Peter’s Premarket Perspective | Thursday, March 25, 2021

  Scenarios

• • Given the true gapThere is a lot of discussion as to what constitutes a gap. Is it measured to the prior day's close, or to the prior day's high or low. Here at ShadowTrader we believe that it is always and only to a prior day's high or low, thus creating a true gap or space on the chart between one day and the next. Thus a true gap is one that has price opening completely outside of the prior day's range (either above the high or below the low) and anything else is just a gap that has far less import. As a gap is a "reordering of thinking", only a true gap really changes the tone and creates opportunity to trade early rather than later. there is potential for a fadeWhen a stock moves opposite the direction of its gap on an intraday basis. Traders should note that overnight inventoryA way of measuring overnight activity in the futures market by just noting how much of the overnight activity happens to fall above the prior day's settlement value (4:15pm EST close) and how much falls below. If more activity is above the settlement, then overnight inventory is said to be net long. If more is below, then it is said to be net short. If all of the overnight activity is above the settlement, then it is said to be 100% net long. If all of the activity is below the settlement then it is said to be 100% net short. The overnight inventory situation matters most and has the most impact on early trade when it is skewed 100% in either direction because when the imbalance is very large like that then the odds of an early correction increase greatly. This is due to the fact that most... is more long than short which could put a damper on any counter trend activity. The usual strategies apply. Look for early trade to fail to take out the ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day.. Buy the high of the first one minute bar or the cross back through the opening price should the initial drive be lower. Monitor for continuation and target the gap fill first, followed by settlement, then the top of the single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points..
  • If the scenario is gap and go, resulting in a trending day lower then it more than likely will be accompanied by a distinct lack of early fadeWhen a stock moves opposite the direction of its gap on an intraday basis or only a small partial fadeWhen a stock moves opposite the direction of its gap on an intraday basis that fails to get anywhere near the RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. Low. If so, short any crosses back down through the open or the breach of the ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day.. For this to work look for extremely bearish readings on the internalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick. such as breadthDescribing market breadth in terms of volume for the NYSE or the Nasdaq. This is a figure composed of the net sum of the amount of volume flowing into up stocks minus the amount of volume flowing into down stocks at any given moment in each of the two respective markets. Often the advance decline line is also referred to as “breadth”, but ShadowTrader differentiates between the two by using two separate terms. Generally, the Breadth is more important than the advance decline line. more than 4:1 negative and A/D lines pegged at -2,000. Monitor for continuation and keep gap rulesGuidelines to follow on any day that the futures open outside of the prior day's RTH range. Only opening outside of range is a true gap and puts gap rules in play. 1. Go with all gaps that don't fill right away. This means that if early trade doesn't start to correct the imbalance, then prices will probably move in the direction of the gap. 2. Larger gaps can often fail to fill on the first day or may fill only partially. 3. If the gap fills (meaning the prior day's RTH high is touched on a gap up or the prior day's RTH low is touched on a gap down) and value cannot get to at least overlapping, then the odds of a late day rally (on a gap up) or late day selloff (on a gap down) increase. 4. Gaps of larger than $20 in the /ES are difficult to trade and should be avoided early in the day as t... More #2 and #4 firmly in mind and know that this is the hardest move to pull off as the moves are often not very clean even if they trend lower over the course of the session.