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ES Daily Plan | January 12, 2023
Buyers were able to follow through with a true gap up that held. Tomorrow, the release of the CPI can be expected to cause significant market volatility, as it has throughout the past year.
Recap & Plan
Following a strong close at highs yesterday, buyers wanted a fairly quick follow through to confirm the higher prices of the spike, which they were able to achieve already in the ON session. We experienced a dip into the 3938-3931 area, our area of interest, where buying activity was present, leaving behind a poor low similar to the one from yesterday's ON session, signaling lack of stronger sellers. The Europe session saw an upward trend, with buyers active on every liquidation, similar to how today’s RTH session played out.
The RTH session opened with a true gap up and we saw very aggressive selling the first minutes when we experience a minor inventory correction, but buyers quickly turned up, which basically was the theme of the day. Every liquidation break had good downside pace, stalled, and quickly reversed. Sellers had major problems gaining downside traction, which tells us that if working counter-trend, one must book profits very fast and stay extremely disciplined, meaning absolutely not chase after a move is already done. Don't be mistaken, today was a very tricky day, particularly in the early stages, with a range extension to the downside in the C-period that ultimately failed. C-period had -8051 delta, indicating heavy and aggressive selling, however, the gap failed to get filled, indicating stronger buyers. After that unsuccessful selling effort, buyers took control of the auction for the remainder of the session.
We eventually got a successful range extension to the upside and buyers main objective was to clean up the unfinished business at the highs from 1/9 session, which we have been carrying forward. That was resolved in H-period. The last intraday upside target was the unfilled gap at 3997, which we came close to reaching during the closing session with a high of 3990.75. Given the positive VIX throughout the session, reaching the level of 3997 would have been an opportunity to book profits rather than expecting further upside.
This is the third consecutive day on which we closed the session with a spike, indicating an imbalance between price and value. As the session came to an end, it’s unknown whether these higher prices will be accepted or rejected, usually this would require monitoring in the next session, however, with the release of the Consumer Price Index (CPI) data tomorrow, large market volatility is expected, which makes this observation less important.
In order to last in this business, it's essential to exercise patience, discipline, and above all, proper risk management. Without capital, it's difficult to consider oneself a trader. Stay nimble.
Note the references around today’s close, with MA200, the unfilled gap 3997 and previous month’s VAH. Additionally, take note of the confluence with the last intraday upside target and the Weekly Extreme High 4045, and the last intraday downside target with the unfilled gap 3942.
Tomorrow, pay attention to two additional VIX levels: 21.93 and 20.23. These levels can provide confirmation of strength or weakness. If we break and hold above 4045, a VIX below 20.23 would confirm strength. If we break and hold below 3942, a VIX above 21.93 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 Outlook, 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.
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