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ES Daily Plan | September 29, 2023
Breaking the pattern of lower highs on the daily triggered the anticipated short-covering rally, characterized by three sets of single prints at one point. Can buyers follow through?
To address this question, I'll be using the support area from 4335 to 4325 as a short-term reference point.
The overnight (ON) session was relatively quiet, with trading occurring within the previous value area. The 4325 level acted as resistance, while the Smashlevel of 4305 consistently attracted buyers throughout the entire session.
The RTH session opened a couple of handles above 4305, and the initial efforts by sellers to break this level were rejected, providing a look below the ONL and fail setup. The second attempt at 4305 occurred during the C-period, and once again, buyers emerged. In the previous plan, we discussed the possibility of further short-covering if buyers managed to end the daily one-time framing down. Today, change took place during the D-period as buyers successfully ended the pattern of lower highs on the daily. This triggered the anticipated short-covering rally, characterized by pace and two sets of single prints. In the E-period, buyers were able to tag the next upside target of 4350. However, they failed to reach the final upside target of 4363 after developing a poor high in F and G-period. The formation of poor highs often leads to a reaction where prices move away from that area to shake out the crowded buyers. It was interesting how the formation of the poor high coincided with the VIX testing its support level at 17.16, a level that essentially remained intact throughout the entire session. Note the added a snapshot of the ES and VIX correlation on the chart for reference. The market pulled back and tested the broken resistance area from 4335 to 4325, which served as support during the PM session, but the market failed to establish a new daily high., thus we carry forward today’s poor high as unfinished business.
The daily has returned to a 3-day balance following the break of the previous day’s high. When analyzing today’s profile, we can observe that it formed a P-shape profile, which comes as no surprise given the short-covering that took place during the day. With a P-shaped profile forming within a downtrend, the key question is whether today’s main distribution attracted new buyers after short have covered, or if today’s price action presented an opportunity for sellers to reload at higher prices. To address this question, I'll be using the support area from 4335 to 4325 as a reference. Holding above would increase the odds of an upside continuation, while a rejected below would confirm that today’s session was primarily driven by short-covering rather than stronger buyers.
For tomorrow, the Smashlevel (Pivot) is 4335, which represents the upper end of the support area. Holding above 4335 would target a traverse of todays main distribution towards 4350. Break and hold above 4350 would target the resistance area from 4363 to 4373, effectively cleaning up the poor high and shifting the daily to OTFU. Break and hold below 4335/4325, would target 4305, as well as the final downside target of 4285.
Going into tomorrow's session, I will observe 4335.
Holding above 4335 would target 4350 / 4363 / 4373
Break and hold below 4335 would target 4325 / 4305 / 4285
Additionally, pay attention to the following VIX levels: 18.36 and 16.32. These levels can provide confirmation of strength or weakness.
Break and hold above 4373 with VIX below 16.32 would confirm strength.
Break and hold below 4285 with VIX above 18.36 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.