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ES Daily Plan | January 25, 2023
The market finished the day with an inside day, where the value remained unchanged. There is unfinished business at both extremes, which is what I'm observing. All levels remain the same.
Recap & Plan
The market took a breather today after two consecutive trend days. During the Asian session, trading was relatively calm and remained within a narrow range for several hours. Later on, there was an impulse move to the upside, testing the Smashlevel 4040, which was a level of significant activity in terms of order flow the previous day. Note the exhaustion on the Footprint chart to the right of that attempt. Following the exhaustion observed on the Footprint chart, we dropped around ~30 handles from the 4040 level, and filled the single prints of the prior day's B-period in the process before the opening of RTH.
The RTH session opened exactly at 4018, which is a level marked on our chart. Market participants demonstrated low confidence as we were trading in and out through the open the entire initial balance. The single prints of the previous day's B-period were also cleaned up during RTH. During the A-period, sellers attempted to establish control below 4018 with a delta of -3141, which could have resulted in further weakness. However, this move was quickly rejected by the aggressive buyers in B-period. C, D and E-period formed a poor high, which prompted a liquidation break in F-period. As the market had two trend days behind it, traders were caught chasing prices today, resulting in multiple liquidation breaks. However, buyers, being in short-term control, were able to capitalize on every drop and picked it back up. With daily one time framing up, that’s shouldn't be surprising. The poor high that had been established was eventually cleaned up when I-period popped and retested the 4040 level in the process. We observed a significant buying effort during that impulse move, which stalled and was met by aggressive selling activity to take it down again. I posted a visual of this sequence on Twitter for reference. 4040 was eventually retested after buyers once again were active on the brief liquidation break, but sellers defended again. During this second test, the VIX was testing its support level of 18.85 (Low of the Day: 18.91), which held and prompted another downward move.
The market finished the day with an inside day, where the value remained unchanged, and there is unfinished business at both extremes. The after-hours cleaned up the poor high that had developed following the earnings report from Microsoft (MSFT). The general rule with inside days is to go with the breakout of balance. Break to the upside (Look above and go), you want to be a buyer. Break to the downside (Look below and go), you want to be a seller. Monitor for continuation (Acceptance) or lack of. Lack of continuation (Failed breakout / Look above/below and fail), you want to fade and target other side of balance. A break to the upside will target a clean up of prior day’s imbalanced profile to the upside, while a break to the downside will target fills of prior day’s excess and the poor structure from 1/20 in the event of further weakness. All levels remain the same.
Tomorrow, pay attention to two additional VIX levels: 20.05 and 18.30. These levels can provide confirmation of strength or weakness. If we break and hold above 4084, a VIX below 18.30 would confirm strength. If we break and hold below 3996, a VIX above 20.05 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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