close attention today to where value is developing during the session.
- If anything meaningful was to develop to the downside, it would have to start with some acceptance below VAL which is also yesterday’s halfback.
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Learn MorePeter’s Premarket Perspective – Friday, November 22, 2019
The Market Profile value areas and ShadowTrader Pivots for /ESZ19 and /NQZ19 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
| 3120.50 | VPOC (Prominent) |
|---|---|
| 3115.50 | VPOC |
| 3118.50 | Poor / Weak High | 3109.75 | RTH High |
Small gap higher this morning just a hair outside of yesterday’s range and thus just barely qualifying as a true gap. This is an excellent time to continue the narrative and note that the recent delay in the trade talks has not taken the market definitively lower at all outside of a liquidation break that was bought back up quickly. Value has been overlapping to down on this two day pullback from the all time high. The all time futures high remains as an overnight high.
In yesterday’s private webinar I said I would list the VPOC’s and gaps below us as they will come into play at some point.
Above Current Price
VPOC 1 3115.50
VPOC 2 3120.50
Below Current Price
VPOC 1 (TPO) 3071.50
VPOC 2 3060.75
Top of Gap 3050.25
Bottom of Gap 3044.50
VPOC 3 3029.00
VPOC 4 2996.25
Top of Gap 2975.50
Bottom of Gap 2972.50
VPOC 5 (Prominent) 2967.75
Top of Gap 2961.50
Bottom of Gap 2948.25
VPOC 6 2936.25
VPOC 7 2900.00
VPOC 8 2889.25
Whew! That’s a lot of structure to repair and a long way to fall if it does. Carry it all forward and when real sellers appear you’ll have a smorgasbord of targets to hold your shorts into!
Overnight inventory is net long but not 100% so. Although we put far less import on the shape and pattern of overnight activity I am noting that it appears very balance with a very wide TPO POC right where we are trading currently which is in the 3107 area. I’ll carry that forward into today’s trade and assume that there is chance that this level could be “sticky”.
Scenarios
- With a two day pullback from the high on overlapping value with yesterday making a higher low, there is potential to favor the upside in today’s session. I will watch to see if we can get out of yesterday’s range and hold and then target the three Key Levels above us as listed above.
- Being pulled back towards the volume POC and having difficulty holding outside of range would indicate more of a continued balance scenario and precipitate more responsive trades.
- The recent resilience in the market has shown that only unexpected news brings in any liquidation at all. As this is not a scenario that you can predict, it makes little sense to worry about it or be gun-shy about trading long. Remember that at its core, this is an odds game and nothing more. If there was absolute certainty, there would be no game.
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$20 - Get Yours TodayPeter’s Premarket Perspective – Wednesday September 11, 2019
The Market Profile value areas and ShadowTrader Pivots for /ESU19 and /NQU19 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
| 2990.25 | RTH Balance Area High |
|---|---|
| 2981.25 | Prominent TPO POC from 9/6 |
| 2957.25 | New Top of Gap / Balance Area low |
Yesterday’s action gave us a good amount of M.G.I. to add to our narrative, mostly in the form of a look below and fail which took prices into the gap but still left a large portion of it unfilled. As always pay attention to what should happen and then note when the opposite happens. What should have happened is that new sellers should have been attracted once the top of the gap was pierced. It was like a party that started off pretty good and then some fool said “Let’s play charades!” and it fizzled quickly from there.
Which brings us to current action overnight which is a small true gap higher on overnight inventory that is almost perfectly balanced. Beyond that, the open is slated to be in the larger balance area, in fact right in the meat of it where the prominent POC printed from three sessions ago. This means that if you are an /ES cowboy (or cowgirl) you will probably want to trade later rather than earlier as there is no “shock and awe” to overnight inventory and the open is smack dab in the middle of the larger balance area. I honestly cannot stress that last sentence enough. I know from my own experience and thousands of emails from traders that one of the things that is most detrimental is thinking that just because you have heard that familiar 5 tone bell ringing, there must be something to do and it must be done now. Pavlov would be proud, and there will probably be responsive setups later in the morning if we remain within the larger balance area.
