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Futures a bit divergent on a small gap down this morning possibly on the heels of bank earnings and digestion of President Elect Biden’s unveiling of economic stimulus package yesterday evening. Both sides currently underwater but earlier action saw S&P’s down by about 17 while Nasdaq 100’s positive by 5.
As of now we are opening out of range on a true gap lower. While that does put gap rules into play, we are well off of the ONH and also not outside of the larger balance area. Overnight inventory is close to 100% net short and we are currently ticking in the mid to lower third of the overnight range.
The lowest Key Level listed above is the ONL which also corresponds closely with the 1.7 RTH Low. It could be argued that this RTH Low is the low end of the balance area as value has been tracking relatively unchanged from the value area of that day for five subsequent sessions. As such it is a potential downside break out level.
On the upside we will look at the usual signposts should there be a counter trend rally to the overnight trade. Look for futures to test the RTH Low first and monitor for continuation from there to the usual markers such as VAL, etc.
Today is the last trading day before a 3 day weekend due to the federal holiday on Monday. As such we may see volume taper a bit in later trade. That generally leads to unexpected breaks in either direction. Along the same lines, divergence between the /ES and /NQ also makes things slightly harder to navigate. Use context wisely to determine which side has the upper hand before trading in the day timeframe today.
- With six sessions of balance now potential continues for a larger break in either direction. A discussed above, the ONH/ 1.7 Low area could trigger overhead supply. If so, target that VPOC of 1.6 at 3740.00.
- Although not fully in a shock and awe open, overnight inventory could lead to an opening imbalance correction upwards.
If so, look to the RTH Low as a potential target and monitor for continuation. The early trade today will be decided by whether this inventory will correct or not. Given that we are well off of the ONL already and still within range, such a fade is by no means a slam dunk.
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