ES Daily Plan | August 21, 2023

Contextually, not much changed after Friday's session. I will use Friday's closing spike base to assess the short-term strength or weakness.

The main objective for buyers is to break the pattern of lower highs on daily.

ES Daily Plan | August 21, 2023

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Contextual Analysis

Friday’s overnight (ON) session tested and rejected the prior Smashlevel of 4390, almost to the tick (ONH: 4390.25). The inability of buyers to reclaim the 4390 level indicated continued weakness, which was evident during the European session as the market explored lower prices. This downside pressure ultimately led to hitting the downside targets at 4373 and 4355 before the opening of the RTH session. Within the framework of Friday's plan, we assessed that a VIX level above 17.14 would validate a move below the Weekly Extreme Low of 4390, providing contextual confirmation of the overnight weakness.

The overnight weakness led the RTH session to open on a true gap to the downside. As always, if there is an early inability to break and sustain a move above the ONL, it can create opportunities to fade the market, targeting an inventory correction. This setup was contextually very interesting on Friday, given that the market opened 40 handles below the Weekly Extreme Low of 4390. A quick look below the ONL and fail prompted an inventory correction. Following the initial counter-trend activity, the sellers were unable to break below the opening level in B-period. As a result, the gap was eventually filled. During the PM session, the buyers defended the FS VWAP. It was interesting to witness the market retracing its decline below 4390 as the closing session unfolded. Another interesting nuance was that the VIX failed to break 17.14 during Friday’s closing spike, printing a low of exactly 17.14. The session closed back below 4390.

Contextually, not much changed after Friday’s session. The daily and weekly is one-time framing down, while the monthly has now returned to balance. The primary objective for buyers is to start establishing at least overlapping value, and obviously the main goal is to end the daily one-time framing down by breaching a previous day’s high. Achieving this would signal that the market is due for some two-sided activity, at least in the short-term. The short-term value (5D VPOC) has shifted from 4465 to 4425. Note the confluence with tomorrow’s final upside target.

For tomorrow, the Smashlevel (Pivot) is 4388, representing Friday’s spike base. Break and hold above 4388 would target fills of Thursday’s structure towards the 5% correction level at 4402, as well as the resistance area from 4415 to 4425. Take note of the low of July at 4419.50. The most bullish response would be a break and hold above 4425, which potentially triggers a short-covering rally. Holding below 4388, indicating continued weakness, would target 4373, as well as Friday’s opening level at 4354. In the event of further weakness, the final downside target is 4340.

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Going into tomorrow's session, I will observe 4388.

• Break and hold above 4388 would target 4402 / 4415 / 4425

• Holding below 4388 would target 4373 / 4354 / 4340

Additionally, pay attention to the following VIX levels: 18.24 and 16.36. These levels can provide confirmation of strength or weakness.

• Break and hold above 4425 with VIX below 16.36 would confirm strength.

• Break and hold below 4340 with VIX above 18.24 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.

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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.