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Smash ES Plan | December 20, 2022
Another day with sellers in control of the auction and the third session in a row that leaves unfinished business at lows. Are sellers getting tired?
Previous week's low is of interest to me for tomorrow's session.
Recap & Plan
The ON session found responsive buyer at a visual reference from Friday’s session, the time point of control (TPOC). Smashlevel 3895 was tested and sellers were active, meaning buyers failed to establish acceptance above. The liquidity was grabbed above Friday’s M-period high and we slowly started reversing. With buyers inability to trigger any form of short-covering, the unfinished business at Friday’s lows were a significant magnet, also the ON low 3872.50 was weak against that visual reference. The entire ON session traded within prior day’s range.
The RTH session opened at the upper end of Friday’s value area and the ON VPOC was tested immediately, this was also a level where the Europe session found support after open (F-period in ON). We were one time framing down intraday and Friday’s unfinished business was resolved in E-period, which had decent excess, meaning a potential look below previous week’s low and fail was in play. It was a trade I took, but the lack of pace to the upside was a sign that sellers were not finished for the day. Note the I and J-period, judging by the downside pace, many traders were betting on that the low was in with that excess and got stopped out. The last intraday downside target was the unfilled gap 3825.75. We had two additional VIX levels to track to confirm strength/weakness. From J-period, VIX was making lower highs and if you take a look at the profile you can see that ES was making lower lows. VIX actually turned negative (<22.62), meaning the confirmation of weakness was not there when we were slowly approaching 3825.75. Another interesting nuance was that we had a delta divergence in that same sequence, refer to the delta bars to the right. What I’m trying to say is that the closer we came to the last intraday downside target 3825.75, the more caution with chasing shorts, since contextually it was not a good location, as we have just established. What you want to see when you are aware of that is selling effort that gets absorbed by passive buyers, because they are the traders you want to play against in a potential squeeze, if that makes sense. When you have contextual awareness, you will make more informed decisions and increase the chances of success in your trades. LOD ended up being 3827.25 and we got a +20 handle rally closing session.
We end up with another poor low, meaning it’s the third session in a row that we leave unfinished business at lows. Are sellers getting tired? They failed to hold the I-period single prints during that closing squeeze. Value is overlapping lower, meaning we are at least slowing down, but that doesn’t mean it’s over just that we need to stay open-minded if we were to see some sort of short-covering rally. Establishing acceptance back within previous week’s range would be buyers first objective and as always, nothing really changes before buyers can end daily one time framing down by breaching 3883.50.
Two additional VIX levels to observe for tomorrow: 23.55 and 21.29. Use the levels as confirmation of strength/weakness. Should we break and hold above 3895, you want a see a VIX < 21.29 for confirmation of strength. Should we break and hold below 3800, you want a see a VIX > 23.55 for confirmation of weakness. In any case, one should be careful with chasing outside of the yellow levels. A non-cooperating VIX may suggest reversals (trade setups).
Disclaimer: Futures and options trading involve high risks with the potential for substantial losses. The information contained in this communication is for informational purposes only and does not constitute a trade recommendation and should not be construed as such. The reader bears responsibility for any investment decisions and should seek the advice of a qualified securities professional before making any investments. Owners/authors of this newsletter are not certified as registered financial professionals or investment advisers.
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