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ES Daily Plan | October 18, 2023
The market is currently in a short-term state of balance, coiling for a directional move as it awaits further market-generated information.
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.
I will keep it short, as today's session essentially ended without any significant change. Buyers were unable to consolidate at the upper end of weekly and daily balance area, attracting responsive sellers who managed to traverse the multi-day composite value area for a test of Friday’s lower distribution.
The RTH session opened on a true gap to the downside, within Friday’s lower distribution. If there is an early inability to break and sustain a move below the ON low, it can create opportunities to fade the market, targeting an inventory correction, as the market was 100% net short going into the RTH session. The gap was filled immediately during the A-period, where selling activity was found, and with the VIX trading above its resistance level of 18.06, the conditions were favorable for a downside continuation, targeting the final downside goal of 4356. Despite heavy aggressive selling below the ON low, sellers failed to establish downside momentum, resulting in a vicious counter rally. Now, it was buyers' turn to traverse the multi-day composite value area, and they also attempted a breakout above 4419. The break of 4419 shifted the weekly and daily to one-time framing up. Nevertheless, this breakout sequence didn't particularly captivate my interest, given that the 55-handle rally, coupled with shallow pullbacks, diminished its potential. That's why buyers were more inclined to witness consolidation at the upper end of the balance area before attempting a breakout. From an order flow perspective, this failed breakout provided a textbook illustration.
During today’s session, market participants made efforts to break out of the multi-day composite value area, both below and above. Both attempts were unsuccessful, resulting in responsive activity. On a technical level, both the weekly and daily are one-time framing up. However, it's evident that the market is currently in a short-term state of balance, waiting for more market-generated information and coiling for a directional move. I will continue to monitor the extremes of the 6D composite value area to see whether a break can trigger a stronger directional move, or if each deviation from value will continue to find an opposite response. In order to see a stronger directional move, the market must establish acceptance beyond this area. In the meantime, stay nimble.
For tomorrow, the Smashlevel (Pivot) is 4410, where notable order flow activity was observed again today. Break and hold above 4410 would target an upside continuation towards 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 a traverse of the 6D composite value area at 4377. The final downside target is located at 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 / 4377 / 4356
Additionally, pay attention to the following VIX levels: 18.82 and 16.94. These levels can provide confirmation of strength or weakness.
Break and hold above 4446 with VIX below 16.94 would confirm strength.
Break and hold below 4356 with VIX above 18.82 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.