ES Daily Plan | September 28, 2023

Despite a vicious reversal in the PM session, the overall context has not changed, as the daily one-time framing down remains intact.

Bringing this to an end could potentially trigger further short-covering, but buyers will have to prove themselves.

ES Daily Plan | September 28, 2023

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Contextual Analysis

Ahead of today's session, the key area to observe was the highlighted distribution ranging from 4325 to 4335, which played a crucial role today. Buyers managed to reclaim the 4325 level during the Asian hours, and the European session remained largely within this highlighted range, where 4325 acted as a support while 4335 acted as a resistance.

The RTH session opened at the lower end of the distribution of interest, but buyers couldn't replicate the overnight session's performance and fell short of breaking above Tuesday's afternoon rally high at 4335 during the A-period. During the B-period, buyers were rejected by the Smashlevel of 4325, resulting in a liquidation break in the C-period. The 4335 and 4325 area was marked with "Weak market below this area," so the subsequent weakness that ensued after the rejection wasn't particularly surprising. The liquidation break tagged the ESM23 (June) settlement at 4304.75 (to the tick), providing a bounce of ~10 handles. The session was essentially one-time framing down intraday, as sellers were consistently active on each bounce attempt. This ultimately resulted in completing yesterday’s downside imbalance and cleaning up yesterday’s poor low.

The most interesting sequence of the day unfolded in the I-period, when the market came 2 handles shy of reaching the final downside target of 4275 (LOD: 4277). This sequence served as a great example of why it is important to book profits as the final downside target approaches, when the VIX is NOT confirming the weakness. During these conditions, the potential for further weakness decreases, unlike yesterday's session when the VIX DID confirm the weakness. Regular readers of this newsletter are aware of the possibility of reversals in the absence of VIX confirmation. Even if you didn't feel confident in seeking reversals, at least you are aware of not chasing further downside, which is a crucial point. The pace of the unfolding reversal revealed everything about the number of sellers who came late to the party.

Despite a vicious reversal in the PM session, the overall context has not changed, as the daily one-time framing down remains intact. The primary objective for buyers is to end the daily one-time framing down, and achieving this would signal that the market is due for some two-sided activity, at least in the short-term. So far, the market has not auctioned low enough to find an opposite response. However, today’s low has excess and buyers were able to negate a triple distribution trend day to the downside. The implications of this remain to be seen. Sellers managed to shift the short-term value (5D VPOC) lower, currently at 4315 (4370).

For tomorrow, the Smashlevel (Pivot) is 4305, which represents Tuesday’s low. Holding above 4305 would target the crucial resistance area from 4325 to 4335. Break and hold above 4335 has potential for further short-covering targeting 4350, as well as the final upside target of 4363. Break and hold below 4305, would target fills of today’s structure towards 4285, as well as the final downside target of 4270. In the case of continued weakness, the Weekly Extreme Low is located at 4255, where booking potential profits is never a bad idea.

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Going into tomorrow's session, I will observe 4305.

• Holding above 4305 would target 4325 / 4335 / 4350 / 4363

• Break and hold below 4305 would target 4285 / 4270

Additionally, pay attention to the following VIX levels: 19.28 and 17.16. These levels can provide confirmation of strength or weakness.

• Break and hold above 4363 with VIX below 17.16 would confirm strength.

• Break and hold below 4270 with VIX above 19.28 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.

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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.

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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.