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ES Daily Plan | January 24, 2023
Another trend day today as there was no interest in filling Friday's poor structure, however, the closing session was different.
Buyers aim to negate today's selling impulse while sellers want a look above and fail.
Recap & Plan
During the ON session, we saw consolidation within Friday's upper distribution, indicating a bullish sentiment as there was no interest in any fills of the poor structure from Friday's trend day. Carry forward those fills. In the absence of interest in fills, the main target was the other side of the 5 day balance, which was aligned with the last intraday upside target 4031.
The RTH session opened with a small true gap up and we saw a short-lived inventory correction, as we tested the upper distribution from Friday, which was clearly rejected. A full traverse of the prior 5 day balance was completed already in C-period and the poor structure carried forward from the 1/18 session was cleaned up in the process. The last intraday upside target 4031 was tagged and exceeded, with a non-cooperative VIX, suggesting caution with initiating new longs. This scenario was quite similar to what we observed on Friday's session. Furthermore, today's caution was amplified by the fact that we had a trend day on Friday and with two consecutive trend days, the level of caution was heightened. We reached the next level of 4045, which is a previous untagged Weekly Extreme level, where we consolidated and formed a distribution. At that point, there were three single prints below and the VIX, as previously mentioned, didn’t confirm the strength. On Friday, we continued to progress despite the absence of confirmation, however, today was different. We had a couple of quick liquidation breaks trading above 4031, indicating that late longs at poor location were being stopped out. Those quick drops got picked up by dip buyers, indicating that despite a non-cooperative VIX, buyers were active, which means that counter-trend trades had limited potential. These are the situations where one must be patient, longs were risky and shorts had no confirmation. Always remember, not trading is also a position. This is why I typically avoid engaging much outside of the yellow levels, as it is challenging for both buyers and sellers. During the I-period, we broke out of that consolidation, a move that drew in more buyers at an even less favorable location, and when that impulse move got quickly rejected, late buyers got heavily punished. On Friday, I missed out on a good move, but today I avoided a solid flush. This highlights the importance of understanding context to know when it’s not favorable to initiate trades. The yellow intraday targets and VIX levels are a useful tool that I share to help you with that. It’s important to avoid trading emotionally and without understanding the context. It’s likely that traders who missed Friday's move were the same ones who chased today's market.
We ended up with an imbalanced profile to the upside, with a close at the high of the prior 5 day balance. Two out of the three single prints were filled on that closing weakness. Daily is now one time framing up. For an upside continuation, buyers need to negate today's selling impulse that began in the J-period, which means that buyers need to establish acceptance above the prior 5 day balance area. If this isn’t achieved, it will attract a test of 4018, where buyers were present during that drop. A break and hold below 4018 opens up the possibility of cleaning up the poor structure below. Keep in mind that buyers are in short-term control as long as the daily OTFU stays intact.
Tomorrow, pay attention to two additional VIX levels: 20.75 and 18.85. These levels can provide confirmation of strength or weakness. If we break and hold above 4084, a VIX below 18.85 would confirm strength. If we break and hold below 3996, a VIX above 20.75 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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