The Market ProfileA way of reading the market that recognizes either time spent or volume traded at a particular price level. A market profile can be either made up of “TPO’s” (time price opportunities), or volume. TPO’s measure how much time was spent at a particular price, while volume-based market profiles measure how much volume traded at a particular price. Generally, market profile is used in the trading of futures, especially the /ES. ShadowTrader utilizes volume based profiles. value areas and ShadowTrader Pivots for /ESU21 and /NQU21 Futures are posted free every morning in the ShadowTrader Swing Trader newsletter.
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Pre market indications
| Opening In/Out Balance | Out of Balance |
|---|---|
| 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... | 100% Net Long |
| Current Price/Overnight Range | middle third |
| Shock and AweA term Peter uses to describe what overnight futures traders may be feeling when faced with an open that is wildly divergent from what they expected. Large gaps in either direction that are opening well outside of range are examples of this. The approach is that when the market opens in such a manner, there is often opportunity to trade earlier rather than later because of the large contingent of traders who will be forced to reverse their positions quickly. | yes |
| Potential for Early Trade | yes |
| Short Term Bias | /ES & /NQ below daily 20SMA |
Key Levels for Today
| 4314.25 | Top of Gap |
|---|---|
| 4272.00 | Bottom of Gap |
| 4254.00 | POCPoint of Control, also known as the "fairest price to do business". It is the price level in the /ES where the greatest amount of volume in the prior RTH session traded. ShadowTrader measures the POC using volume but the traditional way is to mark off the widest point of the day's distribution where the most TPO's printed going across from left to right, indicating that that was the price where the most time was spent. It's important to pay attention to both the volume POC and the TPO POC. / 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. / Settlement |
| 4224.00 | RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. Low (Poor) |
Ongoing Narrative / Commentary
Yesterday, I mentioned to shift your focus slightly to the “bigger picture” items that everyone can see. That turned out to be prescient as yesterday’s low in the SPX cash was right to the 50SMA daily where a poor lowA poor low is one which lacks excess and is the opposite of an excess low. A poor low will have less than two TPO's of excess at the bottom of a daily range with at least 2-3 columns of TPO's lining up to form a flat looking bottom. It indicates that there are short term or weak handed shorts at that low of day area. We know this because every time prices sell off to the low, they get covered quickly, thus forming the poor low.
The poor low has two forward looking indications. The first is that prices should bounce away from the poor low as there are a number of shorts trapped at poor location. The second is that if the next day or in some subsequent session, the poor low is revisited, then the odds are strong that it will break and move lower. This is called repair as it repairs the ... was formed and short covering ensued. This morning’s solid gap higher has buyers building on that low.
Pulling back to a wider view shows us that there is still a very large unfilled gap above us from yesterday. Opening prices are going to start the day within that gap. The market doesn’t like gaps and gaps should fill. If they don’t, we have a WWSHDWhen What Should Happen Doesn't - A market dynamic where prices defy what is normally expected of them given the specific context they are in. A good example would be filling a larger gap only partially. The thinking is that the failure to do what should happen means prices are potentially headed in the other direction. moment which gives us some M.G.I.Market Generated Information. to work with. Failing to cross the ONHOvernight High. A term mostly used in describing the futures market which has an overnight session and trades almost around the clock. To be precise, in the /ES this is the high made between 4:30pm EST and 9:30am EST the next day. today would be a sign of weakness.
Given the size of the gap above us and the fact that overnight activity filled very little of it, and we are currently well off of the ONHOvernight High. A term mostly used in describing the futures market which has an overnight session and trades almost around the clock. To be precise, in the /ES this is the high made between 4:30pm EST and 9:30am EST the next day. tells me that short covering may be already on the wane. The RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. session can be a very different animal from the overnight one, but those are the initial impressions.
Scenarios
- 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 are in play for today’s session. The 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 100% net long so we know what should happen in early trade which would be the corrective move. Early trade will tell us a lot about the nature of the short covering in the overnight session. A lack of early fadeWhen a stock moves opposite the direction of its gap on an intraday basis will mean that buyers are not done and we should bias long, monitoring for continuation as we go.
- Note that 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. and settlement are almost identical. That means that once all overnight longs are relegated to the “wrong” column, screens will go red around the world as well. I would bias short below that level. The RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only. Low was poor yesterday and should be carried forward as well for a potential further short trigger as it needs to be repaired. An argument could be made that it is a weak lowA weak low should not be confused with a poor low. The latter speaks to a deficiency in structure and the former deals with the location of the low. A weak low is formed when a market falls and reverses right at a specific point which is often a technical or profile nuance. Some examples would be prior intraday lows, the lower extreme of a value area, the prior day's settlement, or the current day's open. In each case, the location is a mechanical and visual reference that is used by short term traders as an entry point. The low is deemed weak because it can be taken easily when retested due to the short term nature of the buyers who initiated their positions at that level. as well because it was a bounce from that 50sma daily.
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