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Smash ES Plan | December 29, 2022
The lack of initiative buyers above prior day's high attracted responsive sellers, and we end up with an outside day down.
Daily is in a 4 day balance and my short-term interest is at the familiar level 3815.
Recap & Plan
The ON session was balanced and fairly uneventful, trading within prior day’s range and value area. The high of the ON session was capped by the 3870 level marked on our chart (ONH: 3869.50).
The RTH session was all the more eventful. RTH opened within that 3856-3847 area that has been so significant the past two weeks. We got an initial dip down to our Smashlevel 3847 where we found buyers, almost to the tick. That reversal was good for ~30 handles and it looked like buyers were going to break the inside day to the upside and target those fills from 12/21, which we still have not cleaned up in RTH. If you have access to order flow, you could identify a passive seller at 3875, 2 handles above prior day’s high, and we quickly came back within prior range. By taking out the inside day to the upside with basically two prior session highs close together, buyers should have been able to get some fills of the fill section from 12/21 and generate some pace, but that clearly wasn’t the case, meaning a clue of weakness. The lack of upside continuation opened up for a look above and fail setup with the other side of the inside day as target, and that was achieved already in C-period. C-period also took out the inside day to the downside in the process and with D-period’s inability to fill the C-period single prints, sellers found downside continuation.
We were one time framing down intraday up until G-period which ended it, and one of my favorite setups presented itself, the afternoon rally high. I’ve mentioned this setup multiple times in the past and I will probably continue to do so since it’s a powerful setup. When we have a trending session (OTFD intraday), if you don’t have a position, you want to patiently wait for the afternoon rally/pullback that more often than not will happen once the one time framing down intraday ends (like G-period today). We had lower value, ON low was taken out, IB low was taken out and we had single prints. It’s very easy to be tempted to chase longs during that sequence, expecting a full-on reversal, but the trade to look for is a short setup leaning against the single prints and I always want to look for FS or RTH VWAP to lean against as well. VWAP is very good reference to use when the market is directional, like today. H-period tagged RTH VWAP almost to the tick and we could see how aggressive sellers piled on by observing the flows. Contextually, the last intraday downside target was 3800, meaning the short trade had plenty of room to work. LOD ended up being 3804.50.
After a look above the inside day and fail, we end up with an outside day down. Daily is now in a 4 day balance. The Monthly Extreme Low 3815 provided a solid bounce in F-period, but sellers managed to close below. 3815 will be my Smashlevel for tomorrow’s session. Stronger sellers will hold below for an attempt to test the 4 day balance low and potentially attempt a breakdown. Note the imbalance to the downside on today’s profile. The 12/22 session had a lower low with positive delta, meaning that low of that day is very important for buyers to hold. Note the amount of blue on the delta profile. Break and hold above 3815 targets a traverse of today’s value area and a potential retest of that 3856-3847 area. Note the high volume area which will act as a magnet in the absence of downside continuation.
Tomorrow, pay attention to two additional VIX levels: 23.11 and 21.15. These levels can provide confirmation of strength or weakness. If we break and hold above 3856, a VIX below 21.15 would confirm strength. If we break and hold below 3760, a VIX above 23.11 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.
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.
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