ES Daily Plan | March 21, 2023

Today’s session resulted in another inside day, indicating that the market is waiting for more market generated information. Will there be any significant directional move before Wednesday's FOMC?

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Contextual Analysis

The overnight (ON) session opened right within 3972-3962, which was our area of interest for today's session. Initially, a 600 lot sellers took control of the auction, but subsequently, buyers made an effort to break above the 3972 level. Following an unsuccessful attempt to establish acceptance above 3972, the buyers formed a poor high, resulting in considerable market weakness. By taking control of the 3972-3962 area, the sellers were able to clear all downside targets down to 3900, even before the opening of the European session. The VIX opened above 27.42, indicating a state of weakness in the market. However, it later fell below that level in tandem with the bounce from the second test of 3900 during the European session. This is in contrast to Friday's session, where the market experienced several bounces from the last downside target of 3941, but the VIX remained in a weakened state, which ultimately made these bounces less sustainable. After hitting 3900, the market witnessed a significant reversal of about 60 handles, which prompted another test of the 3972-3962 area, where the sellers were active.

The regular trading hours (RTH) session was relatively uneventful compared to the overnight (ON) session, but the battle of the 3972-3962 area continued. The market was one time framing up intraday in a very mechanical way, indicating that short-term traders were in control. During the C-period pullback, buyers were found precisely at the B-period halfback, and during the D-period pullback, buying activity was observed exactly at the initial balance high. Buyers eventually got too long as they neared the 3995 level, forming a poor high. In previous plan, we talked about how a potential break to the upside of Friday’s inside day was less appealing as 3995 served as the last upside target for today’s session. There was considerable buying activity up there, which failed miserably as aggressive sellers responded immediately, leaving those buyers trapped. Consequently, we observed a liquidation break in the E/F-period. I will publish a visual of the orderflow from that sequence on Substack. The buyers were able to pick up that drop and they managed to defend 3972-3962 for the rest of the session. There was no 30 min bar close below the Smashlevel 3962 today, which was noteworthy. This area now serves as a crucial support that the buyers need to hold.

Trapped buyers in D/E-period, leading to a reversal.

Today’s session resulted in another inside day, indicating that the market is waiting for more market generated information. The daily is technically still OTFU, but we are essentially in a short-term balance. Three consecutive daily highs have been stacked closely together, and today’s high is poor on top of that. Although breaks of the inside day are attractive for both sides tomorrow, it is uncertain if there will be any significant directional move before Wednesday's FOMC. Stay nimble.

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Going into tomorrow's session, I will observe 3972.

• Holding above 3972 would target 3995 / 4018 / 4040

• Break and hold below 3972 would target 3962 / 3940 / 3920

Additionally, pay attention to the following VIX levels: 25.65 and 22.65. These levels can provide confirmation of strength or weakness.

• Break and hold above 4040 with VIX below 22.65 would confirm strength.

• Break and hold below 3920 with VIX above 25.65 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.

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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.

ES Weekly Plan | March 20-24, 2023

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