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ES Daily Plan | March 7, 2023
After two consecutive trend days, an immediate upward continuation encountered some exhaustion. Sellers main objective is to end the daily OTFU, which would target fills of Friday’s poor structure.
During the ON session, we observed some initial weakness, but it was very short-lived. A poor low was formed already within Friday’s J-period single prints. The fact that the sellers couldn't even fill one set of the three single prints from Friday was significant information about their strength, or rather, lack thereof. It indicated that the sellers were quite weak. Due to the sellers' inability to fill the single prints, we witnessed a squeeze that pushed prices to explore levels above Friday's high. The poor structure created by the impulsive move was subsequently cleaned up during the European session. When there are multi-distribution days like Friday's session and the ON session have no interest in filling any of the poor structure, it's always important to exercise caution. If you're a buyer, you would likely want a dip to search for long setups, rather than an instant continuation. Conversely, as a seller, you would prefer an immediate continuation to fade a potential exhaustion, rather than an immediate dip, if that makes sense.
The RTH session opened with a true gap up, which was, in essence, a weekly gap up. Similar to Friday's session, the initial inventory correction was absorbed by passive buyers leaving the gap partially filled and eventually led to a continuation towards higher prices. During the B-period, single prints were formed due to the emotional continuation. C and D-period were interesting as we made higher highs, but with a delta divergence. I will publish a separate visual of this on Substack to highlight this point further.
During the C and D-period sequence, buyers got too crowded, resulting in a poor high, which triggered an initial reaction away from that area, as it usually does. The dip was picked up by the buyers in E-period inside the B-period single prints, leaning against the RTH VWAP, which was a great long setup. However, buyers failed to clean up the poor high, which was a significant warning to be careful. A strong continuation have no trouble to break that high. This was a fairly clear signal of exhaustion, which triggered some weakness in today’s PM-session. The weekly gap was filled by the end of the session.
Today’s session closed at the lows, but it's unclear to what extent the weakness during the PM-session was caused by weak longs, or whether more substantial sellers had any involvement. The daily is still one time framing up and we remain within the upper distribution from Friday’s session. I will observe the level of 4065 tomorrow, as notable trading activity occurred at that level today. Note the Low Volume Node (LVN) located above it. Sellers main objective is to end the daily OTFU, which would bring the daily back to balance and target fills of Friday’s poor structure. Overall, buyers remain in control and should be active on dips as long as there is no acceptance established back within Thursday’s range.
Going into tomorrow's session, I will observe 4065.
Break and hold above 4065 would target 4082 / 4097
Holding below 4065 would target 4050 / 4034 / 4023 / 4005
Additionally, pay attention to the following VIX levels: 19.45 and 17.75. These levels can provide confirmation of strength or weakness.
Break and hold above 4097 with VIX below 17.75 would confirm strength.
Break and hold below 4005 with VIX above 19.45 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