Wednesday 28th August – ES_F Review

Good morning,

Really interesting day yesterday, where I really expected the market to briefly go lower, before a rally up into the single prints from Friday’s sell-off, but instead we got the exact opposite off the open. We had a gap from Monday’s close to Tuesday’s open of about 10 points, meaning there’s a high probability that the market will first make an attempt at closing the gap, or it will fail and go higher. As price action auctioned around the open, it felt like there was a bit a of indecision in the market, we legged lower but failed to take out any meaningful points before looking higher – then we came across a move I recognised from my prop trading days, where the market takes out the overnight high, which, if the gap wasn’t closed, you’d be thinking of ‘going with’ or in the direction of the gap – i.e. get long! When the overnight high was taken, the bids on the ladder were stacked and it looked like a great long position, before the bids got pulled and a sell-off started forcing those who were long to liquidate quickly. This was the beginnings of a trend day down were price action mostly auctioned lower throughout the cash session.

I mentioned on my Twitter account yesterday and again earlier, some of the technicals of trading market profile came to our aid in the failure to take out single prints at different points on the chart. Failure to take out single prints is a bearish signal (in the short-term) and was great trade location for shorts – there were 3-4 good opportunities around this setup yesterday. I have a video in our online course material (Level Up Sessions) where I walk through a full day on the profile in high-speed and call out things like this.

Overnight, we’ve had mixed trade, with some Brexit news hitting the wires earlier this morning, which pushed the GBP lower, and conversely the USD higher, which in turn affected treasuries & yields, and thus drove equity futures lower. As this is being written, futures are testing yesterday’s lows on the ES (2855.25). If price remains down here, we’re looking at a gap down of c.10 points from yesterdays, so gap rules will be in play. The door is open for the cash session to test those lows printed in the overnight session Sunday 25th into Monday 26th, to see if we get any acceptance. This type of move doesn’t worry me (yet) if I’m in the bullish camp overall – this market needs to build a solid foundation of value before we get a leg higher so we’ll aim to find trade opportunities within this context. Speaking of context, month-end is in two days, and hedge funds will want this market higher, if they’re to publish strong results for their clients.

The opening 30-60 mins of trade will tell us who is in the market and what their agenda is. The profile will tell us after an hour or so what type of day will develop. With any gap, it’ll either close or it won’t – failure to close the gap brings some of the key levels below into play for longs or short targets.

Key Levels:

Overnight Low – 2853.75 (currently)

Poor Low – 2860 (yesterday’s session)

Friday’s Low – 2834

Globex Low – 2810

Good luck, and happy trading!