A Very Suspicious Rally
Updated
The fly in the ointment so to speak with this rally has been the fact that I've been watching this market shed open interest the entire way up. Yesterday again, the market shed another 9.4k contracts. A healthy rally should be gaining open interest and trading on increasing volume. This rally has been running on light volume, decreasing open interest, and often negative cumulative delta. This rally has all the anatomy of an epic short squeeze.
Bear market rallies are far more aggressive than bull market rallies and trying to top them can be suicidal. That said, we do appear to be building a balance area up here this week. This morning's open has presented so far as an open auction with a very narrow initial balance. With such a narrow base for the market today, range extension beyond the initial balance should be expected today, likely resulting in a double distribution trend day. Trades entered upon range extension to the down side should be expected to be carried down to at least yesterday's value area low. If the market extends to the upside, use yesterday's trading range to estimate today's range to the upside for a long target.
Pay attention to whether this market closes on its highs or lows this afternoon. Either case will have strong implications as to whether sellers or buyers are gaining control of the longer-term auction process.
It's Friday, so if you already have some profits in the bag for the week, this may be a good day to just take off from trading unless the market begins to show strong directional conviction.
Stay safe out there traders. Have a great weekend!
Bear market rallies are far more aggressive than bull market rallies and trying to top them can be suicidal. That said, we do appear to be building a balance area up here this week. This morning's open has presented so far as an open auction with a very narrow initial balance. With such a narrow base for the market today, range extension beyond the initial balance should be expected today, likely resulting in a double distribution trend day. Trades entered upon range extension to the down side should be expected to be carried down to at least yesterday's value area low. If the market extends to the upside, use yesterday's trading range to estimate today's range to the upside for a long target.
Pay attention to whether this market closes on its highs or lows this afternoon. Either case will have strong implications as to whether sellers or buyers are gaining control of the longer-term auction process.
It's Friday, so if you already have some profits in the bag for the week, this may be a good day to just take off from trading unless the market begins to show strong directional conviction.
Stay safe out there traders. Have a great weekend!
Note
Strong range extension to the downside. There's a lot more recent business to the downside that the market could revisit this afternoon. I caught most of the initial move to the downside, entering short where price broke below the initial balance. Already reached all three profit targets. I'd expect things to slow down a bit through the lunch hour. We'll see if the afternoon brings continuation to the downside or a reversal. Either way I'm done for the week. I no longer have a dog in this fight, but lets see if the sellers or buyers win this afternoon.
Have a great weekend traders!
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