Going into yesterday's open the market was short and proceeded to rapidly correct short inventory after the bell. The market found support at the micro composite VPOC at the 2036 area following the CPI and jobless claims. A Philly Fed number, which was a massive outlier, helped keep the bulls in control and the market balanced in roughly a 4 point range between the overnight high at 2048.25 and 2052. The pace of the rally early in the day was a sign that short covering was taking place, along with a P shaped profile.
Volume was just 1.1m contracts and 3.1bn shares on NYSE.
Overnight the market has continued it's upward advance to new highs. Draghi gave a dovish speech early in the European session causing a sell off in EURUSD and pushing the dollar index to highs again. China also announced a surprise cut in interest rates which has added fuel to the rally. The market is potentially going to open strongly imbalanced to the upside with a large gap.
The near term upside measured move from the daily chart is nearly reached. However, I don't see this as an automatic short but will be monitoring order flow closely around this level.
The larger the opening gap, the less likely the gap will be closed during that day. The most probable scenarios I see for today are:
1. The highest odds scenario in my view is that Globex pulls back to VWAP prior to the open, still leaving a large gap, and continues to rally back up to the overnight high and measured target and balances in that range.
2. The gap is closed to the high of yesterday and it continues to rally.
3. The least likely I see happening is that the gap is closed and it accepts into the prior value area.