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ES Daily Plan | October 9, 2023
On Friday, a vicious short-covering rally unfolded due to the absence of initiative sellers at the lower end of the double inside day range.
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.
On Friday, a vicious short-covering rally unfolded due to the absence of initiative sellers at the lower end of the double inside day range. The session formed a P-shaped profile leaving behind very poor structure, characterized by three sets of single prints. Note the four consecutive daily lows closely together. The lack of excess suggests that it's not a well-auctioned low, which is why I will carry it forward. This piece of information only becomes relevant if Friday's breakout fails, suggesting that I’m not going to go against a potential upside continuation just because we're rallying off a poor low.
Short-covering rallies generally weaken the market when the prevailing trend is to the downside by removing potential buying interest. With that in mind, it's crucial to monitor how well the market sustains Friday's rally. Buyers aim to maintain levels above the double inside day range, indicating a successful breakout, which would increase the odds of an upside continuation. Failure to witness any fills of Friday’s poor structure would serve as a bullish indication. The main objective for buyers is to end the weekly one-time framing down by breaching 4358.50. Sellers aim to re-establish acceptance back within the double inside day range, which would negate Friday’s breakout and confirm that Friday’s session was primarily driven by short-covering rather than stronger buyers.
For tomorrow, the Smashlevel (Pivot) is 4350, which represents the prior 6-week balance low. Break and hold above 4350 would target 4266, as well as the resistance area from 4380 to the final upside target of 4390. Holding below 4350 would target the lower end of Friday’s main distribution at 4323. Break and hold below 4323 would target the final downside target of 4305, which represents both the upper end of the double inside day range, and the value area high (VAH) of the previous week.
Going into tomorrow's session, I will observe 4350.
Break and hold above 4350 would target 4366 / 4380 / 4390
Holding below 4350 would target 4323 / 4305
Additionally, pay attention to the following VIX levels: 18.38 and 16.52. These levels can provide confirmation of strength or weakness.
Break and hold above 4390 with VIX below 16.52 would confirm strength.
Break and hold below 4305 with VIX above 18.38 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.