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ES Daily Plan | April 11, 2023
The market remains in balance, awaiting more market-generated information.
We have several catalysts lined up for this week, including CPI and FOMC minutes on Wednesday, followed by PPI on Thursday. Stay nimble.
The overnight (ON) session encountered selling activity at 4143, to the tick. This level represents the lower end of the upper distribution from the 4/4 session. The market was in a downtrend during the Asian hours, but it managed to find support just two handles above the Smashlevel of 4125 during the European hours. This bounce persisted for a few hours until the sellers intervened once more. Did you notice how the VIX, which opened above its resistance level of 19.26, was using this level as support during this bounce? When the VIX opens above its resistance, it’s signaling caution, which means that the bounce during the European session was not very appealing to chase. I wrote a little about how I use the ES and VIX correlation in previous plan for those who might have missed it. Thursday’s trend day was completely retracted before the opening of the regular trading hours (RTH).
The RTH session opened at the lower end of the multi-day balance area, which is highlighted on the chart. The sellers were able to break the ON low instantly, but the break was short-lived. To attempt a breakdown while trading at the lower end of a balance area, initiative sellers are necessary. Responsive buyers can be attracted simply by the absence of weakness. It's crucial to bear in mind that the lower end of a balance area functions as support until proven otherwise. Similarly, the upper end serves as resistance until proven otherwise. Having said that, it's essential to exercise caution and avoid selling a support area or buying a resistance area. The sellers failed to gain traction to the downside, despite decent effort, during the first 60 minutes of RTH (initial balance), leading to responsive activity.
The market was one time framing up for the first five periods, reaching the weekly level of interest 4115. At the same time, the VIX retested the level of 19.26 once again. Although this presented a contextual opportunity to search for short setups, the alignment of context alone is insufficient to trigger a trade. When looking for setups, getting order flow confirmation is critical. I shared a visual of this sequence on Twitter, which illustrates how the aggressive sellers intervened. I will share my entries from this sequence on Substack.
Although the pullback was decent, it failed to challenge the lows, indicating that the selling pressure was losing steam. As a result, new daily highs were reached, and the VIX dropped below its resistance level in the process.
Today’s session resulted in another double distribution, and an upward spike after M-period made a new daily high. The base of the spike 4133 is of my short-term interest. The daily remains in balance, awaiting more market-generated information. We have several catalysts lined up for this week, including CPI and FOMC minutes on Wednesday, followed by PPI on Thursday. Stay nimble.
Trading within and above the spike (Acceptance) is a more favorable outcome for buyers since that confirms the higher prices of the spike. Trading below the spike (Rejection) is a more favorable outcome for sellers. If acceptance occurs, buyers will aim for the upper end of the multi-day balance area / breakout. On the other hand, rejection will primarily target today's poor structure towards 4117. With acceptance back within today's lower distribution, the sellers will once again target the multi-day balance low, which has weakened due to three previous tests. Note that the medium-term value (20-day VPOC) has shifted from 3955 to 4130, which is also the short-term value (5-day VPOC). The market is coiling for a directional move.
Going into tomorrow's session, I will observe 4133.
Holding above 4133 would target 4143 / 4158 / 4175
Break and hold below 4133 would target 4117 / 4100 / 4083
Additionally, pay attention to the following VIX levels: 19.86 and 18.04. These levels can provide confirmation of strength or weakness.
Break and hold above 4175 with VIX below 18.04 would confirm strength.
Break and hold below 4083 with VIX above 19.86 would confirm weakness.
Overall, it's important to exercise caution when trading outside of the highlighted yellow levels. A non-cooperative VIX may suggest possible reversals i.e trade setups.
Be sure to check out the Weekly Plan, which provides a broader perspective and highlights significant levels of interest to watch in the coming week.
Disclaimer: Futures and options trading involves a high level of risk, with the potential for substantial losses. The information provided in this newsletter is for informational purposes only and is not intended to be a trade recommendation. It is the responsibility of the reader to make their own investment decisions and they should seek the advice of a qualified securities professional before making any investments. The owners/authors of this newsletter are not certified as registered financial professionals or investment advisers.