At the open this morning the inventory conditions were short term traders slightly short as most of the short at yesterday’s low covered during the last 3 periods of the day and Overnight inventory was long. Obviously Overnight traders were in trouble water at the open. First move was down to correct the Overnight inventory but the volume for the first period of the day was light as noted on the image.
Please note also the b formation from the Volume profile confirming that the move was probably due to long liquidation from Overnight. We still had the poor and weak low from yesterday and that was a clear target for the market but the tempo was really slow at the bottom of yesterday’s range. We took out yesterday poor and weak low on C period.
The tone was bearish and the context was also telling us that the day balance breakout was materializing which was pointing toward more long liquidation from the longer term inventory. We saw a brief short correction in D which created a good opportunity on the short side. There is a saying which goes Never go against the trend ! and that is so true. Even if the tempo look sluggish at yesterday’s low we needed confirmation to go against the tone of the day specially in the mid of a day balance breakout !
Finally another opportunity with the down trend came up on I period when we traded back to the day halfback an ideal short situation for short term momentum players to enter into the existing day bearish trend.
Seems to repeat myself day after day : inventory situation gave the tone for the day which attracted short term trend traders into the new trend. Do you see a pattern here !
Putting everything in context the day balance breakout was a dominant force behind the extended down move on top of inventory situation.
Finally the weakness observed in the morning ( low volume and slow tempo ) resulted in a big short covering rally on the close.
I know that everything I am saying here is on hindsight but the goal of this blog is to show how we should be thinking based on the developing market structure. It takes time to internalized all this information and putting the puzzle together but we are all student of the market, aren’t we ?