ES Daily Plan | August 6, 2024
My preparations and expectations for the upcoming session.
For new followers: The yellow levels highlighted at the bottom left of the chart are the primary levels that I focus on intraday. My strategy for preventing impulsive decisions at unfavorable locations involves following a simple yet effective rule of exercising caution when initiating trades outside of the yellow levels. This implies that I am cautious chasing longs above the final yellow upside target and shorts below the final yellow downside target. It is crucial to understand that refraining from chasing a trade is not an automatic invitation to initiate a trade in the opposite direction.
Visual Representation
Contextual Analysis
As mentioned in the pre-open post on X (Link), a significant move unfolded overnight. Buyers failed to capitalize on the initial look below and fail of Friday’s low after testing support. The subsequent bounce was rejected at 5346, a level marked as ”intraday bearish below.” Both intraday and weekly downside targets were tagged and exceeded overnight, underscoring the market's highly emotional state. Make no mistake, this type of price action is very difficult to navigate, and as mentioned, it can be wise to sit on the sidelines and observe until the market stabilizes. At least reduce your trading size.
As mentioned in the Weekly Plan, the downside risk was a test of the 10% correction level at 5149, which was tagged and briefly exceeded overnight, but held during the RTH session (LOD: 5146). I certainly didn’t expect 5149 to be tagged so quickly. In the previous plan, we discussed how the market had moved significantly away from key value references (5D and 20D VPOC). Today’s true gap down, a weekly gap (5331.75), further increased this distance, adding complexity to the situation. This is not an attractive location to initiate new shorts. Note how buyers managed to regain the Weekly Extreme Low of 5215 by the close. It’s worth noting that the old weekly gap at 5166.75 was filled today. Weekly gaps are quite uncommon and typically not sustained, but when they are, they often hold for an extended period.
Friday’s true gap down was followed by another true gap to the downside today, a weekly gap (5331.75), after significant overnight activity. The downside risk outlined in the Weekly Plan was the 10% correction level at 5149, which was exceeded overnight but held during regular trading hours. Today's session formed a large excess low and closed back within the weekly support area, which now needs to hold to potentially trigger a short-covering bounce.
In terms of levels, the Smashlevel is at 5215, representing the Weekly Extreme Low. Holding above this level would target the resistance area from 5245 to 5255 (currently regained), with a final target at 5285 under sustained buying pressure. Failure to hold above 5215 would target a retest of today’s excess low from 5189 to the 10% correction level at 5149.
Levels of Interest
Going into tomorrow's session, I will closely observe the behavior around 5215.
Holding above 5215 would target 5245 / 5255 / 5285
Break and hold below 5215 would target 5189 / 5149
Additionally, pay attention to the following VIX levels: 42.14 and 35.02. These levels can provide confirmation of strength or weakness.
Break and hold above 5285 with VIX below 35.02 would confirm strength.
Break and hold below 5149 with VIX above 42.14 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.
Weekly Plan
Make sure to review the Weekly Plan, which provides a broader perspective and highlights key levels of interest to observe in the upcoming 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.
Thanks Smash! Sellers in control, but it's extremely extended to the downside!
Hi Smash! What's the difference between the daily and weekly gap? Not sure what that reference means in your newsletter. Thank you for your analysis as always.