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|3083.00||All Time High|
|3077.00||RTH High / Bottom of Gap|
Those of you who are members of my Weekly Options Advisory (or Scott’s Time Spreads Advisory) and are privy to my real-time What’s Peter Thinking audio and text messages know that this yet again gap should come as no surprise. I’ve been pointing out specifics that prove there are a lack of sellers in this market all week. Apparently this morning is no different as the trade war news pendulum has now swung in the other direction overnight gifting long traders with another double digit gap higher. This morning’s slated open represents a true gap and is also well above the prior overnight futures high. Gap rules are definitely in play, indeed.
There is little to say on these mornings other than to go over my thought process on these larger gaps and what I look for which is always the same given this type of open. The first thing to note is if you are opening not only out of balance but out of the larger context of balance. In today’s case I would say yes to that as prices are higher than futures have ever been, even in that overnight session of 11/4.
The next thing I note is what is the overnight inventory situation. Usually on days like this we have overnight inventory 100% net long but not always. A closer look at the overnight distribution of last night actually shows it to be more balanced as there is a good amount of activity both below and above the settlement. That bodes well for longs as there is less “shock and awe” to correct early and it may be easier for prices to stay high in the early session.
The last thing to consider in any large gap scenario is where your signposts are both above and below. What price would represent a full gap fill? What price would represent a partial gap fill? The answer to the first question is always the RTH high/low. As for the second that can sometimes be a prior daily high in the vicinity or a half gap fill which is often common. That’s why I list the overnight halfback as a Key Level. On the upside it’s good to know where the ONH is because it represents the highest point of the overnight distribution and the exact point where any traders who transacted have the absolute worst trade location. As you move down from that level, trade location improves slowly tick by tick. Let that sink in for a bit. Have you ever thought of markets that way? If so, why not? It’s true market generated information (M.G.I.) and has nothing to do with opinion or bias. Other players in the arena will act only according to their inventory position and location.
- As with any large true gap, the potential for gap fill is there. This usually plays out by an early failure to take out the ONH and a NYSE tick that can get negative early and stay that way. If you don’t get that tick signal, the odds of a fill decrease. Note that there are a few signposts of prior highs in the way of that down move and also that we are in an open territory where there are fewer sellers.
- A strong (read: pullbacks are buyable) market will have a positive NYSE tick for the first 30 minutes at least and will not fill very much of the gap at all, instead digesting the overnight gain. Refer to gap rules #2 and #4!