The follow-through from Facebook and Apple’s blowout earnings, along with Fed Chairman Powell’s reiteration that it’s too early to talk about any taper of QE, has futures gapping up strongly and breaking out of a three-day balance/range. Balance rules apply.

This is the first day that we will be opening out of range/balance in a while, so there should be some shock and awe at the open. Gap rules apply. As the gap is large, keep #2 and #4 firmly in mind.

The potential is there for early trade (which is generally counter-trend first) on any true gap. Aggressive traders can short the first one minute low or any cross back down through the open should the opening drive be higher. Target yesterday’s high for the gap fill. This is a very advanced style of market play, and it’s not easy to pull off as per gap rules #2 and #4.

Any gap and go scenario must be characterized by extremely bullish internals with either a complete failure to fill the gap or partial fill. Often, the best trade is the cross back up through the open after any partial gap fill.

Due to recency bias, it can be easy to discount the potential for a look above and fail as per balance rules. Should the gap fill and acceptance be found back within the balance area, then there is potential for rotation to the opposing end of the balance (4166.75).

Key levels today are the all-time highs overnight (4207.75), yesterday’s high (4193.75), which is the top of the three-day balance area, the bottom of the three-day balance area (4166.75), and the top of the single prints (4160). You can pick up the same levels by analogy in the NASDAQ 100. I will publish some charts later this morning.

Good luck today,

A.F. Thornton