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ES Daily Plan | July 12, 2023
Today's session ended with an upward spike, effectively cleaning up Friday’s poor high in the process. As usual, the release of the CPI data tomorrow is expected to bring volatility - stay nimble.
The previous session ended with a close above the value area, and the overnight (ON) session today showed no inclination to revisit the value area, except for a brief period of weakness after the European session open. The overnight strength led the RTH session to open on a true gap to the upside, indicating that the session opened completely outside of the previous day's range.
You know the drill when dealing with true gaps. If there is an early inability to break and sustain a move above the ON High (true gap up), it can create opportunities to fade the market, targeting an inventory correction. The market-generated information provided by the inventory correction is highly valuable. An unfilled or partially filled gap signifies strength and may present potential long opportunities. In contrast, if the gap is filled, it's crucial to monitor whether acceptance can be established within the prior day's range, as this would be the most bearish outcome. Today, a quick look above the ON high and fail prompted an inventory correction. The gap was filled already in the A-period, however, note the lack of interest of trading within the previous day’s range (and value area). This is obviously easy to point out in hindsight, but traders who closely monitored the order flow activity in real-time were able to witness the absorption of significant market sell orders after the gap was closed. I will provide a visual of this sequence on Substack for reference. The inability of sellers to find acceptance within the previous day’s range, resulted in the market establishing acceptance above the Smashlevel of 4451. Note where most of the time and volume where spent today on the chart. The afternoon pullback low almost hit 4451 to the tick (4450.50).
The session ended with an upward spike, which breached the 3-day balance high, effectively cleaning up Friday’s poor high. The interpretation of the daily as either one-time framing up or a 4-day balance is entirely up to you. 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. The CPI data is scheduled for release tomorrow, and as usual, it is expected to bring volatility to the market. Therefore, the potential for moves outside of the intraday targets increases. Stay nimble.
For tomorrow, the Smashlevel (Pivot) is 4465, representing today’s base of the spike. Holding above 4465 would target the HVN from the 3-day composite at 4485, as well as the last upside target of 4503. In the event of further strength, the Weekly Extreme High is located at 4525. Break and hold below 4465 would target today’s afternoon pullback low of 4451, as well as the last downside target of 4435, which aligns with the MA20 for those observing moving averages.
Going into tomorrow's session, I will observe 4465.
Holding above 4465 would target 4485 / 4503
Break and hold below 4465 would target 4451 / 4435
Additionally, pay attention to the following VIX levels: 15.66 and 14.02. These levels can provide confirmation of strength or weakness.
Break and hold above 4503 with VIX below 14.02 would confirm strength.
Break and hold below 4435 with VIX above 15.66 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.