ES Daily Plan | May 3, 2023
Today’s session resulted in a b-shape profile, indicating long liquidation. The question is whether sellers can follow through, or if stronger buyers found today's lower prices attractive.
FOMC tomorrow!
Contextual Analysis
In today's session, the sellers successfully defended the critical area of interest between 4194-4186 during the overnight (ON) session. This was a crucial area for them to defend in order to trigger additional weakness after yesterday's look above the 4-week balance and fail. Today's session was relatively straightforward in that regard.
After the weakness observed during the overnight session, the regular trading hours (RTH) opened with a true gap to the downside, indicating that the session opened completely outside of the previous day's range. The market had no interest in any corrective activity, which is the most bearish outcome when dealing with true gaps to the downside. Note how there was essentially no trading above the opening level. Fifteen minutes into the RTH session, the VIX breached its resistance level of 16.90, which was the second indication of weakness. Personally, I would find long setups to be appealing only if the buyers were able to fill the gap and regain acceptance within the previous day's range, with the VIX remaining below 16.90. The last downside target of 4155 was reached and exceeded in B-period already. As regular readers of this newsletter are aware, when the market breaks and holds below the last downside target and the VIX confirms the weakness, I’m not very interested in trying to go against the move and look for reversals as the market can get very emotional. Take note of the poor structure in B-period, emotional activity.
Subsequently, the market dropped by another 50 handles, resulting in a clean up of the poor structure from the 4/27 session that we have been carrying forward. Similar to that day, today’s poor structure is situated within the value of the multi-day composite, which raises the likelihood of fills compared to scenarios where we break out of balance areas with poor structure. Lack of interest of fills is a bearish indication. Today’s low of 4105.50 was 10 handles away from the Weekly Extreme Low of 4095. When approaching the Weekly Extremes this early in the week it’s always gets tricky to chase downside. Therefore, booking profits when approaching this level was not a bad idea, especially after essentially completing a full traverse of the multi-day value area. Passive buyers were able to absorb the selling effort at today’s lows.
Today’s session resulted in a b-shape profile, indicating long liquidation. The question now is if sellers can follow-through by breaching today’s main distribution to the downside, which would confirm that stronger sellers were active today. A downside continuation would target a test of 4095. Note the low volume node in that area. With a b-shape profile in an uptrend, the buyers aim to breach today’s main distribution for an upside continuation. The buyers might argue that the liquidation break witnessed today was crucial in getting rid of weak longs and bringing in stronger buyers at lower prices. The foundation is better with the poor structure from 4/27 cleaned up.
With the FOMC meeting scheduled for tomorrow, it is crucial that traders exercise patience, discipline, and prioritize risk management. With that said, it is notably less risky to engage in trading activities prior to the FOMC meeting and close all positions 30 minutes in advance of the event. Stay nimble.
Going into tomorrow's session, I will observe 4143.
Break and hold above 4143 would target 4153 / 4170 / 4182
Holding below 4143 would target 4126 / 4109 / 4095
Additionally, pay attention to the following VIX levels: 18.70 and 16.86. These levels can provide confirmation of strength or weakness.
Break and hold above 4182 with VIX below 16.86 would confirm strength.
Break and hold below 4095 with VIX above 18.70 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.
Thank you Smash!
Meta action recaps are always an enjoyable and informative read. Much thanks