Wednesday 2nd October – ES_F Review

Morning all,

Very interesting day on the ES yesterday, after some strong order flow off the open and taking out the weekly high, the market traded into the single prints I wrote about in yesterday’s mailout, before rejecting out, to the tick (also 1 tick off the overnight high) on the back of poor data from the US. We speak about single prints in the market a lot, because they should be treated almost like a gap in the market, it represents a change of thinking at a particular price (or series of prices). This gives us reference points for when price returns there again, to see if the market can build out value in that area both in time (TPO’s) and volume. The rejection out on the back of weak data tells us that price wasn’t accepted between buyers and sellers, and we sold off for the majority of the day closing on the lows, just past the most recent large gap from 5th September. The sell-off was mighty, and if you’d sold inside the single prints during A period, you’d have gotten a nice winner on the spike down. If you’d held it to the close, you’d have gotten an even bigger winner!

On the bigger picture, this sell-off is good for the market, as the gaps are closing, and prices are auctioning inside those gaps. We still have another gap to the downside between 2015.75-22.75 which we’d like to see filled if this market tries to go higher. Overall, this market feels weak, and it doesn’t appear to rally strongly, even on the back of good news, which may indicate we’re in the very late stages of the bull market. But, I’ve never been one to try and call a market long-term, so I’m not going to start now.

Overnight, inventory is mostly short, and we’re slated to open in or around the gap mentioned above. As a result we have a gap down of 17 handles, and obviously we’re outside of range and outside of value from yesterday. With the gap rules, and looking at the most immediate gap, we look to see if the gap closes, and if it fails we take trades in the direction of the gap. Inventory will need to unwind during the initial order-flow, so we may want to look for the ‘gap & trap’, where market makers will take the market lower before pushing it higher to correct inventory.

Ultimately, if we can’t get back inside yesterday’s range, then we start to look at some targets from the August range. We’ll look to see how A & B period digest this gap, the obvious bias we have today is to the short side – if we break the overnight low then maybe that scenario would come into play if internals supported it. We’ve build value down here in August, so we’ll look to see if we can get responsive buying in and around the August gap close.

Good luck and stay safe out there!