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Solid gap lower of about 27 handles as I go to press here. For now still within range so not a true gap and gap rules are not in play. That’s important to note as many think that they automatically are when gaps are large. Overnight inventory is 100% net short and we are currently trading very close to the ONL.
In using market profile to organize M.G.I., it is important to understand that there are longer term signals that we enter into an ongoing narrative and there are shorter term signals that we use to help us discern where the potential is for movement on that particular day. Let’s start with the longer term narrative…
-The overnight session coming into today made a new all time high in that overnight session. That is a carry forward as a high that is potentially unsecure.
-Value has been clearly higher for three sessions, however two of those sessions were back to back “p” formation distributions indicative of early short covering and emotional buying.
The above tells us a lot about the state the market right now. In a nutshell, things are bullish, they should go higher, and it’s important to always keep in mind now we got here.
On a more granular level, we have overnight inventory 100% net short however within range. While we are not on a true gap lower, we should still come into the open thinking that if new money sellers don’t emerge quickly, then the potential for strong short covering is there. Note from the overnight distribution that the bulk of it is within the value area which is a sign of acceptance of the higher prices from Friday’s RTH session. I am also noting that Friday’s close was at the very top of the RTH range at the end of a small spike and away from the volume POC and value area. Thus some of the overnight selling has to be attributed to the simple fact of buyers closing the market a bit ahead of themselves.
- As discussed above, there is potential for early short covering given the overnight inventory situation. Judge the open on how much of that if any occurs.
- Should there be a fade higher, monitor for continuation using the usual signposts as targets starting with VAL and moving higher from there.
- A sell signal will occur if there is an opening drive lower that cannot recover or if there is an early fade that stalls and returns back to the open. In such a scenario, a short can be taken at the opening print with a stop over HOD. Monitor for continuation with an ultimate target at the VPOC of 1.6
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