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Futures currently mixed after a stellar NFP number showing an increase of 379,000 versus consensus of 175,000. That means economy heating up which means more inflation which explains the $TNX leaping from 1.556 to 1.626 as soon as that news crossed, which means /NQ futures down 45 and /ES up 4, which means growth tech doesn’t like it, while banks/financials do. That is what is going on in a nutshell.
The bigger question is how we trade this. Firstly, expect that the overnight divergence carries into the day session. It’ almost always like that so I won’t assume any different. Next I ask myself the three premarket questions which tell me that the market is opening within range and that overnight inventory is net short (not 100%), and that we are currently trading right at the ONH. All of that gives me a good amount of M.G.I. already. Now as I write this I see that the futures situation that I mentioned before has changed dramatically and now /NQ’s are very positive as well although still up only half as much as /ES’s. /ES is now also up so much that it has crossed halfback. All of it is solid M.G.I. which tells me that the market is maybe putting more weight on the reflation/reopening trade than it is on higher borrowing costs. I’ll carry that forward too.
The overall framework to work from has to be that overall inventory (not just overnight but RTH sessions as well) is net short and the majority of players are probably expecting further weakness. Thus, even though we are not going to open outside of range, I have to think that there is a bit of shock and awe to this open. That being said, it will still be an open within range on a non true gap. Always better to trade those later rather than earlier.
- The reaction to the NFP’s may have more than a few shorts concerned at the open. I would use the same parameters as yesterday as far as trading the open. (See yesterday’s Scenarios.)
- Yesterday’s RTH session represented a break out from balance downward. I am seeing the low end of that balance at around the 3805 area as shown in the market profile graphic above. Acceptance above this area puts yesterday’s breakout into question and has potential to change the tone considerably should more buyers join.
- If the open is faded and there is no further advance into the balance area which would more than likely make value unchanged then that signals status quo and seller are still in control.
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