ES Weekly Plan | May 15-19, 2023

Below are my expectations for the week ahead.

🟨 Daily: BALANCE | 6-Day | H: 4169.50 L: 4111.50
🟨 Weekly: BALANCE | 6-Week | H: 4206.25 L: 4062.25
🟨 Monthly: BALANCE | 4-Month | H: 4208.50 L: 3814.50

Weekly Extreme High: 4235
Weekly Extreme Low: 4045

As usual, a detailed daily plan will be published tomorrow.

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The previous week was largely uneventful, as trading remained confined to a very narrow range, resulting in an inside week, characterized by its price range being contained within the previous week’s range. Both the upside gap of 4182.25 and the downside gap of 4098.25 have yet to be filled. It's worth observing that three out of the last four CPI data releases have traded within a similar range. The medium term value (20-day VPOC) and the long-term value (90-day VPOC) remain at 4153.

For this week, the main focus will be on previous week’s inside week. The market is currently in balance across all time frames, awaiting more market-generated information. For the last six weeks, market participants have unanimously agreed on the value, resulting in an opposing response to any deviation from it. This has made the mean reversion strategy of buying below value and selling above value quite successful. However, this situation is not expected to last forever, and a shift will eventually occur. Such a shift may lead to buyers viewing the market as undervalued or sellers seeing it as overvalued, resulting in a directional move. At this point, it is crucial to monitor for continuation or a lack thereof, and to keep in mind that using the same mean reversion strategy may not be appropriate if the new move establishes acceptance. Remember that markets are constantly shifting between balance and imbalance. Just like the previous week, balance rules apply (See Substack for details).

Balance Rules: The general rule is to go with the break of the balance area. Break to the upside (Look above and go), you want to be a buyer. Break to the downside (Look below and go), you want to be a seller. Monitor for continuation (Acceptance) or lack thereof. Lack of continuation (Failed breakout / Look above/below and fail), you want to fade and target other side of balance.

As always, the upper end of a balance area is considered resistance until proven otherwise. Conversely, the lower end is viewed as support.

The weekly level of interest is 4165, which essentially is the resistance of the inside week. Break and hold above 4165 would target the resistance area from 4200 to the Weekly Extreme High 4235, where selling activity can be expected. It’s worth noting that the 4-month balance high of 4208.50, the unfilled weekly gap at 4220.75, and the 100% range extension from the inside week at 4226, are all located within the resistance area.

Holding below 4165 would target 4120, which essentially is the support of the inside week. Break and hold below 4120 would target the support area from 4080 to the Weekly Extreme Low 4045, where buying activity can be expected. Note how this area coincides with the 6-week balance low, MA50 and the prior 3-week balance high of 4083. For any significant change to occur in the bigger picture, the sellers would need to break and hold below the Weekly Extreme Low, with a weekly close below it being preferred.

🟩 Upside: 4200 | 4220 | 4235 | 4260 | 4300 | 4335
🟥 Downside: 4120 | 4080 | 4045 | 4020 | 3990 | 3950

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Economic Calendar

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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.