From the perspective of the 24-hour S&P 500 Futures contract, we are approaching our third inside day (if the overnight action is to be considered). This is a converging triangle type of consolidation. It also becomes a trading range framed by 4260 on the low end and 4365.75 above.
It also becomes apparent that the short-term momentum crowd is at the table, and the institutions are in more of a wait-and-see position.
The overnight session has erased yesterday’s gains and then some, trading just a few points below the RTH Low at this moment. The gap is true if we open out of range, and gap rules will be in play.
Coming back into range today (should it occur) will be interesting as there are 30 handles of single prints from the RTH Low to where value begins. Assume less resistance in this area of the distribution.
Overnight inventory is very close to 100% net short this morning which should also factor into your assessment of how the open will react. Although the gap is large, we are also quite far away from the ONL, which simply means that the imbalance at open is not nearly as great as it potentially could be were we trading closer to the ONL.
Work from the framework that any activity inside of the RTH range in early trade can bring on strong short covering. Monitor for continuation.
Holding below the RTH range is far less bullish, with the caveat that we remain within the multi-day trading range unless the 4260 swing low is taken out.
A.F. Thornton