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ES Daily Plan | March 6, 2023
Short-covering has been observed over the past two sessions, resulting in the profiles exhibiting several noticeable structural deficiencies.
However, we have poor structure above as well. Friday's afternoon pullback low (APBL) of interest short-term.
As discussed, the primary attention during the session on Friday was directed towards the levels of 3985, which were more aggressive, and 3975. A poor low was formed during Friday's overnight (ON) session as the sell activity shut off, with an ON low of 3974. The failure of sellers to break below 3975 during the Asian session led to a significant upward move in the European session which reached Friday’s first upside target of 4005.
Similar to Thursday's RTH session, Friday's RTH session opened with a true gap, but in this instance, it was a gap to the upside. The first few minutes of RTH were interesting as we traded in a very tight range a few handles above Thursday’s high. An early squeeze occurred in A-period due to the failure to fill the gap, but the subsequent B-period retraced and filled the A-period excess. However, once again, sellers were unable to fill the gap, indicating strength, which calls for caution when taking short positions. If you had a bearish bias prior to the RTH open, the failure to fill the gap should prompt you to reevaluate your stance. During the AM-session, a P-shaped profile was formed, and in E-period, there was a break to the upside from the main distribution, tagging the last intraday upside target of 4030. As the VIX did not drop below our level of 18.60 during the session, it became slightly tricky to chase. Irrespective of the VIX, I tend to be careful when chasing trades outside of the yellow levels, and in this scenario, with the VIX failing to validate the strength (holding 18.60), such trades are not for me. Occasionally, I may miss a continuation, such as on Friday, but frequently, such moves tend to punish traders who join the bandwagon late. 4030 was reached and exceeded, leading to the next level of 4050, where we closed out the session.
The daily is one time framing up after Friday’s multi-distribution trend day up, which effectively erased eight days' worth of selling. The weekly is technically still OTFD since buyers failed to breach the high of the week before, but we are basically in a two week balance. The monthly has returned to a 3 month balance, which is a noteworthy accomplishment for sellers. However, the lack of follow-through to the downside was disappointing for them. Short-covering has been observed over the past two days, resulting in the profiles exhibiting several noticeable structural deficiencies. The short-term focus is on how much of this poor structure will be filled. Provided that Friday's gap remains unfilled (3995.25), I expect buyers to be active if there is some clean up of structure early in the week. The most bearish outcome would be if acceptance is established back within Thursday’s range, which would completely negate Friday’s rally. However, we can’t forget about the poor structure above, which we have been carrying forward. Which business will be taken care of first?
Going into tomorrow's session, I will observe 4034.
Holding above 4034 would target 4050 / 4067 / 4086 / 4097
Break and hold below 4034 would target 4023 / 4005
Additionally, pay attention to the following VIX levels: 19.34 and 17.64. These levels can provide confirmation of strength or weakness.
Break and hold above 4097 with VIX below 17.64 would confirm strength.
Break and hold below 4005 with VIX above 19.34 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