ES Daily Plan | May 25, 2023
Despite a strong finish in today’s session, the daily is one-time framing down and today's gap at 4153 remained unfilled.
The sellers maintain control unless the buyers regain acceptance above the highlighted LVN.
Contextual Analysis
During the overnight (ON) session, the buyers were unable to regain the Smashlevel of 4169, which served as the low volume node (LVN) that separated yesterday’s double distribution. This suggests that the sellers remained in control of the auction. It’s worth noting that a poor high formed at 4166.25 before the downward weakness persisted. The sellers were able to explore prices below prior day’s low during the European session, resulting in the achievement of downside targets at 4149 and 4137 before the opening of the regular trading hours (RTH). The VIX breached its resistance level of 19.54 an hour before the RTH opened, which was important pre-open information.
The RTH session opened with a true gap to the downside, and there was zero interest in any corrective activity. Given the VIX above 19.54, the minimal activity above the open level, and the immediate breach of the ON low, there were limited justifications for taking long positions. This was essentially the most bearish outcome when dealing with a downside gap. The last downside target of 4127 was met already during A-period. As mentioned in yesterday’s ES/VIX recap on Substack, the confirmation of weakness by the VIX indicated a situation where potential runners could be left. Yesterday witnessed an additional drop of 20 handles, while today's drop was slightly less. The sellers successfully cleaned up the poor low from 5/17 and ended the weekly one-time framing up after breaking the previous week's low at 4122.50. Throughout the majority of the session, every bounce attempt made by the buyers encountered selling activity, a common occurrence when trading below the last downside target (4127), and when supported by confirmation of weakness from the VIX. This does not imply that you cannot profit from counter-trend trading. In fact, I took several longs today (due to nearing 4110). However, I remained fully aware of the market context, which prevented me from setting unrealistic target expectations. The FS VWAP tests triggered notable sell programs, evident when monitoring the order flow.
It is noteworthy that today's RTH low of 4114 falls 4 handles short of the Weekly Extreme Low highlighted in the Weekly Plan published last Saturday. In the previous daily plan, we emphasized the importance of buyers taking action within the weekly support in order to maintain the possibility of addressing the unfinished business at the previous week's highs. This was the main reason for my interest in longs. ES already reached 4156 at the overnight open with some help from NVDA
Despite a strong finish in today’s session, the daily is one-time framing down and the gap at 4153 remained unfilled. I’m going to keep is fairly straight-forward, the sellers will maintain control as long as the gap remains unfilled. Their main objective is a weekly close below 4110. It’s worth noting that a VIX above 19.18 confirms a move below 4110. In other words, buyers want to see VIX dropping 19.18 if the low of this week is in. Note that today’s low is poor. Take note of the 8-day volume profile, the buyers aim to regain acceptance within the upper distribution above the highlighted low volume node (LVN). The last upside target is the prior Smashlevel of 4169, which holds significant importance for sellers to defend in order to avoid a potential squeeze.
Going into tomorrow's session, I will observe 4138.
Break and hold above 4138 would target 4153 / 4169
Holding below 4138 would target 4120 / 4110 / 4098 / 4083
Additionally, pay attention to the following VIX levels: 21.24 and 18.80. These levels can provide confirmation of strength or weakness.
Break and hold above 4169 with VIX below 18.80 would confirm strength.
Break and hold below 4083 with VIX above 21.24 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.
Love the 'buyers in control' vs. 'sellers in control' demarcation. Is the Smashlevel supposed to be that level, usually?
Great stuff Smash!