Nasdaq futures are up a touch as we head into Tuesday. Range and volume are normal and per the structure of the market profile we can classify the current action. It is a temporary phenomenon known as a short squeeze where price moves higher as shorts are forced to liquidate their positions. Once they are done doing so, the profile takes on a P-shape.
In the context of a downtrend this structure tends to occur at-or-near inflection points. In our current context, choppy range, it may also mean something. However, the higher time frame is up so it ‘s difficult to assign it too much weight initially.
At 8:30am we had upbeats stats on housing stats which slowly introduced sellers into the index. It will be interesting to see if sellers keep us south of 4521.50 heading into cash open.
Yesterday we formed a double distribution trend day and pushed higher to close the 4/28 gap up at 4515.50 before stalling out. Value managed to shift up near session high just before the day wrapped up. This suggests value, not just price, were on the move higher.
As I wrap up my post the short squeeze profile is deteriorating as sellers work into the tape.
Heading into today, my primary hypothesis is sellers push into the overnight inventory to close the overnight gap down to 4507.25. From here to 4504.50 I will look for signs of responsive buying. If buyers no show, then I will look for a continued move down to 4491.50.
Hypo 2 is buyers push off the open and reclaim 4521.50 early and sustain trade above it setting up another leg up to target 4531.25 then 4535.25. Look for responsive sellers up near 4539.
Hypo 3 buyers push, stall around 4521 and we reverse lower to fill overnight gap 4507.25 and then two way chop ensues.