ES Daily Plan | April 17, 2023

Friday’s session was all about cleaning up structure from Thursday's trend day. The profile displayed a b-shape, signaling long liquidation.

I'm observing the main distribution of the attached 11 day volume profile.

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Contextual Analysis

Friday’s overnight (ON) session was largely uneventful. The profile was perfectly balanced, with trading taking place at the upper end of Thursday’s multi-distribution trend day, which had six (!) sets of single prints. Consolidation following a trend day and a lack of interest in filling the poor structure below is a more bullish outcome. During the European session, one set of single prints was filled, while the following set encountered responsive buyers. The ON low of 4161.75 was just 7 ticks short of Friday's Smashlevel of 4160.

The RTH session opened at the lower end of the overnight range, and the market started to rally right out of the gate, stopping out the overnight sellers and breaching previous day’s poor high in the process. The presence of passive sellers around 4187 caused the aggressive buying to stall. The market buyers lacked the size necessary to push through the passive limit orders, resulting in absorption. However, absorption alone is not a sufficient signal to go short. Confirmation of the reversal requires the presence of aggressive sellers stepping in following the absorption. In Friday’s recap you could see how heavy aggressive sell activity stepped in following the absorption in B-period, with a negative delta of 15K. That is your short signal. The market was one time framing down intraday in a very slow and mechanical way during the AM-session. As a result, five of the six sets of single prints from Thursday’s session was cleaned up. During this weakness, the VIX was relatively flat, which means that late sellers should be cautious to not short in the hole, as the market was approaching the last intraday downside target of 4130. There was a notable divergence, with the market being 8 handles away from 4130, which you also could observe in Friday’s recap. The price was making lower lows, but the cumulative volume delta made higher lows, indicating downtrend exhaustion. This divergence was particularly interesting in the context of the VIX being flat and the market approaching the last downside target of 4130. It came as no surprise that we saw a decent bounce from that area in the PM-session.

Friday’s session was all about cleaning up structure from the previous session, which is healthy. The selling activity appeared to be mechanical, which is raising doubts about the strength of the sellers. Some might argue that if the sellers were stronger, they would have been able to fill the last set of single prints from Thursday. The profile displayed a b-shape, signaling long liquidation, with no excess at either extreme. My primary focus is on the main distribution of the attached 11-day volume profile (blue arrows). The buyers aim to gain acceptance above 4163, which may trigger an imbalance phase. On the other hand, the sellers aim to reject any activity above 4163, and target to end the daily one-time framing up, potentially leading to a full traverse of the main distribution.

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Going into tomorrow's session, I will observe 4163.

• Holding above 4163 would target 4173 / 4187 / 4208

• Break and hold below 4163 would target 4146 / 4130

Additionally, pay attention to the following VIX levels: 17.92 and 16.24. These levels can provide confirmation of strength or weakness.

• Break and hold above 4208 with VIX below 16.24 would confirm strength.

• Break and hold below 4130 with VIX above 17.92 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.

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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.

ES Weekly Plan | April 17-21, 2023

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