In the bigger picture the balance area is still intact and the balance area high and (new) top of the gap are still our reference points. Anything between is noise.
Scenarios
- Balance rules are still in play. There could be some push/pull today as the volume POC never migrated higher with price yesterday closing at the high, against the context of some shorts probably trapped from the look below and fail. Given those two nuances, I put more weight on the trapped sellers and would continue to favor longs.
- As usual, only a breach of the top of the gap which is the new balance area low would bring upon potential for change.
Recording of the market profile Q&A from yesterday…
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Learn MorePeter’s Premarket Perspective – Monday August 26, 2019
The Market Profile value areas and ShadowTrader Pivots for /ESU19 and /NQU19 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
| 2882.75 | Halfback |
|---|---|
| 2856.25 | Settlement |
| 2883.75 – 2900.75 | Single Prints |
| 2847.00 – 2834.00 | Spike |
| 2834.00 | RTH Low |
| 2810.25 | ONL |
| 2888.50 | ONH |
**Am traveling again and have early meeting this morning so again this report is being written earlier than normal. There could be a large difference between where I am seeing overnight prices now and 9am EST**
Very wild futures action overnight since the 6pm EST Sunday open where we were down 40 handles in a flash and are now trading higher by about 14 as of this writing at about 5:55am EST. Sensitivity to tariff/trade war news is extremely high right now and with volatility so elevated these swings are quickly becoming the norm. Remember to adjust your targets and stops accordingly regardless of your timeframe outlook.
Whenever there is a large expansion of range in a prior session, my first reference point is almost always halfback. Think about that for a moment. It’s not just an arbitrary level. It’s the exact level where those proven to be wrong or right become a majority. Think of it as a tipping point. Currently we are trading above the settlement and below halfback. So my first thought this morning is that there will probably be a little clash between those covering shorts because are above the open and those adding to them because we are below halfback. Within those last few phrases is encapsulated my entire trading philosophy. Figure out the key levels and then decide if crossing them will embolden one side or the other. Then apply context to that.
The next area that is of importance is Friday’s RTH low. If halfback is the tipping point where a majority becomes wrong or right, then RTH low or high of a trending day is where that majority becomes close to 100%. Huge piece of market generated information there….
The last two areas of importance today are the single prints in Friday’s distribution. There are two sets of them and one is a spike which puts spike rules into play. To refresh, a spike is when you have single prints into the last one or two periods of a session. While we didn’t close near the lows, note that there was a large excess made in “N” period which is the last TPO period before the shortened “o” period. Both sets of single prints should be considered today both for their short and longer term implications; the upper single prints being a more short term signal and the spike being a more longer term one. In a nutshell, extremes of single prints are often marked off as intraday support or resistance and how we trade in relation to spikes often determines slightly longer term direction as the spikes are either accepted or rejected.
As there are always limitations to every chart view (profile. candlestick, point and figure, whatever…) I leave you with a more traditional chart of the /ES that shows the overnight action and more importantly where the trendline lies that connects the Sunday night lows. This chart is self explanatory and should also figure into your analysis today.
I’ve said a lot here and I think it’s of huge value. I’ve noticed that many of you have taken a free trial for the first time over the weekend. I sincerely welcome you and I hope that my daily writings will inspire you to look at price action with a more discerning eye and lead you to greater market understanding which you can leverage to your advantage.
Scenarios
- Overnight trade is in a very large range and trading between halfback and the settlement. Given that and the current levels of volatility, I would be looking for slightly later rather than earlier trade today. That being said, gaps up against bearish prior days often fade from the open especially when overnight inventory is relatively balanced as it is today.
- The ONH is marking inside of the single prints. A breach of it on strength would put the rest of the single prints into play on up to their top.
- Any balancing relatively close to the settlement that doesn’t breach the extremes of the overnight range should be carried forward as bearish. I would also think that acceptance below today’s settlement will embolden sellers and potentially bring more of them to the party.
Have a money Monday,
Peter
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$20 - Get Yours TodayMarket Profile Analysis of S&P Futures 05.30.19
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….
| 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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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….
