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| 3910.00 | Settlement 5x |
|---|---|
| 3896.75 | RTH Low |
| 3887.75 | Overnight Halfback |
| 3880.50 | RTH Low (2.18) |
| 3861.25 | ONL |
| 3855.75 | VPOC 2.4 |
Solid overnight gap lower on as investors focus on the continuing rise in bond yields. As of now we have a true gap which would put gap rules into play. Overnight inventory is more balanced than current prices would imply. Still net short but with plenty of activity above the settlement. As of now we are trading in the lower third of the overnight range.
Recent weakness has left two VPOC’s above us now. For the moment I see this as a market struggling under the weight of an overbought situation rather than all out weakness. There is no change in any trends as of yet. That being said, there is technical support for the further bear case as /NQ’s have pierced the 20ma and are looking like they want to test their trendline as shown in the picture below. Note that this is in sharp contrast to the /ES which is tested the 20 at the ONL.
The open will not be a slam dunk fade even with futures down 24 currently. Note in the market profile graphic above how far off of the ONL we already are. That minimizes the shock and awe. I’m also carrying forward the 2.18 RTH Low which prices are very close to currently. While that doesn’t have the same weight as moving past the RTH Low of Friday, I am still seeing that from the perspective of less fear should prices trace back into that range.
Scenarios
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- Gap rules are in play. We are quite a good clip off of the ONL and overnight inventory is not 100% net short. Thus there is diminished shock and awe on the open and the better trades will probably develop later rather than earlier.
- Use the 2.18 RTH Low as a potential go/no-go level for further short covering as it would represent a move back into a recent trading range. Monitor for continuation and target the O/N Halfback first.
- As gap and go scenario (continued downward pressure with very little short covering) will have difficulty finding any acceptance back within range today and will only fill the gap partially or not at all. Look for no opening drive higher or an opening drive higher that fails immediately and revisits the opening print. Shorts can be taken there with stops above HOD. Note that continuations from larger gaps are the most advanced type of market play and should be attempted by those more seasoned in day timeframe trading.
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