ES Daily Plan | October 31, 2023
Today, the market broke the pattern of establishing lower highs and lower lows, bringing the daily back to a state of balance, where responsive activity can be anticipated.
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
Ahead of today’s session, the main focus was on Friday’s double distribution profile. The overnight (ON) session opened within Friday’s upper distribution and immediately tested the Smashlevel of 4145, which buyers defended. After consolidating at the lower end of Friday's upper distribution throughout the Asian session, buyers slowly began to traverse the distribution, tagging the first upside target of 4159 in the European session.
The RTH session witnessed notable volatility in the opening hour, known as the initial balance. The market started to rally right out of the gate in the A-period, resulting in a test of the highlighted resistance area from 4180 to the final upside target of 4190, where selling activity emerged. During that initial impulsive move higher, the VIX remained above its support level of 19.96, serving as a cautious indicator against chasing. I would imagine a lot of traders got caught emotionally chasing that opening move, with the notion of Friday's low possibly serving as a potential bottom for this correction. While this scenario is plausible, it is wise to let the buyers validate it first. Late buyers were wiped out and aggressive sellers entered the market in the B-period, with a negative delta of 13K. Despite strong selling activity, buyers managed to remain within Friday’s upper distribution, effectively forming a higher low on the daily. During the PM session, buyers revisited the resistance area from 4180 to 4190. It's worth noting that, this time, the VIX had breached its support level of 19.96, making reversal setups less attractive compared to the morning session. The final upside target was achieved in the K-period. However, buyers were unable to achieve a daily close above it, which would have marked the strongest possible response.
We've previously highlighted the increased potential for the market to experience two-sided activity after reaching an area of prior balance, marked by the YTD VPOC. Today, the market broke the pattern of establishing lower highs and lower lows, bringing the daily back to a state of balance, where responsive activity can be anticipated. A similar scenario unfolded last week on Tuesday's session, where a 3-day balance was also established. Buyers aim to prevent a repeat of the events from last week, where the balance area experienced an immediate downside continuation the following day. Their primary objective is to establish value above 4190, while sellers aim to re-establish acceptance back within Friday’s lower distribution, thus potentially bringing Friday's poor low into play.
For tomorrow, the Smashlevel (Pivot) is 4190, where notable selling activity was observed in the M-period. Break and hold above 4190 would target Wednesday’s NVPOC at 4209. Break and hold above 4209 would target the resistance area from 4225 to the final upside target of 4235. Holding below 4190, indicating a lack of initiative buyers, would target 4174, as well as the support area from 4155 to the final downside target of 4145, which is a crucial area for buyers to hold.
Levels of Interest
Going into tomorrow's session, I will observe 4190.
Break and hold above 4190 would target 4209 / 4225 / 4235
Holding below 4190 would target 4174 / 4155 / 4145
Additionally, pay attention to the following VIX levels: 20.98 and 18.52. These levels can provide confirmation of strength or weakness.
Break and hold above 4235 with VIX below 18.52 would confirm strength.
Break and hold below 4145 with VIX above 20.98 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.
Strong earnings season with lowered expectations and two ongoing regional wars in which the US is potentially involved. It is incredible bears got to this point so far
good analysis! thanks