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ES Daily Plan | January 13, 2023
Today's RTH session traded entirely within the ON range. Decent excess at lows after testing the cumulative HVN ~3960, which remains important for buyers to hold to maintain control.
Unfinished business at the highs.
Recap & Plan
Yesterday’s base of the spike at 3985 held during both the Asian and European sessions. The first target of 3997 and the second target of 4020 were reached during the European session, with the latter being hit one minute before the release of the CPI data. This means that if you had a long position from the spike base, it was a good time to take profits and go flat to avoid the potential volatility caused by the release of the CPI data. The letter highlighted in green is the CPI range and it can be observed that the market traded within that range for the entire session. We did experience a vol crush today and VIX lost the downside level 20.23 already during the end of the ON session.
The RTH session opened with a true gap up but then experienced a significant drop immediately after the opening. We saw a 40 handle drop and we basically traversed yesterday’s value area, however, sellers were unable to take out the CPI range low. With -17k delta in A-period, sellers failed to take out the ON low, prior day’s low, and the unfilled gap 3942, which remains unfilled. Did you notice how we retested the broken VIX level 20.23 during that drop in A-period and found buying activity? B-period then returned to the high of A-period and we saw decent excess left below in A-period. During the AM-session, we developed a poor high, with the high of A, B and C-period close to each other, indicating crowded buyers. This often leads to a reaction where prices move away from that area to shake out those weak longs and attract stronger buyers at lower prices.
We saw some quick liquidation breaks, similar to the previous day's session, with buyers active on dips. That unfinished business at the initial balance high was eventually cleaned up when we saw a range extension to the upside. Similarly to how sellers were unable to break the ON low, buyers were unable to break the ON high after consolidating for an hour a few handles below, prompting another liquidation break. This one had pace. The afternoon pullback low against the FS VWAP/RTH VWAP is a trade that is often mentioned here and it was evident how buyers stepped in aggressively after we touched the VWAP’s, as seen in the visual posted on Twitter. Since we failed to take out the ON low, the obvious target for that trade was the ON high, but being on everyone’s radar, it ended up being a crowded trade and as a result, another poor high was formed. Carry forward.
We end up with an imbalanced profile to the upside, with value cleanly higher and prices above the unfilled gap 3942 continues to be accepted. As you know, daily and weekly are one time framing up. At this moment, we are within the resistance area highlighted in the Weekly Outlook, published on Saturday. Note the CHVN at 3962 (also highlighted in the Weekly Outlook), where we also have the weekly VWAP. For tomorrow’s session, that level is also the last intraday downside target, indicating that buyers are in a strong position as long as sellers are unable to establish acceptance below 3962, which is their main objective. This would also end the daily one time framing up. The upside target remains the Weekly Extreme High of 4045, which is also the last intraday upside target for tomorrow.
Tomorrow, pay attention to two additional VIX levels: 19.62 and 18.04. These levels can provide confirmation of strength or weakness. If we break and hold above 4045, a VIX below 18.04 would confirm strength. If we break and hold below 3962, a VIX above 19.62 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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