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ES Daily Plan | February 1, 2023
Responsive buyers entered the market as sellers failed to repeat the breakdown seen in the ON session. Tomorrow the FOMC will take place, which is always considered a market moving event. Stay alert!
Sellers defended Smashlevel 4042 during the Asian session, leading to price exploration below prior day’s low. Due to the amount of aggressive selling in yesterday’s lower half of the profile, sellers wanted to see a continuation to the downside sooner rather than later. A poor low was established at the 3 day balance low, resulting in a counter-move prior to the opening of the European session, for another test of 4042. The retest was firmly rejected, but unlike during the Asian hours, the sellers achieved follow-through to the downside. Holding below 4042 and the target was mainly the poor structure from 1/25, as outlined in the plan. Note how we came down and filled that poor structure, but the sellers were unable to fully fill it, which is bullish as stronger sellers wouldn’t have left these single prints unfilled. The inability to fill that area caused a substantial reversal back up to the "Battlefield" area and back inside the 3-day balance range.
The RTH session opened within the 3 day balance and sellers were unable to repeat the breakdown seen in the ON session. Trading at the lower end of a balance area without initiative sellers will always attract responsive buyers. The lower end of a balance area always serves as support until proven otherwise. The initial balance range was very tight and when B-period failed to gain any traction below the A-period low, aggressive buyers entered the market. The A-period had a negative delta of -4277, but that selling effort didn’t result in any downward momentum at the balance low. We got a range extension to the upside in C-period and from that point, the buyers were in control of the auction. Break and hold above 4042 and the target was a traverse of yesterday’s range, which was accomplished in L-period when the last intraday upside target 4075 was tagged. VIX wasn’t confirming the strength and we got a minor ~12 handle drop from 4075, but that pullback was quickly picked up by buyers. Above 4075, we were aware of the possibility for further short-covering and unsurprisingly, M-period spiked with a spike base at just 4075. In other words, a very mechanical session where sellers had control of 4042 during the ON session and managed to gain downside traction, but once 4042 was regained during the RTH session, the sellers evidently lost control.
The session ended with spike to the upside, as M-period made a new daily high. My observation will be on the spike base 4075. Trading within and above the spike (Acceptance) is a more favorable outcome for buyers, while trading below the spike (Rejection) is a more favorable outcome for sellers, since that negates the prices of the spike. Daily is still in a balance, and buyers main target will be the balance high and the 5 month balance high in case of a successful breakout of the daily balance. Sellers want to establish acceptance back within today’s value area for another attempt on the daily balance low, where we now have 3 daily lows close together. Tomorrow, FOMC will take place, which is always considered a market moving event. Stay nimble and preferable go flat 30 minutes prior. There will be plenty of opportunities for the rest of the week, so no need to get involved in the noise.
Going into tomorrow's session, I will observe 4075.
Holding above 4075 would target 4095 / 4110 / 4125 / 4141.
Break and hold below 4075 would target 4062 / 4042 / 4032.
Additionally, pay attention to the following VIX levels: 20.34 and 18.46. These levels can provide confirmation of strength or weakness.
Break and hold above 4141 with VIX below 18.46 would confirm strength.
Break and hold below 4032 with VIX above 20.34 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.
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