ES Daily Plan | June 9, 2023
"The market remains in a state of balance, awaiting further market-generated information". Not much to add after today's session.
As always, the upper end of a balance area is considered resistance until proven otherwise, implying that there is a need for initiative buyers, and a lack thereof will attract responsive sellers.
Contextual Analysis
The overnight (ON) session stayed relatively quiet until the later part of the Asian hours, at which point sellers made an effort below the poorly structured low of the previous day. However, sellers failed to gain downside traction, resulting in a return to previous day’s range during the European session. The look below the previous day’s low and fail was valuable information to take into account for the RTH session. Given yesterday's selling activity with a delta of -30K, it was a rather lackluster response.
In the RTH session, the sellers made another effort to breach the previous day's low. Despite decent selling activity, they struggled to gain any downside traction. They even fell short of breaking the ON low before returning back within the previous range. The failure to gain traction below the poorly structured low, despite attempting it twice, was noteworthy as it should have prompted a move towards the multi-day balance low. This provided substantial insights into the state of the sellers. Once the market reclaimed the Smashlevel of 4270 and utilized it as a support level during the B-period, the focus shifted entirely towards the buyers. The next level of interest was the crucial 4285, which buyers defended twice after regaining control of it, ultimately leading to achieving the last intraday upside target of 4303 (HOD: 4302.50).
The daily is now in a 5-day balance. Balance rules apply (see Substack for details).
Balance Rules: The general rule is to go with the break of the balance area. Break to the upside (Look above and go), you want to be a buyer. Break to the downside (Look below and go), you want to be a seller. Monitor for continuation (Acceptance) or lack thereof. Lack of continuation (Failed breakout / Look above/below and fail), you want to fade and target other side of balance.
As long as the market remains within this balance range, the expectation is to observe two-sided activity, highlighting the importance of staying nimble. It’s worth noting that the upper end of the balance area is poor/weak. Overall, the buyers are not facing significant trouble as long as acceptance is not established back within the prior 4-day balance, indicating a failed breakout.
Today’s session formed a double distribution, and closed with an upward spike, with a spike base at 4299. In the short-term, my focus will be on observing the behavior around the 4299 level, despite closing back within value. The presence of poor structure in the middle of the balance, characterized by C-period single prints, increases the likelihood of fills compared to breakout scenarios, which today’s session was not. Having that said, the buyers want to consolidate in the upper end of the balance, preferably above the 5-day value area and attempt a breakout fairly quickly, or the risk is a downward rotation for fills. In the event of a breakout, I would exercise caution fading it unless it clearly fails. As always, the upper end of a balance area is considered resistance until proven otherwise, implying that there is a need for initiative buyers, and a lack thereof will attract responsive sellers. Conversely, the lower end is viewed as support. I’m switching to the September contract (ESU23) on Monday.
Going into tomorrow's session, I will observe 4299.
Break and hold above 4299 would target 4320 / 4327
Holding below 4299 would target 4285 / 4270
Additionally, pay attention to the following VIX levels: 14.28 and 12.98. These levels can provide confirmation of strength or weakness.
Break and hold above 4327 with VIX below 12.98 would confirm strength.
Break and hold below 4270 with VIX above 14.28 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.
Thank you for sharing this daily, it helps me a lot in my own thought process and planning for the day.
Thank you!