ES Daily Plan | April 21, 2023

If the sellers manage to sustain the pattern of lower highs, their main objective is a traverse of the value area towards 4114/4098.

The buyers aim to regain 4163 to potentially challenge the two daily excess highs.

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Contextual Analysis

The overnight (ON) session was trading in a narrow range above the level of 4163 during the Asian hours. 4183 and 4163 were levels that I was closely observing, as discussed. When the European session opened, the market witnesses a decisive break of 4163, leading to VIX breaching its resistance level of 17.30. Bounces were being sold for the majority of the European hours as the VIX relied on the previously broken resistance level for support. However, as soon as regular trading hours (RTH) opened, the VIX dropped below the level of 17.30. I shared a tweet showing the double distribution that formed during the overnight session, emphasizing the significance of buyers regaining the 4163 level.

Pre-market tweet, emphasizing the significance of buyers regaining the 4163 level.

The RTH opening was virtually identical to that of yesterday, featuring true gap to the downside. Despite opening near the ON session's low, the sellers failed to establish immediate downward momentum, resulting in corrective activity and the gap being filled already in B-period. The market experienced a pullback before the gap was filled, but buyers were quick to respond, coinciding with the VIX's test of its resistance level at 17.30. Following the gap fill, the market was essentially consolidating in and out of yesterday’s range and we saw a test of 4163, which was rejected to the tick. Despite facing rejection initially, the buyers persisted and successfully breached the 4163 level, resulting in a remarkable surge in buying activity. This heavy buying effort was absorbed by passive sellers, causing the upward move to stall. Subsequently, aggressive sellers entered the market, creating a favorable scenario for short traders to capitalize on the trapped buying inventory. I posted a visual representation of this sequence on Twitter for reference. The ensuing reversal proved to be quite severe, resulting in a new daily low of 4137, only seven handles away from the last intraday downside target of 4130.

Short setup to play against trapped buying inventory.

Today's session was balanced, leaving unfinished business at both extremes. The sellers managed to form another lower high and lower low, successfully breaking the three day balance to the downside. This means that the daily is one time framing down, however, we are essentially right in the middle of the attached 15-day volume profile. Following Tuesday’s failure to maintain a directional move away from the main distribution of the multi-day balance area, the market has returned back to value. This type of responsive activity is commonly observed in the absence of initiative activity outside of value. If the sellers manage to sustain the pattern of lower highs, their primary objective is a traverse of the value area towards 4114/4098. The buyers aim to regain the immediate resistance level of 4163, which could potentially pave the way to challenge the two daily excess highs. It's crucial to stay nimble as we're currently positioned in the middle of both the short and medium-term value.

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

• Break and hold above 4163 would target 4183 / 4194

• Holding below 4163 would target 4146 / 4130 / 4114

Additionally, pay attention to the following VIX levels: 18.10 and 16.22. These levels can provide confirmation of strength or weakness.

• Break and hold above 4194 with VIX below 16.22 would confirm strength.

• Break and hold below 4114 with VIX above 18.10 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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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.