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ES Daily Plan | February 14, 2023
Today's rally, driven by short-covering, formed a P-shape profile and cleaned up the poor structure from Thursday's session in the process.
As usual, the release of the CPI data tomorrow is expected to bring volatility.
The opening of the ON session was interesting as we opened above Friday’s RTH high of 4104.25. The sellers immediately gained downside traction after a large market order of ~500 lots hit the bid at 4105. The Asian session formed a “b-shape” profile, stopping out Friday’s late buyers, but there was limited additional selling pressure below Friday's value area. The European session opened above the main distribution of the "b-shape" profile and tested the Smashlevel of 4090 with a low of 4090.25. At the start of the European session, the VIX was trading above the resistance level of 21.60, but did overnight traders observe how the ES popped higher when the VIX dropped below 21.60? Additionally, the level served as resistance during the early pullbacks, leading to a pretty solid squeeze prior to RTH open.
The RTH session opened with a true gap up, which means that we opened completely outside of prior day’s range. As always, if the gap gets filled, it's important to observe if acceptance can be established within prior day’s range, which would be the most bearish outcome. Today, we could observe that there was very little interest trading within Friday’s range. Holding above 4090 increased the odds for some structural clean up of Thursday’s profile with 4125 as an upside magnet, as outlined in the previous plan. Today’s short-covering rally cleaned up that structure fairly quickly. Note the significant orderflow activity on the delta profile at the upside magnet of 4125. Our last intraday upside target of 4141 was reached already during D-period, but without the confirmation of VIX, which made it very tricky for late buyers (chasers). I will provide a separate chart on Substack to better illustrate this point. Sellers did put up a fight around that important level of 4141, which is the prior 5 month balance high, but buyers managed to get a daily close above it, which was noteworthy.
Today’s session formed a “P-shape” profile, indicative of short-covering, with two sets of single prints. On Thursday, the market witnessed an emotional session to the downside, and today saw the opposite to the upside. Carry forward today’s poor structure. The daily has returned to a state of balance before tomorrow's release of the CPI numbers. The short-term battlefield is the 4135-4125 area, which I will be observing closely. As long as the market remains above this area, I’m cautious with shorts due to the weak structure above and today’s profile which is imbalanced to the upside. Take note of Thursday's delta profile, as that session saw aggressive selling activity which was almost entirely retraced today. The main target for buyers is the high of the inside week, while sellers aim to target the weekly level of 4090. In the event that a more significant directional move occurs due to the CPI data, refer to the levels outlined in the Weekly Plan for guidance.
Going into tomorrow's session, I will observe 4135.
Holding above 4135 would target 4160 / 4175 / 4192
Break and hold below 4135 would target 4125 / 4109 / 4090
Additionally, pay attention to the following VIX levels: 21.40 and 19.28. These levels can provide confirmation of strength or weakness.
Break and hold above 4192 with VIX below 19.28 would confirm strength.
Break and hold below 4090 with VIX above 21.40 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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