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ES Daily Plan | March 20, 2023
On Friday, the market formed an inside day with a b-shaped profile that liquidated late longs from Thursday's rally. The general rule is to go with the break.
My short-term area of interest is 3972-3962.
The Asian session of Friday's overnight (ON) session witnessed consolidation around the long-term value of 3995. As outlined in Friday's plan, the level to observe more aggressively was that 3995 level, which also was the beginning of the weekly resistance area from previous Weekly Plan. As always, 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. The Weekly Plans provide ideas on where to book profits and, more importantly, which areas to be cautious chasing. Initially, during the European session, the price was explored above Thursday's high. However, the market returned back within range, leading to some weakness ahead of the regular trading hours (RTH).
The A-period immediately tested Friday's Smashlevel of 3972, resulting in a decent bounce of almost 20 handles. This bounce failed to breach 3995 (with HOD at 3992.50), leading to another test of 3972, which failed to hold this time. Shortly after the break of 3972, the VIX breached 24.26, which indicates weakness and could be an early sign that ES is moving towards its last intraday downside target. The last downside target of 3941 was reached already during the D-period. As always, when VIX is confirming weakness, reversals tend to be tricky. While there could still be bounces, it is crucial to consider the context when estimating target expectations if counter trading. We actually saw multiple bounces, but each one was met with selling activity that coincided with the VIX resistance (turned support). I published a recap of Friday’s session on Substack where I go through my thought process, which you might find useful.
Friday’s session resulted in an inside day with a b-shaped profile. The general rule is to go with the breakout of the inside day. 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 of. Lack of continuation (Failed breakout / Look above/below and fail), you want to fade and target other side of balance. Since 3995 is the last upside target for tomorrow’s session, the upside break becomes less appealing to chase. However, with VIX confirming strength, there is potential for short-covering above 3995. Note the poor structure from Thursday’s trend day. This is an area of trapped sellers. Despite the weakness in Friday’s session, sellers were unable to clean up that area, and a poor low was formed. Was Friday’s selling mostly fueled by late longs from Thursday’s session getting out? A break and hold above the resistance area of 3972-3962 potentially confirms that. With a negative delta of 19K on Friday, sellers want to take out that poor low fairly quickly to continue to negate Thursday’s rally. 3972-3962 is my area of interest short-term. The daily is technically still one time framing up since inside day’s don’t end it.
Going into tomorrow's session, I will observe 3962.
Break and hold above 3962 would target 3972 / 3995
Holding below 3962 would target 3940 / 3920 / 3900
Additionally, pay attention to the following VIX levels: 27.42 and 23.58. These levels can provide confirmation of strength or weakness.
Break and hold above 3995 with VIX below 23.58 would confirm strength.
Break and hold below 3900 with VIX above 27.42 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