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ES Daily Plan | January 20, 2023
Immediate follow through to the downside following yesterday's close at lows. The important level 3910 was tested and held.
Sellers in short-term control as long as today's gap remains unfilled. Daily OTFD.
Recap & Plan
Sellers wanted a fairly quick follow through to the downside following yesterday's close at lows and they got it. During the Asian session, we immediately saw prices drop below the previous day's low and sellers were actively defending against prices returning within the previous day's range for the rest of the Asian session. This rejection continued at the opening of the European session. As outlined in previous plan, sellers target in case of a downside continuation was a traverse of the 1/10 range for a test of the Weekly Extreme Low 3910, which played a significant role throughout today's session. 3910 was tested before the opening of the RTH and it provided a solid bounce, but VIX was trading above 21.34, meaning we had confirmation of weakness. This suggests that you want to be cautious chasing the bounce as potential short setups may be relevant at higher prices. It's worth noting that the 3910 level was shared in the Weekly Plan that was published on Saturday. That bounce ended up failing.
The RTH session opened with a true gap down, and the momentum from the ON bounce off 3910 persisted for the first few minutes before meeting resistance from sellers. VIX did get below 21.34 during the initial balance, but once back above, new lows were set during the C-period. Once again, 3910 was tested with VIX confirming weakness, making it a challenging environment for potential significant reversals. We saw a few bounces from 3910, but buyers were unable to sustain them on every attempt. E-period low was 3901.75, 7 ticks shy of the last intraday downside target 3900, which provided a bounce. The noteworthy aspect of that impulse move was that the VIX dropped below 21.34, which made a potential pullback on that impulse move an attractive opportunity for a long setup. I discussed this possibility with a friend of mine, and the condition for a long setup was that the VIX remained below 21.34 during the pullback. I will share a recap on Substack of the correlation between ES and VIX in order to demonstrate my thought process utilizing the levels from my previous plan which may be beneficial for new followers. Speaking of followers, thanks for 20K on Twitter, it's much appreciated. We observed a substantial reversal that led to new highs. Prior to the reversal, the VWAP had been tested repeatedly, indicating that it was not a heavily trending downward day. This nuance, along with the key levels of 3910 and 3900, were important indicators to be aware of, as they warned against shorting in the hole, even though the session was controlled by sellers holding the gap. The inability of buyers to fill the gap resulted in liquidation during the closing session.
We end up with a balanced profile with value migrating cleanly lower. Despite a strong reversal of the support area, the gap remains unfilled and daily is one time framing down. As long as the gap remains unfilled, sellers are in short-term control. Note the MA50. Filling the gap and establishing acceptance within the prior 5 day balance have potential for short-covering. I’m keeping it very simple by observing 3932 and 3910.
Tomorrow, pay attention to two additional VIX levels: 21.57 and 19.47. These levels can provide confirmation of strength or weakness. If we break and hold above 3956, a VIX below 19.47 would confirm strength. If we break and hold below 3875, a VIX above 21.57 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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