ES Daily Plan | January 17, 2024
In a broader perspective, the market remains in a state of balance. In the short-term, I will monitor today’s afternoon rally high at 4801, considered weak.
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.
On Monday’s shortened session, we tested and rejected the Smashlevel of 4824, with an ON high printing at 4823, leading to some weakness. The weakness carried over into today’s overnight session, resulting in a test of the support area ranging from 4793 to 4783, which was the downside target in the case of a failure to reclaim 4824. The ON low printed at 4785.25, and a decent bounce followed. The VIX was trading above its resistance level of 13.26 throughout the session, and my typical approach when dealing with an elevated VIX is to exercise caution with chasing bounces, as the final downside target (4783) can act as a magnet. Keep in mind that only when the market is holding, in today’s case, below 4783, looking for reversals is not recommended, as there is potential for further weakness. Today, 4783 provided multiple solid bounces despite an elevated VIX due to sellers’ inability to hold below 4783.
The RTH session immediately retraced the overnight bounce, looked below the ON low of 4785.25, and failed. This downside continuation failure triggered a 30-handle squeeze. This was the type of bounce that is tricky to chase with an elevated VIX, and aggressive buyers at 4810 and 4815 quickly ran into trouble. Despite a 30-handle rally, the VIX remained above its resistance, which was an interesting outcome. The AM rally was retraced in the PM session, revisiting the 4783 level once more. This was sellers‘ chance to establish a trend day to the downside, but they were unsuccessful in holding below 4783—triggering another rotation. Responsive activity of this nature is frequently observed in a balanced market, emphasizing the importance of staying nimble and refraining from making predictions about how this balance will ultimately unfold.
In a broader perspective, the market remains in a state of balance, characterized by two-sided activity as it awaits additional market-generated information in preparation for a potential directional move. As always, the longer a consolidation phase lasts, the more significant the move out of it tends to be. On the chart, I’ve merged the daily profiles, highlighting the current 4-week balance area. In the short-term, I will monitor today’s afternoon rally high at 4801, considered weak.
The general guideline suggests going with the break of the highlighted balance area and observing for continuation (Acceptance) or lack thereof (Rejection). If there's a lack of continuation following a breakout attempt, it can trigger moves in the opposite direction. Remaining within the current multi-week balance area increases the odds of sustained responsive activity, emphasizing the importance of staying nimble.
For tomorrow, the Smashlevel (Pivot) is 4801, representing today’s afternoon rally high, which is weak. Break and hold above 4801 would target the resistance area from 4814 to 4824. Acceptance above 4824 would open the door for a test of the current all-time high (ATH) from the regular trading hours and overnight session at 4839.75 and 4841.50, respectively. Holding below 4801 would target a retest of today’s excess low at 4781, coinciding with the Monthly VWAP. Acceptance below 4781 would target the final downside target of 4767—a high volume node (HVN).
Levels of Interest
Going into tomorrow's session, I will observe 4801.
Break and hold above 4801 would target 4814 / 4824 / 4841
Holding below 4801 would target 4781 / 4767
Additionally, pay attention to the following VIX levels: 14.44 and 13.22. These levels can provide confirmation of strength or weakness.
Break and hold above 4841 with VIX below 13.22 would confirm strength.
Break and hold below 4767 with VIX above 14.44 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.