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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Market Profile Analysis of S&P Futures 05.17.19
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Double digit gap down back into range which is not that surprising given the poor structure and internals on the way up. Let’s see where this takes us today….
At -20.25 currently the gap is a true gap and thus gap rules are in play as long as we open below the RTH low at 2859.25. Note that this is a key level in the section above.
Overnight inventory is not 100% short but enough to take notice. Your focus early should be whether or not and how much this skew gets rebalanced.
Volume has been low over the last two sessions, internals have not kept up with price and structure has been poor. The single print sections from 5/15 are still open for repair so the potential to trade through is there.
On any early rally (or one that lasts longer), the area to watch will be VAL at 2873.00. Note that this is where the single prints that formed yesterday’s “p” distribution end. Look closely at the overnight distribution and see that there are also overnight single prints starting there on the way up, with a much heavier distribution of overnight trade just below. This an obvious turning point currently. A rally to there can be sold at that level with a tight stop which would give excellent risk reward. A rally that fails somewhere inside of single prints can also be sold. The tone would change with acceptance above that level.
Pursuant to everything in the previous paragraph, how the market acts around the ONL will decide quickly if there is to be retracement into yesterday’s range or not. Aggressive and advanced traders can sell quickly on any hint of failure or going in and back out. Odds, however, generally favor some retracement and then failure if overnight sellers were to be proven right.
Downside continuation straight from the open will be the more difficult play as always. Keep in mind that the ONL at 2853.00 needs to be taken out for anything more meaningful to develop and start to push towards repairing some of the structure of 5/15. If such a move, target 2849.00 first as it is the first set of single prints in that distribution.
Scenarios
- Internals/volume/structure have not been strong on this short covering rally. The potential for lower is there. Look for some retracement into yesterday’s range up into the single prints. Any failure is a short setup. Keep in mind that single prints offer little resistance and the market could move all the way to VAL before failing. The amount of retracement back up into yesterday’s range will tell you everything you need to know about the strength or weakness of the market.
- There is almost immediate downside continuation from the open. This is a difficult trade to pull off as there will more than likely be violent zig zags as new money sellers are already “piling on” to overnight sellers. If so, target the aforementioned 2849.00 area.
- Everything that I think should happen is wrong and the opening drive is strong and doesn’t stop at VAL. In such a scenario, only look for long trades once you are confident that there is acceptance above VAL and internals, tempo, etc are confirming.
Have a great day,
Peter
ShadowTrader Cumulative Tick
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Learn MoreMarket Profile Analysis of S&P Futures 05.15.19
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Strong gap back down as poor highs and lows come into play on the market profile. Let’s unpack it together….
| 2834.00 | VAL – could be resistant on a rally |
|---|---|
| 2837.25 – 2833.00 | Halfbacks of RTH and O/N sessions respectively. Could also be resistant on a rally |
| 2813.50 | Volume POC, a good first target for any down move |
| 2800.00 | Known strong support of psychological level |
Decent sized gap of -20.25 currently that is just outside of yesterday’s range but just barely. By the time you receive this report gap rules might be in play or might not as prices may move back into range. There is little early indication today as to how prices could react to the opening bell as overnight inventory is very balanced. Furthermore even though we are opening out of balance, we are squarely between the extremes of the last two sessions, both of which were poor.
I would say my overall feel here is that the market is not done selling. The poor low from 5/13 was simply a response to being oversold. But the poor high from yesterday gives a bit more information, I believe in that it happened after just one session upwards. You can’t really make the argument that buyers were just exhausted yesterday. I’m going to work within the framework that rallies into yesterday’s range should be sold.
Scenarios
- As we are in the middle of the two ranges, it’s tricky. My tone is bearish from my comments above. Overnight inventory is balanced but also more spiky on the bottom, so an early rise is possible. I would look to fade that, especially if it was to move up to the VAL.
- I would change my mind about the bias only if I saw a strong opening drive higher than yesterday’s volume POC and subsequent acceptance on bullish internals.
Have a great day,
Peter
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