The bulk of trading from Wednesday was at 2072, forming a very wide point of control (POC), or “the fairest price to do business”.
Going into Thursday’s trading session, overnight inventory was almost 100% short, gapping 10 points lower on the open.
After the open, short term and momentum day traders piled on and sold the market lower, driving price down through the unfilled gap from 5/25, to 2040.75 (three ticks above the very prominent “naked” point of control).
Traders that sold and held Wednesday’s late day spike and those that sold into Thursday’s gap down and drive lower were getting “short in the hole” from the very wide POC at 2072.
The next clues to expect a possible short covering rally was the long line of single prints in the opening 30 minute market profile period. With moderately low NYSE first half hour volume at just 412k, if there were more serious longer term sellers involved it should be on much higher volume for the distance traveled.
Price first rallied 14 points off the low in C & D periods, developing an early 4 TPO wide point of control at 2046.50 which was revisited “to the tick” in F period (making it 5 wide). Short covering rallied price from there, raising the developing POC to 2058.25, and one timeframing higher eventually taking it back to within just 2 ticks from Wednesday’s wide POC.
On strong, emotional short covering rallies price can trade through normal trading references, and doesn’t stop until the short covering is complete, drawing in more momentum type traders and not letting the shorts out. Thursday’s rally, while briefly pausing at the Spike from Wednesday at 2068.50, penetrated the reference and formed a late distribution above it.
Depending on where Friday opens, will the base of Wednesday’s spike, lower end of Thursday’s upper late distribution at 2068.50, now become support? Or will sellers clean up the messy TPO anomalies below and test lower references.
Thursday left a poor high at 2071.50 with only a single tick of excess. Poor highs and lows are usually revisited, or “repaired”.
Friday is Quadruple Witching and could be a volatile trading session.
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