ES Daily Plan | May 18, 2023
Today’s session resulted in a double distribution.
The most bullish outcome would be to sustain trading within the upper distribution, while the most bearish outcome would involve returning to the lower distribution.
Contextual Analysis
Today's session offers plenty of aspects to analyze and interpret. During the Asian hours, the overnight (ON) session promptly began reversing the previous day's downward spike, coming close to the previous VPOC at 4135 before finding sellers. Although the weakness continued into the European open, sellers were unable to see a downside follow-through after breaching the prior day's low by 2 ticks. Overall, not much volume traded below the Smashlevel of 4127.
The RTH session opened right at 4143, which was the first upside target that had already been achieved during the overnight session. The initial buying activity was absorbed, resulting in a swift and decisive downward move during the A-period. It is not uncommon to witness this kind of inventory correction when the overnight inventory is 100% net long, particularly after a failure to take out the ON high, which was a few ticks above the RTH open level. This initial “weakness” led to a test of yesterday’s spike area and the Smashlevel of 4127. Buyers entered the market noticeably, as observed from the order flow, once it reached the level of 4127. I will share a visual of the Footprint chart on Substack to highlight this point further.
As discussed, the rejection of lower prices within the spike area is considered the most bullish outcome. In this case, a poor low was established within the spike area, indicating that there were no signs of stronger sellers emerging, especially when considering the proximity to yesterday's inside day low just a few handles away. Today’s low was 4125.75. The absence of stronger sellers resulted in a range extension to the upside in D-period. However, this upward move failed to breach yesterday's weak high, leading to a subsequent liquidation break. This sequence served as a reminder of the prevailing condition of the sellers (weak), as the low of the D-period coincided to the tick with the halfback of the B-period. In the G-period, the weak high was breached, marking the origin of today's single prints, which effectively divided today's distributions.
The last upside target of 4170 was reached in H-period, with the VIX hovering around the support of 17.04, which eventually broke. The ES and VIX correlation was very interesting today, and I will provide a separate recap of it on Substack.
Today’s session resulted in a double distribution with a large set of single prints in G-period. We not only observed a breakout from the double inside day but also from the inside week. The buyers were able to migrate the VPOC to the upper distribution, which is the distribution of interest in the short-term, particularly the lower end of it. The most bullish scenario would be to sustain trading within the upper distribution, while the most bearish scenario would involve returning to the lower distribution, thereby negating today's move from value. Sellers are trapped within the single prints, so it will be crucial to observe whether responsive buyers emerge within that area if it is tested.
Going into tomorrow's session, I will observe 4163.
Holding above 4163 would target 4182 / 4194 / 4208
Break and hold below 4163 would target 4149 / 4137
Additionally, pay attention to the following VIX levels: 17.80 and 15.94. These levels can provide confirmation of strength or weakness.
Break and hold above 4208 with VIX below 15.94 would confirm strength.
Break and hold below 4137 with VIX above 17.80 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.
I do not like this rally. Apparently someone decided to start buying 0dte calls like crazy around 12:30 pm, since we could not get below the ORH of 4144.25. At the same time, massive short covering in regional banks.
you are so awesome, smash