ES Daily Plan | August 16, 2023
Today's session had similarities to yesterday's...
…but in a reversed manner. Rather than a developing P-shape profile with an upside closing spike, today featured a b-shape profile marked by a downside closing move.
Contextual Analysis
Monday’s closing strength carried over into the overnight (ON) session, as prices were immediately explored above Monday’s highs, leading to a tag of the monthly VWAP. However, when the European session opened, the situation swiftly changed course. The market quickly traversed yesterday’s main distribution, leading to a test of the unfilled B-period single prints, which produced a bounce. Did you notice how this bounce found sellers within the important 4493/4487 area, leading to a downside continuation? The VIX breached its resistance level of 15.60 during the downside follow-through, which held particular significance today. The final downside target of 4471 was reached already in the ON session, which produced a bounce prior to the RTH open. It’s worth noting that I always book profits if the final downside or upside target is reached before the opening of the RTH session, regardless of whether the market continues its downside trajectory or not. This precaution is taken due to the increased risk of an inventory correction during the RTH session, particularly when the ON session has already covered significant ground. Today, the inventory correction started 30 minutes before the RTH open, with a positive delta of almost 9K.
The RTH session tested the 4493/4487 area immediately at open, offering a valuable opportunity to evaluate the state of the market. A failure to reclaim this area would quickly indicate that buyers from yesterday’s main distribution are in a rough spot. Price was rejected, and the VIX breached its resistance level once again, following a brief period below. The final downside target of 4471 was not only met but exceeded, resulting in a test of the 2DB low at 4459, which provided a bounce, making it a weak low (double bottom). The buyers were able to fill the B-period single prints and test the FS VWAP before sellers reentered the market. Did you notice how the VIX consistently stayed above its resistance level during this bounce, while simultaneously the ES top ticked at 4478, precisely coinciding with the VIX retesting 15.60? For a complete reversal, a VIX crush similar to that of yesterday was necessary. Holding below the final downside target (4471) with the VIX confirming weakness (>15.60), creates challenging circumstances for those considering dip buying, as dedicated followers of this newsletter are well aware. Eventually, the sellers managed to break the weak double bottom during the closing weakness, shifting the daily to one-time framing down again.
Today's session had similarities to yesterday's, but in a reversed manner. Rather than a developing P-shape profile with an upside closing spike, today featured a b-shape profile marked by a downside closing spike. I will use today’s breakdown point at 4461 to assess whether the sellers can display more proficient follow-through compared to yesterday's buyers. The sellers do have the short-term trend in their favor with both the daily and weekly one-time framing down. Nevertheless, I want to stress the importance of approaching this market on a day-by-day basis with an open perspective. We are consistently reminded not to become trapped in the price action of the previous day. It’s worth noting that today was the first close below the MA50 since the month of March. Don’t forget to check out the Weekly Plan, in case of continued weakness.
For tomorrow, the Smashlevel (Pivot) is 4461, representing today’s breakdown point. Break and hold above 4461, indicating a failed breakdown, would target 4471, where notable order flow activity has been observed in recent sessions. Break and hold above 4471 would target the important 4493/4487 area, where the short-term value is located. Holding below 4461, indicating continued weakness, would target the the naked volume point of control (NVPOC) from 7/10 at 4438, as well as the last downside target of 4419, representing the high volume node (HVN) from June. Additionally, a break of 4419.50 would put the monthly one-time framing up to an end.
Going into tomorrow's session, I will observe 4461.
Break and hold above 4461 would target 4471 / 4487 / 4493
Holding below 4461 would target 4438 / 4419
Additionally, pay attention to the following VIX levels: 17.28 and 15.64. These levels can provide confirmation of strength or weakness.
Break and hold above 4493 with VIX below 15.64 would confirm strength.
Break and hold below 4419 with VIX above 17.28 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.
Smash always a killa
Over VIX resistance level 15.60 was key for plenty of shorting opportunities. Way to go Smash