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ES Daily Plan | June 2, 2023
Although today's profile looks like a breakout has occurred, the daily remains in balance.
Poor structure left behind risking fills if there are no initiative buyers at the upper end of the balance area.
The overnight (ON) session remained relatively uneventful, with trading occurring within the range of the previous day, and the majority of it taking place within the value area. This essentially indicates that there haven't been significant changes compared to yesterday's RTH session. As discussed, the highlighted 4205-4195 area was key in the short-term, and sellers were able to defend it overnight. The ON high was at 4203.50, making it a weak reference since it traded very close to the prior day’s high of 4204.50.
The RTH session witnessed weakness immediately after the open, bringing the market down to yesterday’s pivotal level of 4180. Remember, sellers got ahead of themselves below this level during yesterday’s RTH session. Given the weakness observed during the A-period, it would be reasonable to expect that breaking below yesterday's poor low and testing the 3-day balance low would be an obvious move. However, sellers failed to take out the poor low after breaching the ON low, leading to an impulsive move to the upside that tested the Smashlevel of 4195. This was a moment that raised doubts about the strength of the sellers. During this sequence, the VIX breached its support level of 16.98, providing huge information. Sell activity was observed following the test of 4195, leading a 10 handle pullback. During this pullback, the VIX retested the broken support, and buyers entered the market. This was clearly evident by observing the order flow. As I managed to catch this pullback, I will provide a separate trade review of this sequence on Substack.
The weak area around 4205 was breached in C-period, and the market was one-time framing up intraday for almost the entire session. This led to achieving the last upside target of 4234, which basically is the upper end of the multi-day balance area. Considering the limited pullbacks observed throughout the session, it was not particularly surprising to witness a reaction there.
Although the 3-day balance high was breached by a small margin (5 ticks), I will still consider the daily market as balance, now forming a 4-day balance. Today’s session had three sets of single prints, indicating that the market left behind very poor structure. This situation becomes a bit complex because the market did not break out from a balance area today, and the poor structure is situated in the middle. Typically, this raises the likelihood of fills compared to breakout scenarios. Having that said, the buyers want to consolidate in the upper end of the balance by holding above 4222 and attempt a breakout fairly quickly, or the risk is a downward rotation for fills. Sellers are trapped within the single prints, so it will be crucial to observe whether responsive buyers emerge within that area if it is tested. The most bearish outcome would involve filling the poor structure and establishing acceptance within the initial balance, where change took place. NFP tomorrow.
Going into tomorrow's session, I will observe 4222.
Holding above 4222 would target 4236 / 4255 / 4265
Break and hold below 4222 would target 4205 / 4195
Additionally, pay attention to the following VIX levels: 16.48 and 14.82. These levels can provide confirmation of strength or weakness.
Break and hold above 4265 with VIX below 14.82 would confirm strength.
Break and hold below 4195 with VIX above 16.48 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.