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ES Daily Plan | October 27, 2023
The daily imbalance phase that started yesterday continued in a downward trajectory today. It’s worth noting that this phase of imbalance has now reached an area of prior balance.
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.
Following yesterday's closing weakness, which started with a directional move away from value saw, the downside momentum continued immediately in the overnight session with a gap down. The first two downside targets were already achieved within the Asian session, highlighting the weakness. Before the RTH open, the market experienced an inventory correction, but the subsequent bounce lacked the strength to prevent a true gap-down opening in the RTH session.
There's little need for extensive analysis of the RTH session, given how straightforward it unfolded. Buyers managed to fill the gap immediately, and tested the Smashlevel of 4205 to the tick, which ended up being the high of the RTH session. The failure to establish acceptance within the previous day’s range provided a clear signal for caution when considering longs, as the market is currently undergoing a phase of imbalance to the downside. This suggests that the market is experiencing initiative activity, creating a challenging environment for buyers seeking opportunities below value. Keep in mind that markets are constantly shifting between balance (consolidation) and imbalance (trending) phases. Maintaining awareness of these market conditions is critical to avoiding unfavorable trade locations. The final downside target of 4163 was met during the F-period, when the market formed a double distribution. The VIX simultaneously breached its resistance level av 21.36, suggesting that there is potential for further weakness. The broken 4163 level acted as resistance initially, leading to a test of 4150 in the I-period, representing the upper end of the weekly support area from the Weekly Plan. The market saw a vicious reversal from this area, which was not surprising given the way sellers got trapped, the signs of exhaustion, and the subsequent aggressive buyers entering. The conservative traders would wait for 4163 to get regained and for the VIX to drop below its resistance level, a scenario that unfolded 15 minutes later. I will provide a visual of the footprint chart, and the depth of market (DOM) from this sequence.
The daily imbalance phase that started yesterday continued in a downward trajectory today. It’s worth noting that this phase of imbalance has now reached an area of prior balance, characterized by the high volume node (HVN) formed during the multi-week period of balance from early April to late May. As previously discussed, this has served as a notable downside magnet for the recent weakness. The primary focus now is to closely monitor how the market will act within this area. Buyers main objective is to end the daily one-time framing down by breaching the previous day’s high. In contrast, sellers are looking to confirm this directional move by spending time and volume (value) at these lower prices. The weekly VPOC is at 4265, currently 100 handles higher. In the short-term, the 4175 level is of interest.
For tomorrow, the Smashlevel (Pivot) is 4175, which represents the initial balance low and halfback. Break and hold above 4175 would target the VPOC in the L-period at 4190, as well as the final upside target of 4205. Holding below 4175, indicating continued weakness, would target the weekly support area, where three significant downside targets are located. In the case of continued weakness, the Monthly Extreme Low is located at 4102, with an unfilled daily gap slightly below at 4098.25.
Levels of Interest
Going into tomorrow's session, I will observe 4175.
Break and hold above 4175 would target 4190 / 4205
Holding below 4175 would target 4150 / 4135 / 4120 / 4102
Additionally, pay attention to the following VIX levels: 21.94 and 19.40. These levels can provide confirmation of strength or weakness.
Break and hold above 4205 with VIX below 19.40 would confirm strength.
Break and hold below 4102 with VIX above 21.94 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.