Tag Archives: gaps

ES – Pre Election Short Covering Rally

The market gapped open 30 points above its previous close on Monday, after an FBI release over the weekend said they have closed the investigation into US Presidential candidate Hillary Clinton’s email policies.

During the recent early November selloff, the market left poor structure leaving multiple poor highs and long stretched out profiles with multiple anomalies. Monday’s short covering rally repaired the poor structure from the November 1st selloff, filling the multiple single prints and repairing the anomalies from that day, and also repaired the poor high from October 31st at 2127.75. A poor high remains from 10/28 at 2135.25.

es-pre-election-short-covering-rally

An immediate Market Profile trading reference for Tuesday, depending on where price opens, is the base of the late day spike higher at 2025.00. Opening within or above the spike shows that higher prices are being accepted, and price should not immediately find acceptance back below 2125.00. Price acceptance above Monday’s high could target the prior poor high at 2135.25.

Opening below the spike base could imply that the late higher prices were rejected, and acceptance below Monday’s point of control could see price test the late pullback low at 2119.25.

This market had become very short since the FBI had reopened its investigation into the Clinton emails last week. During short covering, price does not respond as reliably around normal trading references, as traders that are caught short and are forced to cover have the “get me out at any cost” mentality.

Large gap higher openings like Monday’s can cause forcing action, where shorts in the market can receive margin calls after the large overnight move, forcing them to cover. Short covering weakens a market, as it also leaves poor profile structure in its wake.

Monday’s profile, while correcting previous poor structure in the market, also left poor structure in its profile. If price finds acceptance below 2119 the next downside market profile references are the single print at 2114.50, followed by Monday’s low at 2108.00, and the large gap below.

Gaps are a form of excess and can be envisioned as single prints. Price acceptance below Monday’s lowest anomaly would be trading in that excess.

(the above post and all posts on es-traders.com is an interpretation of market generated information using the Market Profile, and the information contained within is to be used for informational purposes only and not to be construed as investment or trading advice. Please read our disclaimer

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