ES Daily Plan | October 4, 2023
Today’s session resulted in a double distribution trend day to the downside, characterized by a directional move away from the established value.
Contextual Analysis
The overnight (ON) session was similar to that of yesterday's, with the Asian session remaining relatively calm and the European session delivering the volatility. Buyers came close to testing yesterday's high but fell a couple of handles short, prompting sellers to traverse yesterday's range and break its poor low. The VIX was already hovering around its resistance level of 18.56 during the overnight session.
The RTH session pushed higher at the open, and just like yesterday, it filled the poor structure from the overnight session. However, buyers failed to gain traction within the main distribution (from overnight), which happened to coincide with the high volume node at 4315. Sellers entered aggressively in the B-period, with a negative delta of 7K, breaching the important 4305 with pace. In order to see a stronger directional move, as previously discussed, it was essential to achieve a clear and decisive break below 4305. Take note of the large set of single prints formed during the B-period, which remained unfilled. The final downside target of 4385 was met and exceeded in the process, with VIX confirming weakness by breaching its resistance level of 18.56. Regular readers of this newsletter are aware that I generally stay away from fading during such scenarios, as there is potential for further weakness. This is a powerful concept that keeps me from potentially fighting against the trend. I will provide a visual of today’s correlation between ES and the VIX levels from previous plan on Substack for reference. Every attempt to bounce was met with selling activity, leading to an additional drop of 35 handles, speaking of further weakness.
Here are two additional examples of the same concept:
Today’s session resulted in a double distribution trend day to the downside, characterized by a directional move away from the established value. The market is one-time framing down across all time frames, indicating that sellers are in full control of the auction. When analyzing today’s profile, we can observe that it is imbalanced to the downside, lacking excess at the lower end. Given the prevailing downtrend, the expectation is that the auction is not yet complete on the downside. The key question at this moment is whether sellers can sustain today’s directional move away from value by spending time and volume, ideally below last week's low, or if responsive buyers will step in, aiming to bring the market back to value. To address this question, I'll be using the resistance area from 4275 to 4285 as a short-term reference to gauge the market's strength or weakness. A weak market will not be able to fill today’s B-period single prints, while a stronger market will establish acceptance within today’s upper distribution.
For tomorrow, the Smashlevel (Pivot) is 4275, where selling activity emerged during the PM session. Break and hold above 4275 would target today’s halfback at 4285. Break and hold above 4285 would target fills of today’s breakdown single prints, as well as the resistance area from 4305 to the final upside target of 4315, essentially a return to value. Holding below 4275, indicating continued weakness, would target today’s poor low at 4252. Break and hold below 4252 would target the unfilled daily gap at 4239.75, as well as the Weekly Extreme Low of 4220, completing the downside imbalance. Take note of the MA200, which is located at 4225.
Going into tomorrow's session, I will observe 4275.
Break and hold above 4275 would target 4285 / 4305 / 4315
Holding below 4275 would target 4252 / 4239 / 4220
Additionally, pay attention to the following VIX levels: 20.90 and 18.70. These levels can provide confirmation of strength or weakness.
Break and hold above 4315 with VIX below 18.70 would confirm strength.
Break and hold below 4220 with VIX above 20.90 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.
Fantastic analysis!
As usual excellent analysis,many thks.