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ES Daily Plan | May 5, 2023
The daily is one-time framing down following today’s break of the 5-day balance.
Ahead of this week, the market was in a 4-week balance, with Monday's session looking above it, and today's session looking below it.
The market immediately explored prices below the spike area yesterday after hours, reaching the Weekly Extreme Low of 4095 to the tick. This weakness continued in the initial stage of the overnight (ON) session, as the market opened with a gap below 4095. Just five minutes into the ON session, we saw a low of 4075.50 - a mere 5.5 handles away from the last downside target of 4070. Needless to say, this is not the ideal location to begin chasing further downside, especially when we came so close to hitting the last target in just a few minutes of trading. If you are bearish, you want to sell higher prices. Speaking if higher prices, the Asian session fully retraced the initial weakness, leading to a test of the Smashlevel of 4115, which was rejecting further upside. I shared a visual of this sequence on Twitter, which is worth checking out. Very cleaned short setup that provided a drop of 30 handles before the opening of the regular trading hours.
In that visual, I once again highlighted to observe the level of 4095 in RTH. As regular readers of this newsletter are aware, 4095 is the Weekly Extreme Low from the Weekly Plan published last Saturday. The RTH session opened with a true gap to the downside right at 4095, and we saw aggressive sellers immediately gaining downside traction. During the initial drop, the VIX broke through its resistance level of 19.34 and remained above it throughout the entire session. The last downside target of 4070 was achieved in B-period already. At this point, the session is very tricky to trade because 4070 was tagged with the VIX confirming weakness, while simultaneously trading below 4095 is a tricky location to chase downside on a weekly basis. In essence, this implies that one must remain extremely nimble and not have unrealistic targets in either direction. Despite VIX confirming weakness, the market saw solid bounces from 4070, but the buyers ultimately lacked any upside follow-through. During the PM session, 4095 was revisited and faced a strong rejection. It’s important for sellers to maintain below this level tomorrow to avoid any potential short-covering rally.
The daily is one-time framing down following today’s break of the 5-day balance to the downside. This is the second daily downside gap that is left unfilled this week. Currently, the sellers are in short-term control as long as the daily OTFD remains intact and the gap from today at 4105 is not filled. Trouble for sellers would only kick in if buyers regain acceptance within Wednesday’s range, which has potential for a short-covering rally. My short-term focus will be on the prior 3-week balance high of 4083, as the session ended up closing below it. The sellers aim to maintain below for a downside continuation towards the weekly NVPOC of 4041, with the YTD VWAP located in close connection - a notable point to consider. Also, ahead of this week, the market was in a 4-week balance, with Monday's session looking above it, and today's session looking below it (4068.75).
Going into tomorrow's session, I will observe 4083.
Break and hold above 4083 would target 4095 / 4105 / 4115
Holding below 4083 would target 4070 / 4057 / 4041 / 4025
Additionally, pay attention to the following VIX levels: 21.22 and 18.34. These levels can provide confirmation of strength or weakness.
Break and hold above 4115 with VIX below 18.34 would confirm strength.
Break and hold below 4025 with VIX above 21.22 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.