ES Daily Plan | February 1, 2024
I will closely monitor the behavior around the 4876 level to gauge whether the market is interested in filling the low volume area or not.
For new followers, the yellow levels highlighted at the bottom 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.
Weakness already started developing yesterday after-hours, as buyers lost control of the breakout single prints at 4933. a key area to observe today, as discussed. Why was it a key area? Because established acceptance within Monday’s lower distribution below 4933 would negate the breakout from the 3-day composite (3DC), potentially triggering further weakness.
The RTH session opened with a true gap to the downside, and as usual, the opening level and the overnight low are key references to monitor early in the session. With the overnight inventory being 100% net short, the expected behavior is a counter-auction, and failure to see that would signal weakness in the market. The initial 4-handle bounce was quickly sold, as sellers pushed below both the opening level and overnight low within the first 15 minutes of the RTH, resulting in reaching our final downside target of 4917 in the A-period. Note how the A-period was rejected from the upper end of Monday’s lower distribution. The downside pressure momentarily stalled at 4917, with the VIX hovering around its resistance level of 13.92, making it a favorable situation to do nothing. If the market bounces, reclaims the opening level, and the VIX retreats from its resistance, opportunities to work longs may arise. Conversely, if the market breaks below 4917, and VIX breaks its resistance level of 13.92, confirming weakness, it suggests that seeking reversals is not recommended, as regular readers are aware. This latter scenario unfolded, and it became evident how buyers chasing bounces consistently encountered selling activity throughout the entire session leading up to the FOMC meeting. During the FOMC, as is typical, the market experienced volatility, which is why I take a step back and allow other traders handle the price discovery process.
Today’s session formed a double distribution profile, marked by a set of single prints in the L-period, and the true gap down was left unfilled. Sellers accomplished a lot today, bringing both the daily and weekly back to balance, holding a gap, forming a trend day, and traversing the previous week’s range—actually closing below it. However, we have now reached the pretty significant low volume area. Having said that, this location is not the most optimal for shorting, as it is where sellers are trapped from the breakout on Friday the 19th. The most favorable scenario for sellers is to establish acceptance within the highlighted distribution on the composite profile (<4835). I will closely monitor the behavior around the 4876 level to gauge whether the market is interested in filling the low volume area or not.
For tomorrow, the Smashlevel (Pivot) is 4876, representing today’s M-period spike base. Break and hold above 4876, indicating rejection, would target the resistance area from 4896, representing the breakdown single prints, to the final upside target of 4906. Note how this resistance area coincides with the lower end of the 3DC. Holding below 4876, indicating acceptance, would target the lower end of Friday’s upper distribution (1/19) at 4860. Acceptance below 4860 would target fills of the poor breakout structure toward 4845 to the Weekly Extreme Low of 4835. As mentioned above, as the price approaches 4835, chasing shorts becomes less favorable. It's only through acceptance below 4835 that further potential weakness could be unlocked.
Levels of Interest
Going into tomorrow's session, I will observe 4876.
Break and hold above 4876 would target 4896 / 4906
Holding below 4876 would target 4860 / 4845 / 4835
Additionally, pay attention to the following VIX levels: 14.98 and 13.72. These levels can provide confirmation of strength or weakness.
Break and hold above 4906 with VIX below 13.72 would confirm strength.
Break and hold below 4835 with VIX above 14.98 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.