The Market Profile value areas and ShadowTrader Pivots for /ESU20 and /NQU20 Futures are posted free every morning
in the ShadowTrader Swing Trader newsletter.
Strong gap lower this morning and out of balance. This makes it a true gap and puts gap rules into play. Overnight inventory is about 80% net short and we are currently trading in the middle third of the overnight range.
As value was unchanged yesterday and the entire RTH range was inside of the prior day, I will look upon these two days as a two day balance. That tells me that for now prices are breaking out of balance to the downside. Think about this as the market opens. The balance rules tell us that only a few different things can happen. Let’s focus just on breaking out of balance to the downside. Technically, this has already happened in the overnight session so your early focus today should be on whether or not we have a look below and go or not.
I am carrying forward into my narrative this morning that VAL of the last two days is relatively equal. That’s why it’s listed in the Key Levels above. We know that this is the outer downside edge of where 70% of the volume traded over the last two sessions. Finding acceptance back within that area would tell us a lot about the market. I will also think about this area as a potential resistance where prices could reject as we know that there would be a lot of longs “looking to get back to even” as prices come back there. Always try and use the profile to tell you where longs and shorts lie and what is making them disappointed or content. That’s really this whole game in a nutshell. Charting, market profile, all of it is just quantifying that one dynamic.
- As with any true gap on net short overnight inventory the first move will be to look for a fade. Any such move should go to at least the RTH low to fill the gap. I am noting that with two days of balance and value there could be sellers there and a shorting opportunity.
- Continuation into yesterday’s range would be the more bullish outcome. If not long already from earlier, I would not take any longs until acceptance back within the VA is found. If so, monitor for continuation and look for a move at least to the settlement.
- An opening drive lower that fails to fill the gap would be the most bearish scenario today. Understand that this would be a continuation move from the overnight activity and thus is the hardest type of play to pull off as location is not as specific and hence stops are wider. In any such scenario, assume that the ONL is in play. Internals confirming would be a must!
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