ES Daily Plan | May 4, 2023
After an hour of volatile back and forth price action during FOMC, the market broke downwards in L-period, forming a double distribution.
The session ended with an imbalance between price and value.
Contextual Analysis
The overnight (ON) session was largely uneventful as the market was rotating around the Smashlevel of 4143. The buyers were able to partially fill yesterday’s poor structure. with sellers being active at the prior full session halfback.
The rotational activity persisted during the regular trading hours (RTH) session before the FOMC meeting. The RTH opened at the upper end of prior day’s value area, and the buyers remained active in their efforts to fill yesterday's poor structure. It is a common occurrence to see rotational activity in the market as it awaits a significant event like the FOMC meeting. Furthermore, the market is currently in a state of balance, trading around the medium and long-term value of 4153. Prior to the FOMC, there were two noteworthy trading setups. The first was a failure above the ON high, and the second, which was more interesting from a contextual standpoint, was a failure below the ON low. On the second one, there was significant selling effort into the ON lows with the VIX testing its resistance level of 18.70 as confluence. The aggressive sellers were unable to push the price lower, leading to a solid reversal. I will share a separate visual of the second setup on Substack to highlight this point further.
As expected, the market experienced volatility during the FOMC meeting. As evidenced by the chart, yesterday's poor structure was completely cleaned up in the process. After an hour of volatile back and forth price action, the market broke downwards in L-period, leaving behind a large set of single print to carry forward.
Today’s session resulted in a double distribution trend day to the downside and a downward spike, with a base at 4145, which will be the more aggressive level to observe short-term. The other level of interest is of course the breakdown single prints at 4131. Trading within and below the spike (Acceptance) is a more favorable outcome for sellers, while trading above the spike (Rejection) is a more favorable outcome for buyers since that negates the lower prices of the spike. Note that the fairest price to do business today was at 4143, which is in the upper distribution and today’s value is overlapping higher. With that being said, there is an imbalance between value and price, and the most logical response would be that 4043 acts as magnet. Having no interest in going back to the upper distribution provides us with valuable market generated information. The daily remains in balance (5-day), and we are currently trading at the lower end of it. The sellers aim to break it to the downside to attack the Weekly Extreme Low of 4095, which would need to break for any significant change to occur in the bigger picture. In other words, initiative activity is needed from the sellers, and the absence of such activity could attract responsive buyers, leading to a return to the value area.
Going into tomorrow's session, I will observe 4115.
Break and hold above 4115 would target 4131 / 4153
Holding below 4115 would target 4095 / 4083 / 4070
Additionally, pay attention to the following VIX levels: 19.34 and 17.32. These levels can provide confirmation of strength or weakness.
Break and hold above 4153 with VIX below 17.32 would confirm strength.
Break and hold below 4070 with VIX above 19.34 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.
ES Weekly Plan | May 1-5, 2023
🟩 Daily: OTFU | Ends: 4143.75 🟨 Weekly: BALANCE | 4-Week | H: 4194.75 L: 4068.75 🟨 Monthly: BALANCE | 3-Month | H: 4208.50 L: 3814.50 Weekly Extreme High: 4280 Weekly Extreme Low: 4095 As usual, a detailed daily plan will be published tomorrow.
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.
Asia is buying at the moment. I would not exclude Japanese buying US equities and keeping the market bid, among buybacks and passive flows. But if there was a year to sell in May and go away, this would be it.
Hello Smash
Do you use Cumulative delta based on tick volume ?