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ES Daily Plan | October 17, 2023
Friday’s weakness was completely negated today, as buyers were able to return to the short-term value of 4400 without much difficulties.
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.
During the overnight session, trading activity predominantly remained within Friday's lower distribution, rotating around the Smashlevel of 4367, ultimately emerging as the most traded price by time (TPOC). However, an hour before the RTH opening, buyers managed to break out from Friday's lower distribution, filling the breakdown single prints at 4384, representing the first upside target.
The RTH session opened within Friday’s C-period single prints, with buyers attacking the lower end of Friday’s upper distribution throughout the A-period. The interesting part during that consolidation was that VIX breached its support level of 18.36. This piece of information, coupled with the lack of interest in trading within Friday's lower distribution, signaled caution with initiating shorts. With this in mind, the impulsive move to the upside in the B-period didn't come as a significant surprise. The final upside target of 4400 was reached during that sequence. Given that the VIX confirmed strength by holding below its support level of 18.36, the potential for further upside was there, and this potential was realized as the market managed to gain another 15 handles. Regular readers of this newsletter know that I generally stay away from fading in scenarios where the market holds above its final upside target, when accompanied by VIX confirmation. It was interesting to observe how buyers repeatedly defended the 4400 level, highlighting the challenges of initiating counter-trend trades during these specific conditions. The only exception occurred during the rather complex liquidation break in the H-period, which effectively cleaned up the single prints from today's B-period. Buyers managed to pick up this drop as well to close back within the main distribution.
Friday’s weakness was completely negated today, as buyers were able to return to the short-term value of 4400 without much difficulties, forming a P-shaped profile. Take note of how the market has essentially stacked five daily highs, highlighting the lack of excess to the upside. Buyers aim to consolidate at the upper end of daily and weekly balance area, with the objective to attempt a breakout and target the unfilled gap at 4446. In the event of a breakout, I would exercise caution fading it, unless it clearly fails. As always, the upper end of a balance area is considered resistance until proven otherwise, implying that there is a need for initiative buyers, and a lack thereof will attract responsive sellers, who are aiming to primarily traverse the 5D composite value area. Note that the medium-term value (20-day VPOC) has shifted from 4326 to 4400, which is also the short-term value (5-day VPOC). The market is coiling for a directional move. My short-term pivot will be 4410, where notable order flow activity was observed today.
For tomorrow, the Smashlevel (Pivot) is 4410, where notable order flow activity was observed today. Break and hold above 4410 would target the weekly and daily balance high of 4419. Break and hold above 4419 would shift both the weekly and daily to one-time framing up and target 4435, as well as the final upside target of 4446, which represents the unfilled daily gap. Holding below 4410, indicating a lack of initiative buyers, would target 4393. Break and hold below 4393 would target the upper end of Friday’s lower distribution at 4375, as well as the final downside target of 4356, in the case of continued weakness.
Levels of Interest
Going into tomorrow's session, I will observe 4410.
Break and hold above 4410 would target 4419 / 4435 / 4446
Holding below 4410 would target 4393 / 4375 / 4356
Additionally, pay attention to the following VIX levels: 18.06 and 16.36. These levels can provide confirmation of strength or weakness.
Break and hold above 4446 with VIX below 16.36 would confirm strength.
Break and hold below 4356 with VIX above 18.06 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.