ES Daily Plan | August 3, 2023
The weekly has returned to balance, and the daily is one-time framing down, as sellers experienced their first meaningful downside traction in a while.
I'm observing today's afternoon rally high in the short-term.
Contextual Analysis
The ON session opened with a true gap to the downside due to news-related events, resulting in an immediate test of the highlighted support area from prior daily plan, where the last downside target of 4575 was located. As traders, it's important to focus on the market's response to news rather than the news itself. The order flow activity always unveils the story. The test of 4575 provided bounce, and 4595 was the level buyers wanted to reclaim, as discussed in the Substack comment section. Sell activity emerged at 4593.25, which ended up being the ON high. The sellers breached 4575 after the European open, with the VIX opening well above its resistance level of 14.58, confirming weakness. Subsequently, this led to a further drop of 20 handles, testing the 4D balance low of 4553.75, which provided a long setup. On Twitter, I posted a recap of this sequence that you can find here. Furthermore, I shared a quick replay of the sequence, providing a better view of the absorption, which you can check out here. Additionally, I will publish a recap on Substack, analyzing today's correlation between ES and the VIX levels, discussing my thought process.
The overnight weakness led the RTH session to open on a true gap to the downside (below 4575), and there was minimal corrective activity after the open, indicating a sign of weakness. As regular readers of this newsletter are aware, if the market breaks and holds below the last downside target (4575), and the VIX confirms the weakness by maintaining above its resistance (14.58), I usually avoid fading due to the potential for further weakness. It's a simple yet powerful rule, which keeps me out of trouble. The B-period was significant, as it breached the previous week’s low and put the weekly one-time framing up to an end, which is an indication of change. The C-period failed to fill the single prints from the B-period, leading to a downside continuation, aligning with the "potential for further weakness" thesis. The market ended up dropping ~50 handles below 4575, falling 3 handles short of the Weekly Extreme Low of 4525 from the Weekly Plan, published Saturday. From a weekly perspective, this area should always be considered for booking profits, if short.
The daily is one-time framing down, following the breach of the prior 4D balance low, and the weekly is back to balance, as discussed. Today’s session formed a b-shape profile with unfinished business at the lows. Trading this close to the Weekly Extreme Low of 4525 is always tricky, particularly when the prevailing trend has been to the upside, so caution is necessary. The short and medium-term value remains at 4605, which will act as an upside magnet in the absence of a downside follow through. The market is essentially trading between two high volume nodes at the moment. I will provide a composite profile to highlight this point further on Substack.
Today's session offered plenty of interesting nuances, but I'll wrap up my observations here. Review the notes on the chart.
For tomorrow, the Smashlevel (Pivot) is 4548, representing today’s afternoon rally high, coinciding with MA20. Break and hold above 4548 would target the resistance area from 4565 to the last upside target of 4575, which is a potential reload area for sellers. Holding below 4548, indicating that sellers maintain short-term control, would target the Weekly Extreme Low of 4525. Break and hold below 4525, which would signify another indication of change, would target 4516, as well as the last downside target of 4498, representing the high of the prior 4W balance.
Going into tomorrow's session, I will observe 4548.
Break and hold above 4548 would target 4565 / 4575
Holding below 4548 would target 4525 / 4516 / 4498
Additionally, pay attention to the following VIX levels: 16.82 and 15.36. These levels can provide confirmation of strength or weakness.
Break and hold above 4575 with VIX below 15.36 would confirm strength.
Break and hold below 4498 with VIX above 16.82 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.
Additionally, the afternoon rally high is weak against today's RTH halfback, implying that stronger buyers should have no difficulty breaking it. Failure to break and sustain above it = lack of stronger buyers from today's session.
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