ES Daily Plan | January 23, 2024
While filling the gap isn't the strongest response from buyers, they continue to establish value higher, which is bullish in the context of Friday’s breakout.
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.
The upside momentum from Friday’s breakout carried over into today’s overnight session, as prices immediately began exploring levels above the Friday’s high. The initial upside target of 4886 stalled the upside momentum and played a pivotal role throughout today’s full session.
The RTH session opened with a true gap to the upside following the strength in the overnight session. With limited trading activity below the opening level (4885.75), buyers immediately breached the ONH (4890.50). This outcome is typically the most bullish when gapping higher, as we have discussed quite frequently over the last few weeks. The market pulled back, revisited the ONH, and attracted buyers for a continuation in the direction of the gap—a commonly observed setup. However, the main issue was that our final upside target was merely 10 handles above the ONH, situated at 4900, making the gap less attractive to chase—especially considering the location of the short-term value (5D VPOC) 100 handles lower at 4792. Having said that, several options were under consideration as a buyer. The first involved taking a long setup against the ONH and adjusting target expectations accordingly, given the proximity to the final upside target of 4900. The second option was to wait for a break and hold above 4900 (with VIX confirming strength), which could trigger a squeeze. The final option was to do nothing and wait for a failure above the ONH and the opening level, potentially opening the door for a gap-fill at 4874.25—a more favorable location for a long position with greater potential. The high of the session was marked at 4898.25, trapping a few chasers at 4895 where passive sellers absorbed a significant amount of activity. The initial balance formed a poor high, leading to a move away from that area, dropping back below the ONH and the opening level. The gap was filled in the H-period, providing a solid long setup for the patient buyer. However, as mentioned above, our 4886 level played a pivotal role as buyers struggled to reclaim it for the rest of the session.
Today’s session formed a b-shaped profile, ultimately filling today’s true gap up after the passive sellers absorbed the aggressive buyers during the initial balance. While filling the gap isn't the strongest response from buyers, they continue to establish value higher, which is bullish in the context of Friday’s breakout. The primary objective for sellers is to end the daily one-time framing up by breaking today’s low. This would target a traverse of Friday’s upper distribution, and if breached, open the door for fills of the poor breakout structure < 4860. Buyers aim to reclaim 4886, targeting an upside continuation, effectively cleaning up today’s poor high.
For tomorrow, the Smashlevel (Pivot) is 4886, representing today’s opening level. Break and hold above 4886 would target 4895, where passive sellers were active today. Acceptance above 4895 would open the door for an upside continuation towards the final upside target of 4913. Holding below 4886 would target the lower end of Friday’s upper distribution at 4860. Acceptance below 4860 would target fills of Friday’s poor structure towards the final downside target of 4845. The support area from 4845 to 4835 remains a crucial area for buyers to hold.
Levels of Interest
Going into tomorrow's session, I will observe 4886.
Holding above 4886 would target 4895 / 4913
Break and hold below 4886 would target 4860 / 4845
Additionally, pay attention to the following VIX levels: 13.82 and 12.56. These levels can provide confirmation of strength or weakness.
Break and hold above 4913 with VIX below 12.56 would confirm strength.
Break and hold below 4845 with VIX above 13.82 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.