Friday 4th October – ES_F Review (post NFP)

Morning all,

Really wild day on the ES yesterday, with very strong selling off the open, closing the gap from early August and resolving to the downside. Further weak data from the U.S. saw further selling in B period, taking out Wednesday’s low, which we noted in yesterday’s post, was a weak low (not a poor low), with a higher likelihood of being taken out at some point. What followed this sell-off was an indication that the other time-frame trader was definitely in the room, when price traded down to the mid 2850’s and some shorts got badly trapped leading to the strongest rally I’ve seen on the ES in a long while!

So, coming into today, what does this tell us? It tells us, that traders with bigger accounts and who are on a longer time-frame, see value in buying this market around the 2850 mark. The rally which followed yesterday’s sell-off was spotted by several people here, and instead of trying to get short on the bounce, we looked for long positions almost immediately. Being able to spot the other time-frame in the market has improved my trading career around significantly, not because I’m getting more winners, but because I’m not getting into bad trades where I lose money. We talk a lot about this in our education packages as well as the concept of inventory for those who want to learn more. We’re off the feeling that after 2 days of straight selling, the market got over-extended to the downside, and we saw a relief rally for the latter half of the day. What is significant is that for the most part, we had rejection out of the A single prints from Wednesday, aside from some brief price exploration during M & N period which should be treated differently due to their proximity to the settlement period of the day. We harp on about single prints all the time, but the value they give us in identifying how price responds to them, can’t be underestimated.

If we look at the context of the weekly profile, posted below, we’ll see a big un-filled area between c.2913-2936.50, which we’d like to see filled out properly in order to support any move to the upside. This needs to happen if we want this market to have good structure moving forward, and there’s a reasonable probability we fill some or all of it out today, if traders have the minerals to take the market higher, and the internals support it. Acceptance in the A period singles from Wednesday off the open is the first step, followed by taking out the overnight high, currently at 2920 post NFP announcement. To the downside, we have some T+2 references to lean on (settlement of Wednesday’s trade), but ff we blend the two profiles since the gap down earlier this week, our value area low (based on volume) is at 2874, and if this is broken, we target the bottom end of the August balance zone, in and around 2820. Following the NFP announcement (a miss!) we’ve seen a rally, where the pullback low has been 3 ticks below last night’s close. Despite this miss, the market seems like it wants to rally today, so we expect some fireworks at the open.

I won’t mention overnight inventory (which was mostly short in the run-in to NFP) as it’s mostly corrected by now. Opening order flow will give us the direction – trading back & forth multiple times through the open will tell us there’s indecision, meaning we’ll wait for trade setups later in the day. But, if we see an open drive in either direction, it’ll show conviction and we’ll aim to follow it’s direction.

Good luck, and stay safe out there!