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ES Daily Plan | July 28, 2023
Failed breakout resulted in a nasty reversal that almost reached the opposite side of the multi-day balance range.
How much of today's structural deficiencies will be cleaned up will be of importance in the short-term.
Today's session was remarkable, to say the least. During the overnight (ON) session, we observed a consistent uptrend with minimal pullbacks. The market managed to reclaim the Smashlevel at 4606. Following this, there was a short period of consolidation within the area where buyers were previously trapped before the market continued its upward move, breaking out of the multi-day balance area. Both upside targets of 4620 and 4631 were already reached during the overnight session. The VIX remained above its support level of 12.54, not confirming the strength when 4631 was reached. This means that I consider booking profits if I’m long, regardless of whether the market continues its upward trajectory or not. If I'm not in a position, it is not an ideal location to initiate new longs, as regular readers of this newsletter are already aware.
The overnight strength led the RTH session to open on a true gap to the upside. As always, if there is an early inability to break and sustain a move above the ON High, it can create opportunities to fade the market, targeting an inventory correction. The fade setup was particularly interesting today, as the market has already achieved the last upside target of 4631. Despite heavy buying effort in the A-period, the buyers were unable to test the ON high of 4634.50. Consequently, aggressive sellers entered the market in B-period with a negative delta of 15K, confirming the fade. I will provide a visual representation of this sequence, along with other interesting nuances from today's session, on Substack. This will be accompanied by a commentary detailing the thought process.
The gap was filled in D-period, which stronger buyers typically would have prevented. However, the absence of trading activity within the previous day's range suggests that the buyers were not facing any significant troubles. This means that the fade trade has come to an end, and the patient traders had the opportunity to get involved at more favorable (lower) prices. If one went long, the crucial area to focus on was the breakdown single prints observed during the B-period, which essentially was sellers last line of defense. The G/H-period fell 1 tick short of filling the single prints, forming a poor high, which resulted in a vicious liquidation with the help of some news. The breakout failed massively, leading to a nasty reversal and three additional single prints (poor structure). The VIX breached its resistance level of 13.82, when ES was trading around 4590, suggesting that being a dip buyer is tricky as the last downside target of 4558 may act as a magnet (LOD: 4553.75).
Considering today's failed breakout, I will continue to interpret the daily as balance. I published a composite profile yesterday, displaying a rather unfinished profile to the upside (P-shape). Today, the market established an excess high after breaking out from the main distribution, which makes the upcoming days very interesting to monitor.
I will use today’s closing M-period spike base as a short-term reference point to gauge strength/weakness. Note how the buyers defended the A-period excess from the 7/18 session on that closing flush. The buyers aim to clean up today’s structural deficiencies, while the sellers' preference is to hold below the last upside target of 4596.
For tomorrow, the Smashlevel (Pivot) is 4563, representing today’s M-period spike base. Holding above 4563 would target 4582, as well as the last upside target of 4596, which would effectively clean up the majority of today’s highlighted poor structure. There are also breakdown single prints located above at 4609, in the case of continued strength. Break and hold below 4563 would target the lower end of the multi-day balance area at 4545, effectively filling the A-period excess from 7/18. Break and hold below 4545 would target the last downside target of 4525.
Going into tomorrow's session, I will observe 4563.
Holding above 4563 would target 4582 / 4596
Break and hold below 4563 would target 4545 / 4525
Additionally, pay attention to the following VIX levels: 13.82 and 12.54. These levels can provide confirmation of strength or weakness.
Break and hold above 4596 with VIX below 13.72 would confirm strength.
Break and hold below 4525 with VIX above 15.08 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.