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ES Daily Plan | January 4, 2023
The break of the inside week to the upside lacked continuation, resulting in a strong counter move. The market remains in a state of consolidation after today's b-shape profile.
Recap & Plan
The ON session was pretty eventful as we gapped up and opened right within the highlighted fill section. The gap was eventually filled and we ended up testing Friday’s VPOC where the selling shut off and we formed a poor low. During the remainder of the ON session, the market trended upwards as buyers almost reached the last intraday upside target of 3913 (with the ONH at 3906.75). VIX was above 22.60 during that sequence (and for the entire session), indicating that caution should be exercised with chasing prior to RTH open.
The RTH session opened with a true gap up and buyers attempted a break of the inside week to the upside, but this attempt was unsuccessful as they were unable to take out the ONH. Once back within range, sellers were very extremely aggressive and the delta was -10062 after the first hour of RTH (Initial balance). Note how the buyers had a hard time trading above Friday’s high after the true gap was filled, meaning sellers were in short-term control. Filling the gap, but not establishing acceptance within Friday’s range was what buyers wanted to see.The intraday trend was clearly down as sellers were active on every bounce and sellers eventually tagged the last intraday downside target 3815, almost to the tick (LOD: 3814.50). It’s worth noting that the VIX, as mentioned, was above 22.60, indicating that the conditions were not favorable for a strong reversal. We did get a decent 20 handle bounce off 3815, but note how the first bounce failed. Not favorable conditions for a stronger reversal doesn’t mean that you can’t take a counter-trend trade, but knowing what levels to track helps you avoid chasing when the conditions are not lined up. That’s you advantage. We did however get a closing rally after sellers failed to make a new daily low in K-period.
We end up with a b-shape profile, indicating long liquidation. Note how the profile is imbalanced to the downside, meaning as long as we don’t break and hold above the main distribution resistance 3860, also Smashlevel for tomorrow, lower prices can be anticipated with a potential test of the pink box extreme, where buyers want to be active. Above 3860 we have a very large A-period excess that will get fills if sellers fail to follow through to the downside. We are right in the middle of the inside week, meaning still in consolidation mode. It's likely that a larger directional move will occur once the market auctions outside of the extremes of the pink box. In the meantime, stay nimble.
Tomorrow, pay attention to two additional VIX levels: 23.89 and 21.91. These levels can provide confirmation of strength or weakness. If we break and hold above 3896, a VIX below 21.91 would confirm strength. If we break and hold below 3800, a VIX above 23.89 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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