ES Daily Plan | September 7, 2023
The daily is one-time framing down following today’s break of the 4-day balance. Tuesday's (8/29) breakout structure filled in the process. Using 4473 to gauge the short-term strength/weakness.
Contextual Analysis
After yesterday's close at the lower end of the 4-day balance area, the key question was whether initiative sellers could capitalize on this by attempting a downside break, preferably already during the overnight session, as discussed. Sellers immediately initiated a downside break and started building volume below the 4500 level during the Asian session. The European session saw a downside continuation, tagging the first downside target of 4489, where the downside pressure momentarily stalled.
The overnight weakness led the RTH session to open on a true gap to the downside. If there is an early inability to break and sustain a move below the ONL (true gap down), it can create opportunities to fade the market, targeting an inventory correction. The market-generated information provided by the inventory correction is highly valuable in gauging the strength or weakness of the auction. The open saw a quick look below the ONL and fail, resulting in a counter move. Nevertheless, this counter move was notably lackluster, as buyers failed reclaim the opening level, ultimately leading to a continuation of the downside. The lack of significant corrective activity during the A-period strongly suggested that sellers were in control of the auction, particularly in light of the breakout from the balance. This implies that trading in the direction of the trend (down) generally provides easier trade setups. Rallies were met with selling pressure until the H-period ended the intraday one-time framing down. The final downside target of 4469 was met and exceeded. There was a significant amount of selling activity below 4469, but it was absorbed by passive buyers. The VIX remained below its resistance level of 14.82, which did not confirm the weakness. Such situations are typically quite challenging because it's not favorable to chase further downside. Meanwhile, reversals become a safer option above 4469, but buyers struggled to regain control of this level. I closed all my short positions during this sequence, a decision that, in hindsight, would have been more appropriate if buyers had successfully regained control of 4469. The market eventually saw another wave of selling, with responsive buyers emerging within the excess of the 8/29 session, just 7 points away from the Weekly Extreme Low of 4440.
The daily is now one-time framing down after breaking the 4-day balance low. I’ve highlighted the weekly support area from the Weekly Plan (4470-4440), and today’s session ended at its upper end following the closing reversal. ~4470 is the breakout point from the previous week, so it was not surprising to observe sellers actively defending it during the PM session. I will use the 4473 level as a short-term reference point to gauge strength/weakness. The key question this week was whether a cleanup of Tuesday’s (8/29) breakout structure is necessary to attract stronger buyers (and shake out weak ones). In today's session, Tuesday’s poor structure was completely filled, will buyers emerge? Buyers are aiming to re-establish acceptance within the prior 4-day balance area, which would confirm that today’s session was primarily driven by long liquidation rather than stronger sellers. Sellers are aiming to establish acceptance below the weekly support area, which would completely negate last week’s breakout.
For tomorrow, the Smashlevel (Pivot) is 4473, representing the M-period high. Break and hold above 4473 would target fills of today’s structure towards 4489, as well as the final upside target of 4506. Note the unfilled gap slightly below at 4501.50. Holding below 4473, indicating continued weakness, would target 4458, as well as the final downside target of 4440, representing the Weekly Extreme Low.
Going into tomorrow's session, I will observe 4473.
Break and hold above 4473 would target 4489 / 4506
Holding below 4473 would target 4458 / 4440
Additionally, pay attention to the following VIX levels: 15.16 and 13.74. These levels can provide confirmation of strength or weakness.
Break and hold above 4506 with VIX below 13.74 would confirm strength.
Break and hold below 4440 with VIX above 15.16 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.
thanks very much. I appreciate all you do.
Cleaning up F triple distribution was such a letdown. The first true gap down sell off since 8/2 and it fizzles at showtime. Thanks @Smash.