ES Daily Plan | September 27, 2023
Continuation to the downside today, following the weak overnight session. In the short-term, I'm observing the distribution ranging from 4325 to 4335 to assess the market's strength or weakness.
Contextual Analysis
After closing at the highs yesterday, buyers were under pressure to demonstrate their strength, especially considering that all time frames were one-time framing down. The critical area for buyers to hold was the area between 4373 and 4363, yet this range was immediately breached in the overnight session, resulting in yesterday's buyers being trapped. The 4363 level served as a resistance throughout the European session.
The RTH session opened below the significant level of 4350, and today, buyers experienced an immediate downside continuation. During Monday’s session, I was not particularly interested in a break of 4350, as discussed, and I cautioned about the possibility of a false breakdown, which materialized. This was because the short-term value, represented by the 5D VPOC, was situated at 4499 before Monday’s session. Therefore, by trading with a break below this level, you would be selling well below the established value. Today, the conditions were different because sellers managed to shift the 5D VPOC lower yesterday to 4370, thereby confirming the weakness observed last week. The final downside target of 4338 was met and exceeded already in the B-period, with VIX confirming weakness by breaching its resistance level of 17.75. 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. Buyers made an effort to reclaim the 4338 level in the C-period, briefly pushing prices above it. Nevertheless, this bounce encountered selling activity, which was not a surprise, given that the VIX remained above 17.75 throughout this sequence. I will provide a visual of today’s correlation between ES and the VIX levels from previous plan on Substack for reference. The auction was firmly under the control of sellers, resulting in an additional 30-handle drop (speaking of the potential further weakness) and effectively closing the roll gap high from the ESM23 (June) contract, which is nice to get out of the way.
While the daily one-time framing down remains intact, buyers are faced with limited opportunities, emphasizing their primary objective of bringing it to an end. Today’s profile has unfinished business at the low, which we carry forward. The highlighted weekly support area is the obvious target in the case of a continuation to the downside. Sellers will encounter short-term difficulties only if buyers establish acceptance above 4350, while breaking the pattern of lower highs.
For tomorrow, the Smashlevel (Pivot) is 4325, a level that buyers defended on multiple occasions before it was breached during the PM session. Break and hold above 4325 would target the afternoon rally high at 4335, which is poor. Break and hold above 4335 would target the 4350 level, as well as the final upside target of 4363. Holding below 4325, indicating continued weakness, would target the ESM23 (June) settlement at 4304.75, a level that came very close to being reached today, missing by just 3 ticks. Break and hold below 4304 would target the upper end of the weekly support area from 4285 to 4275, completing the downside imbalance. In the case of continued weakness, the Weekly Extreme Low is located at 4255, where booking potential profits is never a bad idea.
Going into tomorrow's session, I will observe 4325.
Break and hold above 4325 would target 4335 / 4350 / 4363
Holding below 4325 would target 4304 / 4285 / 4275
Additionally, pay attention to the following VIX levels: 19.98 and 17.88. These levels can provide confirmation of strength or weakness.
Break and hold above 4363 with VIX below 17.88 would confirm strength.
Break and hold below 4275 with VIX above 19.98 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.
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.
Always appreciate these additonal breakdowns!
Thank you, buddy! Great short plays today.