ES Daily Plan | May 11, 2023
CPI data caused volatility as anticipated, but the market couldn't sustain a directional move in either direction, suggesting no significant contextual change. Observing 4160 in the short-term.
Contextual Analysis
The overnight (ON) session provided decent opportunities around the Smashlevel of 4141. Price was rejected to the tick when 4141 was tested during the Asian session, but the even better opportunity presented itself during the European session. This setup involved a liquidity sweep above 4141, which was followed by a solid flush.
The flush led to a test of the highlighted support area between 4125 to 4115, where buying activity was observed. Following the release of the CPI data, the market experienced its characteristic volatility, resulting in the achievement of the last intraday upside target of 4170, with an ON high of 4173.25. This was a good area to book profits if one had a long position before the RTH open. The VIX breached its support level of 16.78 during CPI, which had the potential to support a trend day in RTH, which we will discuss below.
The regular trading hours (RTH) opened with a large true gap to the upside, and these large gaps are always challenging to trade. With the VIX below its support, the buyers needed to break and hold above 4170 (and the ON high of 4173.25) for a potential gap and go scenario. The buyers were not able to do that. The early inability to break and sustain a move above the ON high provided as good fade setup, which is common when the market is opening on a true gap up. Buyers lost control of the opening level and the VIX popped back above 16.78, resulting in an inventory correction. The gap was filled already during the A-period, which was a weak response from buyers. During the initial balance, the Smashlevel of 4141 was tested and it provided a bounce of 20 handles. However, the sellers reloaded around 4160, leading to a downward continuation. I'll be keeping my attention on the 4160 level in the short term, as notable orderflow activity occurred at that level today. Like in the ON session, the RTH also tested the support area between 4125 to 4115. Once more, the buyers deemed these prices attractive for buying. Note how the market filled the highlighted poor structure* from the 3-day composite profile. The inability of the sellers to break the support area, resulted in a V-shape reversal back to the medium, and long-term value of 4153.
The release of the CPI data was anticipated to cause market volatility, and it did, but the market was unable to maintain a sustained move in either direction, indicating that there hasn't been much contextual change. Both the upside gap of 4182.25 and the downside gap of 4098.25 have yet to be filled. I will interpret the daily as a 4-day balance, and I will observe the extremes to see if a break can lead to any stronger moves or if we will continue to find an opposite response on every deviation from value. In order to see a stronger directional move, the market must establish acceptance beyond this range. In the meantime, stay very nimble.
Going into tomorrow's session, I will observe 4160.
Break and hold above 4160 would target 4170 / 4182 / 4194
Holding below 4160 would target 4141 / 4125 / 4115
Additionally, pay attention to the following VIX levels: 17.86 and 15.98. These levels can provide confirmation of strength or weakness.
Break and hold above 4194 with VIX below 15.98 would confirm strength.
Break and hold below 4115 with VIX above 17.86 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.
Thanks Smash!
Thank you smashelito for the write up and analysis. Makes me happy every day and is a Great inspiration to fix up my own research & thesis on the market. Have a great day and till tomorrow 😘