ES Daily Plan | October 24, 2023
Despite a vicious 70-handle rally, sellers remain in control, and the market's context and overall outlook remain unchanged following today's session.
Visual Representation
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.
Contextual Analysis
In the overnight (ON) session, buyers attempted to establish acceptance within Friday’s value area during the Asian session. This attempt ultimately failed, leading to immediate weakness observed throughout the European session. In the previous daily plan, we discussed about how an immediate breakdown might not be the most favorable scenario for sellers, considering the significant deviation from the value. Today's session served as a great example of what can happen in such scenarios.
The RTH session opened with a true gap to the downside. A true gap occurs when the RTH session opens completely outside of the previous day’s range. The initial 15 minutes saw heavy aggressive selling activity, with a negative delta of 10K. However, sellers were unable to sustain a move below the ON low, triggering responsive activity, leading to a vicious short-covering rally. Contextual awareness is the most crucial aspect of trading. Despite sellers maintaining full control, and the market one-time framing down across all time frames following the break of Friday’s low, our recognition of the deviation from the short-term value kept us from making emotional decisions. The gap was filled during the initial balance, and the rally continued after a range extension in the D-period, resulting in a test of the highlighted resistance area from 4275 to 4285, where sellers emerged.
Despite a vicious 70-handle rally, sellers remain in control, and the market's context and overall outlook remain unchanged following today's session. The market is one-time framing down across all time frames. The primary objective for buyers is to end the pattern of lower highs and lower lows on the daily by breaking the resistance area from 4275 to 4285. This would signal that the market is due for some two-sided activity, at least in the short-term. Sellers aim to maintain the downside pressure after closing below the previous week’s low, with their main objective to negate today’s excess low. Today’s rally managed to shift both the short-term value (5D VPOC) and medium-term value (20D VPOC) lower, which is bearish in the context of the recent directional move to the downside. I will continue to use the 4254 level as a short-term reference to assess the market's strength or weakness.
For tomorrow, the Smashlevel (Pivot) is 4254, which represents Friday’s M-period spike base, a notable LVN in the past two sessions. Break and hold above 4254 would target the resistance area from 4275 to the final upside target of 4285, where the previous month’s low is located. Break and hold above 4285 has potential to trigger further short-covering. Holding below 4254, indicating continued weakness, would target fills of today’s A-period excess towards 4220. Break and hold below 4220 would target the support area from 4200 to the final downside target of 4190.
Levels of Interest
Going into tomorrow's session, I will observe 4254.
Break and hold above 4254 would target 4275 / 4285
Holding below 4254 would target 4220 / 4200 / 4190
Additionally, pay attention to the following VIX levels: 21.80 and 18.94. These levels can provide confirmation of strength or weakness.
Break and hold above 4285 with VIX below 18.94 would confirm strength.
Break and hold below 4190 with VIX above 21.80 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.
Weekly Plan
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.
I liked how it rejected fridays tvah. Awesome day today.
Thank you! Today's reversal was indeed vicious!