Peter’s Premarket Perspective – Wednesday August 14, 2019

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I am wondering (out loud) if yesterday’s tariff delay rally will be remembered as the bull market’s last gasp to suck in the last of the short term traders who initiate new longs according to the news of the day. Given that as of last night we now we have an official 2/10 yield curve inversion that might just be the case. Remember that this is a recession indicator that has not been wrong in over 50 years.

All that is well and good but we need to concern ourselves with how to profit from it in the here and now, meaning TODAY. That’s where I come in! Let’s break it down piece by piece. Whenever analyzing the market, break it up into multiple data points, thereby decreasing the amount of emotion that is often brought to the equation by price alone.

–The gap is monstrous but not a true gapThere is a lot of discussion as to what constitutes a gap. Is it measured to the prior day's close, or to the prior day's high or low? Here at ShadowTrader, we believe that it is always and only to a prior day's high or low, thus creating a true gap or space on the chart between one day and the next. Thus a true gap is one that has price opening completely outside of the prior day's range (either above the high or below the low) and anything else is just a gap that has far less import. As a gap is a "reordering of thinking", only a true gap really changes the tone and creates opportunity to trade earlier (near the open) rather than later. More as yesterday’s range was very large.
–We are currently gapping down into an extremely large set of single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points. which should not be resistant on any retracement higher.
–Overnight inventoryA way of measuring overnight activity in the futures market by just noting how much of the overnight activity happens to fall above the prior day's settlement value (4:15pm EST close) and how much falls below. If more activity is above the settlement, then overnight inventory is said to be net long. If more is below, then it is said to be net short. If all of the overnight activity is above the settlement, then it is said to be 100% net long. If all of the activity is below the settlement then it is said to be 100% net short. The overnight inventory situation matters most and has the most impact on early trade when it is skewed 100% in either direction because when the imbalance is very large like that then the odds of an early correction increase greatly. This is due to the fact that most... is close to 100% net shortThe concept of being more short than long in an options spread by creating options spreads where you are selling more structures than you are buying or selling wider structures than the ones you are buying. Example would be a broken wing butterfly. This spread is made up of two structures, one long vertical and one short vertical. In the BWB, the short vertical is wider than the long vertical. When you are long this spread, you are said to be in an options position that is "net short"
. This is important because we will gauge any early activity against this context. We know that at least some short covering should ensue. How much, if any, will be a huge piece of M.G.I.Market Generated Information. that you will utilize in today’s trade.

Focus on these three points early today and you will understand the market’s activity better and probably make a better trade.

While I never trade news or fundamentals, I do always take into account how strong or weak I believe the news signal to be. My take on the curve inversion is that it is a strong signal. I am coupling that with the fact that I know that yesterday’s buyers were very emotional and probably not thinking straight. They’ll be reversing a lot of that today. Therefore, although I would never short a market blindly at the open, I’m coming in with the framework that any counter trend corrective activity could be sold. That being said, I will of course need internalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick. and tempoProbably one of the most important and yet overlooked concepts in the market. The tempo is simply the ‘speed’ at which the market is moving. This is also referred to as confidence. Slow tempo is typical of range bound days where there is lots of responsive activity. Fast tempo occurs when there is initiating activity, and market is breaking out of a range. This is not to say that the market can’t have fast tempo on days when it is rotational or moving between the extremes of a value area. It certainly can. Effective intraday futures trading involves gauging the tempo and knowing that opportunities are fewer and smaller when the tempo is slow. See S.O.H. to confirm that. Given that there is no upside reference until the top of the single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points. which is very far away, know that you may have to use a pattern reversal or TPO(MP) Stands for “Time Price Opportunity”.  It is the smallest unit of measure displayed any market profile graphic, denoted by a single letter.  Each TPO represents a point of time where the market being charted trades at a specific price.  A single TPO is printed on the chart every time that a certain price is touched during any time period.  Typically, the periods are set to 30 minutes.  Therefore, every different letter that you see in the market profile distribution denotes a different 30 minute period. reference as an entry. Pay attention to halfbackA term for the halfway point between the high and low of any session, could be a day session or an overnight session. On Peter's market profile charts it is always a dark yellow horizontal line at that level. as that could also be important today.

Have a profitable day,
Peter

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