The market was sold in the overnight, setting up the cash market to open with a gap down. Cash market opened down, forcing sellers to chase weakness and breaking the lower Volatility window at 3731. By doing so, this set a bearish intraday bias, luring in "late sellers". When sellers were unable to expand below the lower vol window and the market recovered back above window, these late sellers were caught in a trap and used to fuel a run through the opening high and reversal window, reversing the bear bias. When a bias is reversed, in this case a bear one, it tells us the sellers were wrong and shorts on the day are then forced to cover their shorts and buy pullbacks. Pullbacks into the open, and the lower vol window become support as shorts are covering. In this case buyers defended the open, which kept sellers from buying back lower, giving way for another run and expansion back to the intraday pivot as sellers were forced to cover at higher prices.
Traps move markets, volatility windows are helpful to identify momentum on the day, but also when a trap is being set. When a majority of the selling is done in the overnight, the lower vol window becomes key to luring in late sellers. If they are unable to continue expanding lower, they get caught in a trap and used to move the market in the opposite direction.
Sign up here for a 2 week free trial to receive daily ES reports, volatility windows and pivots: https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=T9TWRWFGUB8NJ
Access to our chat room, screenshare, and live trading 1 week free trial here: https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=59K8NHY2S5B6N
