ES Daily Plan | May 24, 2024
Buyers attempt to break out of the recent multi-day balance area was firmly rejected, marked by a double distribution outside day to the downside, effectively filling the gap at 5274.25.
For new followers, the yellow levels highlighted at the bottom are the primary levels that I focus on intraday. My strategy for preventing impulsive decisions at unfavorable locations involves following a simple yet effective rule of exercising caution when initiating trades outside of the yellow levels. This implies that I am cautious chasing longs above the final yellow upside target and shorts below the final yellow downside target. It is crucial to understand that refraining from chasing a trade is not an automatic invitation to initiate a trade in the opposite direction.
Visual Representation
Contextual Analysis
“Sellers are likely to prefer an immediate upside continuation that ultimately fails, potentially triggering a strong counter-move after establishing an excess high.”
The overnight session saw a breakout from the multi-day balance area, occurring during the Asian hours. This move triggering stops positioned above the established poor/weak high that we've been carrying forward as unfinished business. The final upside target of 5360 was achieved pre-RTH open. It was interesting to observe how the VIX remained below its support level of 11.76 until just 10 minutes before the RTH opened, at which point it returned above.
The RTH session opened with a true gap to the upside, and the market saw an immediate sell-off, resulting in the gap getting filled. It’s not uncommon to observe an inventory correction like this during RTH, particularly when all upside targets have already been achieved overnight. Typically, if the gap is filled during this corrective activity, the key thing to observe is the sellers’ ability to gain traction within the previous day’s range, and in today’s case, the multi-day balance area. Within the first 10 minutes of RTH, the 5245 level was breached, signaling a weak response from buyers attempting to break out from this recent balance. There was nothing wrong with having a bullish bias going into RTH, but one must always know when that thesis is in danger, which was below 5345 today. The rapid sell-off was hard to catch on the short-side, fortunately, the E/F period presented a more favorable opportunity leaning against the full session VWAP. A textbook "look above and fail" unfolded today as the market fully traversed the balance area, reaching the final downside target of 5291. This was a good area for profit-taking, as the market is likely too overextended and exhausted for a balance breakdown after moving from one side to the other. However, a distribution was established below 5291, with the VIX maintaining above its resistance level of 12.80, attracting sellers on bounce attempts.
Buyers attempt to break out of the recent multi-day balance area was firmly rejected, marked by a double distribution outside day to the downside, effectively filling the gap at 5274.25. The lower distribution is of interest in the short-term. I’ve added the volume profile of the previous week’s double distribution. Buyers aim to re-enter the upper distribution, targeting a cleanup of today’s poor structure and a subsequent return to value. Conversely, sellers aim to establish acceptance back within the previous week’s lower distribution, which has the potential to shift the market tone. We have an excess high in RTH but carry forward the overnight ATH at 5368.25.
For tomorrow, the Smashlevel (Pivot) is 5292, representing the upper end of today’s lower distribution, coinciding with the lower end of the prior 6-day balance area. Break and hold above 5292 would target fills of today’s poor structure toward the resistance area from 5315 to 5325—a crucial area for sellers to defend. Holding below 5292, signaling weakness, would target the set of single prints from 5266 to 5260. Acceptance below 5260 signals intraday bearish momentum, targeting the final downside target of 5246, a notable high volume node (HVN).
Levels of Interest
Going into tomorrow's session, I will closely observe the behavior around 5292.
Break and hold above 5292 would target 5315 / 5325
Holding below 5292 would target 5266 / 5260 / 5246
Additionally, pay attention to the following VIX levels: 13.36 and 12.18. These levels can provide confirmation of strength or weakness.
Break and hold above 5325 with VIX below 12.18 would confirm strength.
Break and hold below 5246 with VIX above 13.36 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.
Weekly Plan
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! Finally some downside action!