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|Opening In/Out Balance||Out of Balance|
|Overnight Inventory||100% Net Long|
|Current Price/Overnight Range||middle third|
|Shock and Awe||yes|
|Potential for Early Trade||yes|
|Short Term Bias||/ES & /NQ below daily 20SMA|
|4314.25||Top of Gap
|4272.00||Bottom of Gap|
|4254.00||POC / ONL / Settlement|
|4224.00||RTH 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 low 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 WWSHD moment which gives us some M.G.I. to work with. Failing to cross the ONH 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 ONH tells me that short covering may be already on the wane. The RTH session can be a very different animal from the overnight one, but those are the initial impressions.
- Gap rules are in play for today’s session. The overnight inventory 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 fade will mean that buyers are not done and we should bias long, monitoring for continuation as we go.
- Note that the ONL 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 RTH 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 low as well because it was a bounce from that 50sma daily.
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