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ES Daily Plan | January 5, 2023
An inside day today, meaning not much has changed contextually and we are still in consolidation mode.
Remember that the longer a consolidation lasts, the more significant the move out of it tends to be. Stay nimble.
Recap & Plan
Very brief today as we continue the consolidation phase in full force. The ON session showed no interest in any follow through to the downside after yesterday’s b-shape profile and we started to partially fill yesterday’s A-period excess during the Europe session.
RTH opened in similar fashion as the prior session, meaning we did some price exploration higher at first, only to reverse and get a decent drop in B-period. However, today there was no A-period excess allowed, meaning obviously a less bearish first hour of trading (initial balance) compared to the prior session. We could identify significant aggressive selling/passive buying in B-period at 3845, but that selling effort failed to gain any traction to the downside and did you notice how C-period came down and reversed just above that level? C-period was an inside bar and it was eventually taken out to the upside and buyers managed to get a range extension to the upside. The objective was pretty obvious, fills of yesterday’s excess, as discussed in prior plan.
When the market is in balance, it tends to resolve poor structure, unlike during breakouts where poor structure can remain unresolved for extended periods.
The range extension to the upside tagged the last intraday upside target 3896, almost to the tick (HOD: 3896.25) and with a VIX at ~22.25, meaning no confirmation of strength. That tells you that initiating longs around 3896 is not favorable as we have previously discussed. I published a recap of that sequence on Twitter for reference. It was a very good example of aggressive buyers (at unfavorable location), unable to move price higher and eventually met by market sell orders smashing the bid.
Below is another example from Friday's session, where we basically had the same thing, but in reverse.
We end up with an inside day, meaning nothing has really change contextually and we are still in consolidation mode. I will observe the extremes of today’s profile to see if a break can lead to any stronger moves or if we will continue to to find an opposite response on every deviation from value. 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: 22.95 and 21.07. These levels can provide confirmation of strength or weakness. If we break and hold above 3930, a VIX below 21.07 would confirm strength. If we break and hold below 3828, a VIX above 22.95 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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