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ES Daily Plan | March 31, 2023
Yesterday's session concluded with a close above the composite value area, and we witnessed immediate upside continuation today, reaching the 3-week balance high of 4083.
4083 is my short-term level of interest.
After experiencing a slight initial pullback during the Asian trading hours, yesterday's directional move away from value continued during the overnight (ON) session. Don't forget to check out the composite profiles I’ve shared on Twitter, which clearly indicate the location of the value.
I mentioned the importance to remain adaptable when trading within the value area and avoid overstaying in your trades. On the other hand, establishing acceptance outside the value area has the potential for a large directional move to go with.
If your trading strategy focuses on identifying significant directional moves or breakout trades, trading within the value area will get you smashed. Conversely, if your strategy involves taking responsive trades or reversals to the mean, you will get smashed during directional moves away from value. It's crucial to remain adaptable to different market conditions.
Yesterday's session concluded with a close above the value area, and we witnessed immediate upside continuation today, reaching the 3-week balance high of 4082.50 before the opening of the RTH session.
The RTH session opened with a large true gap to the upside, and you know the drill, these large gaps are challenging to trade. We have discussed the potential fade setups if there is an early inability to break and sustain a move above the ON high, which in today’s case also was around the 3-week balance high. Although there was significant aggressive buying above the weekly balance area, it was met with passive sellers, resulting in a reversal. Similar to yesterday's pattern, there was a quick look above the ON high and fail, which provided a good trading opportunity. The target for the downside trade today was to fill the extremely poor structure from the ON session. The sellers managed to fill the daily gap to the tick, and if you were still working the short side from the open, this is where you would book profits and reassess. Further downside potential is only relevant with acceptance within prior day's range, which obviously didn't occur. The VIX did test the resistance level of 20.12 (20.06) during that gap-fill, providing an excellent long opportunity, which resulted in a 20 handle reversal ($1000 per contract). I will publish a separate recap of today’s session on Substack.
Currently, the market is moving directionally, in search for value, which is typically an area of prior balance. The fact that the market has shown no interest in addressing the significant poor structure below is a bullish signal that shouldn't be ignored. Sellers main objective is to end the daily one time framing up. Today’s session resulted in an imbalanced profile to the upside (P-shape), which typically means that the auction is probably not finished in that direction due to the lack of excess. The upside targets are pretty clear, should buyers maintain this directional move. The Weekly Extreme High is located within an area of prior balance. This is an unfavorable area to initiate new longs.
Going into tomorrow's session, I will observe 4083.
Break and hold above 4083 would target 4097 / 4110 / 4130
Holding below 4083 would target 4070 / 4058 / 4048
Additionally, pay attention to the following VIX levels: 19.95 and 18.08. These levels can provide confirmation of strength or weakness.
Break and hold above 4130 with VIX below 18.08 would confirm strength.
Break and hold below 4048 with VIX above 19.95 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