ES Daily Plan | January 27, 2023

Failure to establish acceptance back within prior day's range after filling today's gap resulted in slow upward grind. The session ended with spike that tested the weekly resistance.

The base of the spike is a key area to observe.

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Recap & Plan

Buyers were finally able to break above Smashlevel 4040 during the ON session, after initially consolidating below it for a couple of hours. During the European session, the market remained mostly above the 4040 level, except for a few failed attempts by sellers to push it back below. We previously discussed the possibility of traders placing stops above the resistance area and as we broke above 4050, we observed these stops being triggered. I shared a visual on Twitter of my footprint chart showing the stop-run for reference.

Smashelito @smashelito

$ES Stops triggered > 4050 #footprint

Smashelito @smashelito

$ES Trading is adapting. With market conditions constantly changing, one must be able to adjust accordingly. From a sell the rip night and morning to a vicious rally, and we end up back where we closed the previous day. Smashlevel: 4040 $VIX $SPY $SPX #ES_F #plan #smashlevels https://t.co/mv7Hk4VVwK

The RTH session opened with a substantial true gap up, but as the buyers were unable to maintain a break above the ON high after tagging the upside target 4068 (4068.25), it led to an inventory correction. The inventory correction provides valuable market generated information. If the gap is not filled or only partially filled, it indicates strength and can provide potential long opportunities. However, if the gap is filled, it's important to observe if acceptance can be established within prior day’s range, which would be the most bearish outcome. The gap was filled in A-period, almost to the tick, and the market then reversed to test the opening level of the RTH session, where buyers encountered selling activity. C and D-period were challenging as we saw a range extension to the downside, trading back within the prior day's range. The sell activity shut off, forming a poor low at prior day’s VPOC, resulting in trapped sellers who failed to establish acceptance within prior day’s range. We were basically one time framing up for the rest of the session after that failure by sellers. In summary, the outcome favored buyers, but it wasn’t the most bullish outcome, which would have been leaving the gap unfilled.

The session closed with a spike as the M-period reached a new daily high. Without any additional market generated information until the next day, it’s unknown if the higher prices of the spike will be accepted or rejected, so the spike base 4070 will be our main focus for the next session. Trading within and above the spike (Acceptance) is a more favorable outcome for buyers, while trading below the spike (Rejection) is a more favorable outcome for sellers. Daily is now one time framing up, as we broke the 3 day balance to the upside. We have very clear targets for both directions. In case of an upside continuation, we have the Weekly and Monthly Extreme highs as main targets. Failure to hold above 4070 would target a traverse of today’s value area for a test of 4042-4032, which I’ve marked as the “Battlefield”. Sellers most favorable outcome is to break and close below 4032, which would completely negate today’s attempt for a directional move to the upside. Buyers aren’t in any huge trouble as long as sellers fail to end the daily one time framing up and maintain a daily close below the last intraday downside target. Note that we are trading within the Weekly resistance area 4070-4105. The imbalanced profile from 1/23 has been resolved.

Tomorrow, pay attention to two additional VIX levels: 19.55 and 17.90. These levels can provide confirmation of strength or weakness. If we break and hold above 4125, a VIX below 17.90 would confirm strength. If we break and hold below 4032, a VIX above 19.55 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.

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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.

ES Weekly Plan | January 23-27, 2023

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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.
Twitter: @smashelito | FAQ: smashelito.com