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ES Daily Plan | July 21, 2023
The daily has returned to a 3-day balance after breaching the prior day's low, which was the primary objective for sellers.
Will the balance be short-lived, or will the market witness two-sided activity?
Ahead of today’s session, the main focus was on Tuesday’s high of 4594, which sellers struggled to establish acceptance below in the previous session. The market immediately breached 4594 at the opening of the overnight (ON) session, resulting in a fast drop towards the next level of interest at 4583 (prior Smashlevel), where the downside pressure stalled. The rest of the ON session was essentially trading within the upper distribution from Tuesday’s trend day, with sellers defending 4594 (ON high: 4594.25).
The overnight weakness led the RTH session to open on a true gap to the downside, indicating that the session opened completely outside of the previous day's range. The market immediately started correcting inventory, leading to a quick gap-fill and a retest of the Smashlevel of 4594. This sequence was particularly interesting, with the A-period forming a P-shape profile and showing notable exhaustion at the highs. The A-period printed a high of 4594.25, followed by a swift reversal that reached the last downside target of 4570 (4570.75) in a remarkably quick manner. I will provide a visual from my footprint chart for reference on Substack.
Despite the swift and "violent" drop, the VIX did not confirm the weakness, suggesting that it's not the right moment to become greedy, especially considering the recent strength displayed by the market. Subsequently, a bounce of 20 handles followed, but it encountered a stall within the high volume node (HVN) from the A-period. Ultimately, the price was rejected from the previous day's range, which is always noteworthy, particularly when the RTH session opens with a gap. The J-period successfully broke through 4570, even though the VIX did not confirm weakness, accompanied by a significant negative delta of 8.5K. As a result of this late move, the VPOC (Volume Point of Control) shifted lower (from 4578), and the lower distribution from Tuesday’s trend day was tested (and rejected).
The daily has returned to a 3-day balance after breaching the prior day's low, which was the main objective for sellers. The key question is whether this balance will be of short duration, or if the market will witness two-sided activity in the short-term. The balance high lacks excess, suggesting unfinished business, while a break and hold below the balance low could lead to further weakness. Observe the cluster of several daily lows positioned closely together. Overall, the buyers are not facing significant trouble as long as the weekly breakout is maintained - trouble starts to kick in below.
For tomorrow, the Smashlevel (Pivot) is 4572, representing today’s LVN. Break and hold above 4572 would target 4583, as well as the resistance area from 4597 to the last upside target of 4606. Holding below 4572 would target 4558, as well as the balance low of 4546. Break and hold below 4546 would target the last downside target of 4525.
Going into tomorrow's session, I will observe 4572.
Break and hold above 4572 would target 4583 / 4597 / 4606
Holding below 4572 would target 4558 / 4546 / 4525
Additionally, pay attention to the following VIX levels: 14.72 and 13.26. These levels can provide confirmation of strength or weakness.
Break and hold above 4606 with VIX below 13.26 would confirm strength.
Break and hold below 4525 with VIX above 14.72 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.