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ES Daily Plan | July 14, 2023
Upside continuation after yesterday's breakout. Navigating the shift from balance to imbalance in trading is always challenging, requiring a strategy readjustment.
Sellers main objective is to end the daily OTFU.
During the initial hours of the overnight (ON) session, the sellers were able to defend the Smashlevel of 4516, which provided a couple of very shallow pullbacks. Nevertheless, the buyers managed to regain control of 4516 and subsequently defended it during the European session. Given the breakout of the multi-week balance, this outcome was not unexpected, as discussed.
The RTH session opened with a very small true gap to the upside that got filled immediately. However, there was a lack of interest trading within the previous day's range, suggesting that more favorable trading opportunities were likely to be found on the long side, especially given the current phase of imbalance to the upside in the market. The AM session was largely uneventful, as trading took place within a very narrow range. Nonetheless, the buyers were able to establish acceptance above the Weekly Extreme High of 4525, indicating the possibility of reaching the last upside target of 4540. This target was achieved during the J-period, presenting a good location to book profits, considering that the market was trading above the Weekly Extreme High of 4525, and the VIX was actually positive at the time. I’m always cautious about chasing above the weekly extremes to avoid initiating trades in an emotional state (FOMO). As always, refraining from chasing a trade is not an automatic invitation to initiate a trade in the opposite direction. Not trading is also a position. The market managed to squeeze another 10 handles. However, this gain was immediately retraced after-hours, bringing it back to 4539, highlighting the importance of controlling your emotions.
The market witnessed a breakout from the multi-week balance yesterday, and today, the imbalance phase continued with a higher high and higher low. Navigating the shift from balance to imbalance in trading is always challenging as it demands a readjustment of your strategy. After four weeks of participants agreeing on value, with responsive activity prevailing, the market has now transitioned to a phase of initiative activity (imbalance). Consequently, the approach of selling above value and buying below value, effective in a balanced market, will prove ineffective during an imbalanced state. It’s crucial to pay attention to the state of the market and adjust your strategy accordingly. Having a trading plan and preparing for the session serve as the core purpose in this context.
While the daily one-time framing up remains intact, sellers are faced with limited opportunities, emphasizing their primary objective of bringing it to an end. I will use today’s spike base of 4547 as a short-term reference point, despite closing below it. The buyers aim to migrate the short-term value higher, currently 100 handles lower at 4438, and they are not in any huge trouble as long as the weekly breakout is maintained.
For tomorrow, the Smashlevel (Pivot) is 4547, representing today’s spike base. Break and hold above 4547, indicating a continuation of this imbalance phase, would target 4556, as well as the last upside target of 4570, which represents the prior Weekly Extreme High. Holding below 4547 would target another test of the Weekly Extreme High of 4525, as well as the prior Smashlevel at 4516.
Going into tomorrow's session, I will observe 4547.
Break and hold above 4547 would target 4556 / 4570
Holding below 4547 would target 4525 / 4516
Additionally, pay attention to the following VIX levels: 14.34 and 12.88. These levels can provide confirmation of strength or weakness.
Break and hold above 4570 with VIX below 12.88 would confirm strength.
Break and hold below 4516 with VIX above 14.34 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.