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ES Daily Plan | March 10, 2023
Today’s session was an outside day down, leaving us with an emotional profile that contains very poor structure - 4 sets of single prints. Tomorrow, we have NFP!
Stay nimble in this tricky environment.
It was quite a session, wasn't it? Essentially, the entire overnight (ON) session was spent filling the poor structure left from yesterday's short-covering rally in the M-period. The fills were done during the European session, where late sellers got too crowded and formed a poor low. Prior to the opening of the RTH session, there was a squeeze that led to some price exploration above the high of the previous day, which we have carried forward as poor.
The RTH session opened above yesterday’s value area and prior Smashlevel of 4000. Following the initial opening pullback, the 4000 level held and this led to an impulsive move to the upside. Obviously, the poor high was cleaned up and the daily one time framing down ended in the process. We talked about the potential for more short-covering if buyers were able to end the daily OTFD, but all we got was roughly 20 handles, before the sellers started hitting the bid aggressively. A distribution was formed within the range of the initial balance, and today’s most traded price by volume (VPOC) remained within that distribution. Once the buyers lost control of the 4000 level, a shift occurred today, allowing the sellers to trade within the range of the previous day. In F-period, the market tested the Smashlevel of 3987, resulting in a minor bounce of 10 handles. However, for the bounce to be significant, it needed to establish acceptance back above 4000, which did not happen as the market turned downwards again. 3987 was breached and the market found sellers upon retesting from below, resulting in a downside continuation, which ended up being pretty emotional.
The last intraday downside target of 3955 was reached and exceeded. Did you notice how the VIX confirmed the weakness upon breaching 3955? My simple yet powerful rule is to avoid looking for reversal setups or fading the market when the last intraday target is exceeded, if the VIX validates the move as in today's case. However, if the VIX is displaying a divergence, the situation is different, and reversals become more appealing. We ended up dropping another 50 handles, breaching the Weekly Extreme Low of 3935 in the process.
Today’s session was an outside day down, which left us with an emotional profile that contains very poor structure (4 sets of single prints). Conditions right now are very tricky as we are trading below the Weekly Extreme Low of 3935. As you know, I usually exercise great caution when initiating new short positions below a weekly extreme level, but that doesn’t mean it’s an invitation to go long. With that said, initiative sellers must be active below 3935, or fills of today’s poor structure will become relevant. I will use the “mini-balance” as my guideline. Tomorrow, we have NFP, which is known for generating volatility. Stay nimble in this tricky environment.
Going into tomorrow's session, I will observe 3935.
Break and hold above 3935 would target 3950 / 3970
Holding below 3935 would target 3905 / 3885 / 3875
Additionally, pay attention to the following VIX levels: 23.60 and 21.60. These levels can provide confirmation of strength or weakness.
Break and hold above 3970 with VIX below 21.60 would confirm strength.
Break and hold below 3875 with VIX above 23.60 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. Twitter: @smashelito | FAQ: smashelito.com