ES Daily Plan | June 6, 2024
The inside day breakout led to a strong directional move. In terms of immediate focus, I’m keeping an eye on the 5362/5358 area, marking today’s spike base and the prior ATH.
For new followers: the yellow levels highlighted at the bottom are the primary levels that I focus on intraday. My strategy for preventing impulsive decisions at unfavorable locations involves following a simple yet effective rule of exercising caution when initiating trades outside of the yellow levels. This implies that I am cautious chasing longs above the final yellow upside target and shorts below the final yellow downside target. It is crucial to understand that refraining from chasing a trade is not an automatic invitation to initiate a trade in the opposite direction.
Visual Representation
Contextual Analysis
“The general guideline suggests going with the break of the inside day and observing for continuation or lack thereof.”
This is a very simple yet powerful concept, as today's session demonstrated. Buyers initially attempted to break out of the inside day during the Asia session but failed, triggering a pullback. However, the second attempt in the European session was much more successful, tagging and exceeding the initial upside target of 5323 in the process. In the previous plan, we discussed and illustrated how the market has been establishing value within Friday’s spike area, suggesting that buyers maintain short-term control following Friday’s strong close.
The RTH session opened with a true gap to the upside, and the early stages were reminiscent of Monday’s session. It opened very close to the overnight high, followed by an immediate inventory correction, leaving the overnight high unchallenged. Just like on Monday, the gap was filled during this corrective activity, retesting the inside day's high. However, the similarities ended there. Sellers failed to gain traction within the previous day’s range after the backtest of the broken full session VWAP. Instead, buyers reclaimed the FS VWAP, regained the opening level, and managed to hold above the overnight high, signaling strength. The final upside target of 5242 was already met during the D-period, which formed single prints that remained unfilled throughout the session. The remainder of the session saw a slow upward grind, characterized by very shallow pullbacks, making it very difficult to chase, particularly with the VIX remaining above its support level of 12.58.
While refraining from chasing today’s price action was understandable given that the market was approaching the 3-week balance high / RTH ATH, what proved less forgivable was attempting to short a market that lacked any substantial contextual support for such a position. Consider the circumstances: we had an inside day breakout, a true gap up with no inclination to trade within the prior day’s range after the inventory correction, higher value, we reclaimed both the opening level and overnight high — two crucial references when gapping higher — along with the formation of single prints in the D-period. Ultimately, it all comes down to understanding the market context.
The inside day breakout led to a strong directional move, effectively forming a double distribution profile, a closing upward spike, and printing a new RTH all-time high in the process. However, the overnight ATH at 5368.25 remained untested. The market is one-time framing up across all time frames. In terms of immediate focus, I’m keeping an eye on the 5362/5358 area, marking today’s spike base and the prior ATH. Holding above signals continued strength, while failure to do so opens the door for a traverse of today’s upper distribution toward the D-period single prints. The most favorable outcome for sellers would involve acceptance back within today’s lower distribution. As we've reached the weekly resistance area outlined in the weekly plan, I will monitor this area to gauge the strength of this potential weekly breakout.
For tomorrow, the Smashlevel (Pivot) is 5362/5358, representing today’s M-period spike base and the prior ATH. Holding above 5362, signaling strength, would target an upside continuation toward 5375, as well as the Weekly Extreme High of 5390. Acceptance above 5390 would then target the final upside target of 5405. Break and hold below 5358 would target a traverse of today’s upper distribution toward 5337. Acceptance below 5337 would then target a return to the medium-term value (20D) VPOC at 5323.
Levels of Interest
Going into tomorrow's session, I will closely observe the behavior around 5362/5358.
Holding above 5362 would target 5375 / 5390 / 5405
Break and hold below 5358 would target 5337 / 5323
Additionally, pay attention to the following VIX levels: 13.20 and 12.06. These levels can provide confirmation of strength or weakness.
Break and hold above 5405 with VIX below 12.06 would confirm strength.
Break and hold below 5323 with VIX above 13.20 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.
Weekly Plan
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.
Thanks for all you do!
Regarding it being unforgivable to short today, well said. There was simply no reason to short today, especially after the first hour and a half. At that point the market was fully in a classic price discovery phase and while the saying goes that there are many ways to trade the market, there's not a single successful one that involved shorting after the first part of the day today.