ES Daily Plan | September 22, 2023
Today's relentless downside continuation formed a double distribution similar to yesterday's, with breakdown single prints in L-period and a downward spike.
Acceptance or rejection is what I observe in the short-term.
Contextual Analysis
The closing weakness observed in the previous session carried over into the overnight (ON) session, as prices were immediately explored below yesterday’s low, effectively breaking the 2-day balance to the downside.
The overnight weakness led the RTH session to open on a large true gap to the downside, gapping below the entire weekly support area. The final downside target of 4415 was reached and exceeded immediately, with the VIX confirming the weakness after breaking its resistance level of 15.86. As regular readers of this newsletter are aware, when the market breaks and holds below the final downside target and VIX confirms the weakness, I generally stay away from fading, as there is potential for further weakness. Reversal setups are only relevant if the market would fail to maintain its position below 4415. and VIX returning below 15.86. This powerful concept alone keeps me from going against potential trend days, such as today. What made today's session particularly challenging was the fact that 4415 also serves as the Weekly Extreme Low. This suggests that chasing downside should also be approached with caution, which is why today's session doesn't rank among my favorites. The afternoon rally high in I-period was the trade of the day, with VIX resting its resistance from above, almost to the tick.
Today's relentless downside continuation formed a double distribution profile that was very similar to that of yesterday, with breakdown single prints in L-period and a downward spike when the M-period established a new daily low. Given this, I plan to approach tomorrow's session in a similar manner as I did today. The general guideline is as follows: trading within and below the spike base of 4379 (Acceptance) presents a more favorable outcome for sellers, while trading above the spike base (Rejection) is a more favorable outcome for buyers. It's important to emphasize that the short-term value (5D VPOC) remains at 4500, which is currently 130 handles (!) above today's closing price. I’ve included the complete 5D volume profile, highlighting the imbalance between the value and price. Furthermore, the market has breached the Weekly Extreme Low of 4415. This essentially implies that I exercise a high degree of caution when entering trades and avoid overstaying my welcome. This applies to both longs and shorts. The primary objective for sellers, who maintain full control following today's true gap to the downside, is to shift the short-term value (5D VPOC) lower to confirm this current directional move. In contrast, buyers aim to start establishing at least overlapping value, with the primary objective being to end the daily one-time framing down by breaking a previous day’s high. Stay nimble.
For tomorrow, the Smashlevel (Pivot) is 4379, representing today’s M-period spike base. Break and hold above 4379, indicating Rejection, would target the breakdown single prints in the L-period at 4389. Break and hold above 4389 would target the resistance area from 4407 to the final upside target of 4415, representing today’s afternoon rally high and the Weekly Extreme Low. Holding below 4379, indicating Acceptance, would target a downside continuation towards 4354, with the 2-month balance low slightly below at 4350. Break and hold below 4354 would target 4340, as well as the final downside target of 4325.
Going into tomorrow's session, I will observe 4379.
Break and hold above 4379 would target 4389 / 4407 / 4415
Holding below 4379 would target 4354 / 4340 / 4325
Additionally, pay attention to the following VIX levels: 18.40 and 16.68. These levels can provide confirmation of strength or weakness.
Break and hold above 4415 with VIX below 16.68 would confirm strength.
Break and hold below 4325 with VIX above 18.40 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.
Great play today. I had long before the open, and after it was shorts only. Thank you, buddy.
Tks for the writeup Smash. I would be keeping an eye on 4370. Yesterdays action filled a previously unfilled gap from June 2. We are currently balancing above that price in the Globex session. Yesterday also marked the first day in 120 days the market closed below the 200 day moving average. Trade well. HAGW!