There was a bit of chatter afterhours about the spike lower on the indices shortly before the closing bell. As we drift into a holiday, many will likely dismiss the action and continue preparing a warm home for their families. However, the spike is a useful bit of context, and we can use it to frame some expectations for the day.
The spike lacked time. The selling began so late in the day there was no time for us to gauge the momentum of the sellers. Coming into RTH, we are set to open within the range of the spike on both the S&P and the NASDAQ and our analysis will focus on the Nazzy.
An opening within the spike indicates the market is balancing. The other two scenarios are an open outside the range of the spike either lower or higher. An open above the spike range indicates a complete rejection of the move and invalidates it entirely. An opening below the spike indicates the market accepted the move and is still out of balance and we are likely to continue exploring lower until we reach balance.
Returning to our situation, opening within the spike, our expectation is for two-way trade to ensue as the market balances out. We can use the range of the spike to estimate today’s daily range. This will be incredibly important on a light holiday session where less is certainly more. If we get a solid idea that one range extreme will hold, we have a target in mind for the auction.
I have used the spike to envision a scenario on the following market profile chart. Remember not to lose sight of the big picture, where bulls have rallied strong all year long and we are heading into the weekend already, ahead of mutual fund Monday.
welp, buyers pretty much threw this idea in the furnace, the Turkey gods are amongst us