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ES Daily Plan | January 31, 2023
Sellers stopped the pattern of higher highs and higher lows, bringing the daily back to a 3 day balance. The session ended within a crucial area. The 3 day balance low of interest short-term (Poor).
The ON session opened below the Smashlevel 4080 and buyers were unable to gain traction above it. Aggressive selling activity was observed at 4075 (shown by the large red bar on the delta profile). The passive buyers lost control of the 4075 level, and the next key level, Weekly Level 4070, saw activity for a few periods. Observe the single prints that formed when 4070 was breached. The last intraday downside target 4042 was tagged already during the ON session and provided a decent bounce. It's noteworthy that VIX remained above 19.45 throughout the session, indicating weakness. Despite the VIX confirming weakness, the bounce from 4042 was a beautiful long setup with absorption followed by aggressive buying. I will share a visual of my footprint chart on Substack for reference.
Orderflow is always my primary signal. In instances where VIX and ES are misaligned, like this, I proceed with caution and adjust my expectations accordingly, not anticipating a complete reversal. Today's reversal exceeded my expectations, reaching Smashlevel 4080 (4078) in RTH, yet VIX still remained above 19.45. Was that test of 4080 a good spot for potential short setups? Yes, according to my system that suggests not to expect a full reversal. Does this context reasoning make sense? Today's HOD was at 4078.
The RTH session opened with a true gap down, which was quickly filled due to the momentum from the 4042 reversal in the ON session. As previously noted, the reversal stopped two handles shy of Smashlevel 4080, based on orderflow observation, it was an area sellers were waiting for to sell. From that point on, sellers controlled the auction for the rest of the session, actively selling at every bounce. 4042 was also tested in RTH, offering several bounces but lacking follow-through (due to VIX). These repeated tests resulted in a poor low being formed, which was taken out into the closing session. The break of 4042 led to a test of 4032, which is the 5 day VPOC, or short-term value.
The session ended with a lower high and a lower low, which means that the daily one time framing up has ended, as prior day’s low was taken out. That brings the daily back to a 3 day balance. Note that the low of the balance from is poor (1/26). We closed out the session within the “Battlefield” area, which was “the obvious downside target” as outlined in previous plan, if sellers were able to end daily OTFU. Buyers want to defend this 4042-4032 area to target a traverse of today’s range. A break and hold above 4075 with a cooperative VIX can trigger short-covering. Note the amount of aggressive selling/passive buying at the lower half of today’s profile. Also, note the activity around 4030 on the snapshot of the DOM to the right from the closing minutes. Sellers want to see a continuation to the downside by breaking the 3 day balance low, which would target fills of the poor structure from 1/25. In the event of further weakness, we have the Weekly Extreme Low at 3975. The 20 day VPOC shifted from 4013 to 4030.
Going into tomorrow's session, I will observe 4042.
Break and hold above 4042 would target 4057 / 4075.
Holding below 4042 would target 4032 / 4016 / 3995.
Additionally, pay attention to the following VIX levels: 20.97 and 18.91. These levels can provide confirmation of strength or weakness.
Break and hold above 4075 with VIX below 18.91 would confirm strength.
Break and hold below 3995 with VIX above 20.97 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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