Good Morning and welcome to another work week, we have quite a gap higher to manage this morning. The +20 gap that occurred when the market opened last night is a perfect example of something not being priced into the market. This is the risk we carry when we hold positions over the weekend. The 20 point gap also doesn’t mean the news is priced in. Instead it has thrown us out of balance, which provides opportunity, as we auction our way back into balance.
The overnight action is currently forming a head and shoulders pattern with a neckline at 1698 and left shoulder at 1701, head at 1703.75, and right shoulder at 1702 give or take a few ticks. The downside target of the move is 1692.25 which is one tick above where we opened yesterday evening, and also showing other confluences of support. This is a huge level to monitor today, and one that is likely to offer excellent trading opportunities.
We’re also coming into the market action from the first days of August which gives us a few handy reference points, a value area high and volume point of control a point apart at 1696.50 – 1695.50. Keep these levels in mind, if the bulls make short work of establishing value above here, we may be in for a fast and furious move higher.
Otherwise, my expectation is for profit taking type selling to enter the market early on and back fill the single prints from last night a bit. I’ve highlighted this scenario, important price levels, and more on the following market profile charts:Twitter