ES Daily Plan | January 3, 2024

The daily is one-time framing down following the break from the 4-day balance area. More significantly, the break of the previous week’s low marks the end of the weekly one-time framing up.

Visual Representation

ES Daily Plan | January 3, 2024

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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.

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Contextual Analysis

Our main focus during today's session was the double distribution profile observed on Friday, with a specific focus on the upper end of the lower distribution at 4823. Sellers managed to defend it on multiple occasions during the ASIA session, with buyers then making an attempt to break through at the opening of the EURO session. However, this attempt faced strong rejection, resulting in notable downside pressure and effectively clearing all intraday downside targets to 4788 before the opening of RTH.

The overnight weakness led the RTH session to open on a true gap to the downside. A “true” gap occurs when the RTH session opens completely outside of the previous day’s range, in this case below Friday’s session. Two crucial references for sellers when gapping lower are the ON low and the opening level. Generally, maintaining below these reference establishes a challenging environment for buyers. Another nuance to consider was the we opened below the final downside target of 4788, with VIX confirming weakness by holding above its resistance level of 13.04. I generally stay away from fading during such scenarios, as there is potential for further weakness.

Despite some heavy buying activity pre-open at 4785, buyers couldn't regain the 4788 level in the initial upside push, facing strong rejection. During the initial balance (first hour of RTH), a battle was unfolded, with buyers fighting to regain 4788 and sellers trying to establish acceptance below the important ON low for a potential downside continuation. When the C-period failed below the initial balance low, forming a poor low, short-covering started to kick in, evident from the observable change in pace. The critical aspect of this 30-handle rally was solely whether buyers could sustain above 4788 and start gaining traction within Friday's range. The gap-fill encountered selling activity with buyers losing 4788 once again, ultimately resulting in a new intraday low. Throughout the session, the VIX remained above its resistance level. Note how we have reached the highlighted high volume node (HVN) at 4767, situated 21 handles below 4788.

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The daily is one-time framing down following the break from the 4-day balance area. More significantly, the break of the previous week’s low marks the end of the weekly one-time framing up—a crucial development, especially considering the sequence of nine consecutive higher lows on the weekly chart. Although this doesn't necessarily imply a profound correction is underway, it highlights that sellers are experiencing a level of success not seen since the swing low in late October. Our focus now is to monitor whether sellers are able to maintain downside pressure.

I will use the previous week’s low at 4796, as a short-term reference point to assess the potential for additional downside pressure by sellers. Buyers aim to reestablish acceptance within the previous week’s range, suggesting that we are dealing with weak sellers.

For tomorrow, the Smashlevel (Pivot) is 4796, representing the previous week’s low. Break and hold above 4796 would target the prior ATH at 4808.25, as well the final upside target of 4823, completing a full traverse of Friday’s lower distribution. Holding below 4796, indicating potential for further weakness, would target today’s halfback at 4781, as well as a retest of the HVN at 4767, where late sellers got trapped. In the case of continued weakness, the final downside target is at 4750, the bottom of the prior 7-day balance area.

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Levels of Interest

Going into tomorrow's session, I will observe 4796.

• Break and hold above 4796 would target 4808 / 4823

• Holding below 4796 would target 4781 / 4767 / 4750

Additionally, pay attention to the following VIX levels: 13.82 and 12.58. These levels can provide confirmation of strength or weakness.

• Break and hold above 4823 with VIX below 12.58 would confirm strength.

• Break and hold below 4750 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.

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Weekly Plan

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 2-5, 2024

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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.