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ES Daily Plan | August 9, 2023
The closing strength observed in yesterday's session was immediately retraced overnight. Will history repeat itself, or will buyers be able to sustain their momentum?
Day by day navigation remains paramount. Yesterday’s closing strength was immediately retraced during the overnight (ON) session, as sellers were quick to take out 4536, forming single prints exactly at 4536. The next downside level of interest at 4520 was reached during the opening of the European session, leading to a temporary stall in the price action. The continued downward pressure was fueled by the VIX breaking through its resistance at 16.68, ultimately leading to the achievement of the last downside target of 4498 before the RTH session had even opened.
The test of 4498 produced a bounce, which sellers immediately sold at the start of the RTH session. The A-period breached 4498, having a negative delta of 10K, which is relatively extreme. With the VIX confirming weakness holding above 16.68, it’s always a little tricky to initiate counter trend trades if the market holds below the last downside target, 4498 in today’s case. In these situations, I avoid longs, unless the market reclaims 4498, which is a safer option. If I’m short below 4498 (due to the VIX weakness), I need to adjust my target expectations accordingly. Another option that always exists is to simply do nothing when the last targets have been achieved. The B-period retested 4498 from below, where sellers emerged, leading to a downside continuation. The downside momentum stalled slightly above the unfilled gap at 4478.50, as the aggressive sellers started encountering difficulties in gaining traction. Note the big red delta bars on the profile at today’s lows. This struggle served as a real-time signal for a potential exit, if you were a seller below 4498. Despite solid effort, the gap was unable to get filled. In hindsight, this absorption actually offered a promising long setup. However, it wasn't in line with my preferences, as I had previously mentioned the importance of witnessing the reclamation of 4498 first. The level of 4498 was later reclaimed, leading to another closing squeeze similar to yesterday's.
Despite a strong reversal today, the daily and weekly are now one-time framing down, following the breach of Friday’s low. Today’s value is cleanly lower, with the most traded price by volume at today’s lows, signaling an imbalance between price and value. I will use the level of 4508 as a short-term reference point to gauge strength/weakness.
For tomorrow, the Smashlevel (Pivot) is 4508, representing the level where initiative buyers entered to make new intraday highs. Holding above 4508 would target 4536, as well as the last upside target of 4553, representing the level that ended the weekly OTFU. Break and hold below 4508 would target the prior multi-week balance high at 4498, as well as the last downside target of 4478.50, representing the unfilled gap.
Going into tomorrow's session, I will observe 4508.
Holding above 4508 would target 4536 / 4553
Break and hold below 4508 would target 4498 / 4478
Additionally, pay attention to the following VIX levels: 16.86 and 15.12. These levels can provide confirmation of strength or weakness.
Break and hold above 4553 with VIX below 15.12 would confirm strength.
Break and hold below 4478 with VIX above 16.86 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.