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ES Daily Plan | August 4, 2023
Sellers maintain short-term control as the pattern of lower highs and lower lows continues.
The primary objective for buyers is to end the daily one-time framing down, potentially triggering short-covering. NFP tomorrow.
During the initial phase of the overnight (ON) session, the market pushed higher, leading to a test of the Smashlevel of 4548, which was an important level for sellers hold to maintain short-term control, as discussed. Sell activity emerged at 4547.50, marking the high of the full session. From that point, the sellers took control of the auction, resulting in a flush before the European market opened, effectively breaking both yesterday's unfinished low and the Weekly Extreme Low of 4525. The VIX opened above its resistance level of 16.82, contributing to the downside pressure. In the previous plan, I highlighted the challenge of trading near the Weekly Extreme Low of 4525, suggesting that it’s not the most ideal location to initiate new shorts from a weekly perspective, especially considering the prevailing upward trend. Considering the context, booking profits was a reasonable decision, if short, particularly when being only 10 handles away from reaching the last downside target in the overnight session (ON low: 4510.25). I'm simply sharing my thought process regarding my levels, as there is no definitive right or wrong approach.
The RTH session opened with a true gap to the downside, making it even more challenging than the ON session. With the short-term value situated approximately 100 handles higher at 4605 and opening below 4525, does a gap and go scenario appear as an attractive opportunity? Only if there is zero corrective activity and the market breaks and holds below the ON low immediately. But even than, the last downside target is not too far away, making it less appealing overall. Context is key. Take note of the big red bar on the delta profile at 4509. That is a lot of selling effort, but sellers failed to hold below the ON low on several occasions, resulting in counter moves. The most significant bounce came when C-period failed below the initial balance, which ultimately filled the gap, and tested yesterday’s VPOC. The most bullish outcome from a true gap to the downside is established acceptance within the previous day’s range, which the buyers ultimately failed with, as they were unable to migrate the VPOC higher. Additionally, the value was cleanly lower compared to the previous day. As a result, weakness emerged into the closing session, and sellers got the daily close below 4525.
Today’s session was balanced, with unfinished business at both extremes. The sellers maintain short-term control, aiming for a weekly close below 4525, which would be an indication of change. The sellers have an additional objective to shift the short-term value (5D VPOC) lower, given that it currently remains at 4605. The primary objective for buyers is to end the daily one-time framing down, by breaking 4540.50, which can potentially trigger a short-covering rally, aiming for fills of the yesterday’s thin profile above 4548. NFP tomorrow.
Going into tomorrow's session, I will observe 4525.
Break and hold above 4525 would target 4535 / 4548 / 4565
Holding below 4525 would target 4509 / 4498 / 4478
Additionally, pay attention to the following VIX levels: 16.88 and 14.96. These levels can provide confirmation of strength or weakness.
Break and hold above 4565 with VIX below 14.96 would confirm strength.
Break and hold below 4478 with VIX above 16.88 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.