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ES Daily Plan | May 12, 2023
The market remains in consolidation mode, resulting in an inside day. The longer a consolidation lasts, the more significant the move out of it tends to be.
Until then, responsive activity remains the main theme.
There is really no need for a thorough analysis of today's session given its uneventful nature. The overnight (ON) session saw most of the trading activity taking place within the highlighted resistance area of 4170 to 4160, where the sellers were waiting. A poor high was established during the European session, just below 4170, causing the market to react and move away from that area and stopping out the buyers who were poorly positioned within the resistance.
The regular trading hours (RTH) opened right in the middle of prior day’s range, and the market was weak initially. This weakness resulted in a test of the highlighted support area between 4125 to 4115, where buyers were waiting. Throughout the initial balance, the VIX remained above its resistance level of 17.86. However, the sellers were unable to benefit from this situation, as they lacked the size necessary to breach the passive limit orders located below 4125. Note the delta profile at the bottom left. During the C-period, the VIX made a decisive move back below its resistance level, suggesting that the market was headed for another session with two-sided activity. The second test of the support area in the PM session was the more interesting one, as the VIX came back up the test 17.86 and printing 17.82. This sequence resulted in a reversal worth 20 handles.
The market remains in full consolidation mode, resulting in an inside day. As highlighted, the daily is now in a 5-day balance. However, the primary focus is on the extremes of today’s session. The general rule is to go with the break and monitor for continuation or lack thereof. A break to the upside will target a trip back to the daily balance high. Conversely, a break to the downside will target the daily balance low, which is weak. Breaking out of the daily balance will target the unfilled gaps of 4182.25 / 4098.25. Remember that the longer a consolidation lasts, the more significant the move out of it tends to be. It's important to remain nimble until this balance is resolved, but I'm sure I don't need to remind you of that.
Going into tomorrow's session, I will observe 4146.
Break and hold above 4146 would target 4160 / 4170 / 4182
Holding below 4146 would target 4125 / 4115 / 4098
Additionally, pay attention to the following VIX levels: 17.84 and 16.02. These levels can provide confirmation of strength or weakness.
Break and hold above 4182 with VIX below 16.02 would confirm strength.
Break and hold below 4098 with VIX above 17.84 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.