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ES Daily Plan | February 8, 2023
Daily back to balance after a tumultuous session that had a mix of everything. The session ended with an imbalance between price and value.
I'm monitoring whether these higher prices will be accepted or rejected.
The ON session was fairly uneventful, trading within prior day’s relatively small range. During the Asian session, buyers briefly regained Smashlevel 4132, but the inability to breach prior day’s high of 4136.50 (ON high: 4136.25), resulted in some weakness. We discussed the potential for short-covering in case buyers were able to end the daily one time framing down. During the European session, buyers attempted to gain ground again, but their efforts were limited by the 4132 level.
The RTH session opened within prior day’s range and we saw a very tight initial balance range of around 12 handles. When initial balance ranges are relatively small, attempts at range extension often result in double distributions forming. A, B and C-period found responsive buyers within yesterday’s C-period excess, and we eventually got a range extension to the upside in D-period, forming single prints. As one would expect, price action became very volatile when Powell started talking. We saw an impulsive move to the upside in G-period that reached the last intraday upside target 4175 to the tick. Throughout the session, the VIX traded within the 20.40-18.45 range outlined in the previous plan and printed a low of 18.61 during the test of 4175. If you held a long position, it’s advisable to book profits at 4175 after a 35 handle move, regardless of the VIX, as the odds are high that such an emotional move will result in fills. The short-covering above the previous day's high went as expected, but it was obviously difficult to take advantage of it during Powell's speech. The upward move was retraced, leading to a new daily low, further filling the poor structure from 2/1. That poor structure continues to find responsive buyers due to the trapped sellers. As the new daily low was established, a significant passive buyer was observed at 4100, as indicated by the delta profile and the snapshot of the footprint to the right. That is a lot of selling effort that failed to push price lower, leading to a massive reversal.
Today's tumultuous session ended with an upward spike, as the M-period made a new daily high with a spike base at 4175. This will be my short-term level to observe. 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 as that negates the higher prices of the spike. The daily returns to a 3 day balance. If today's momentum can be sustained, the main target for buyers tomorrow will be the unfilled weekly gap at 4220. If the higher prices of the spike are rejected, the main target for sellers will be the yellow support area, where multiple confluences are stacked. That is an area to watch for any signs of buying activity should it be tested.
Going into tomorrow's session, I will observe 4175.
Break and hold above 4175 would target 4192 / 4208 / 4220.
Holding below 4175 would target 4160 / 4141 / 4131.
Additionally, pay attention to the following VIX levels: 19.60 and 17.72. These levels can provide confirmation of strength or weakness.
Break and hold above 4220 with VIX below 17.72 would confirm strength.
Break and hold below 4131 with VIX above 19.60 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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