ES Weekly Review and Outlook: Jan 16 - Jan 19
The pain trade.
Image 1. Imaginary prisons. G.B. Piranesi
My last weekly outlook remarked on the prior ‘b’ profile, and the last week now leaves us a near inverse ‘p’ profile. Last week I also suggested a 100 point range, and we got this to the tick. Lucky perhaps. Truly a market in balance as prices around 4800 gain acceptance.
Can buyers finally establish excess above?
That’s the question for this week. While trading is not about predicting (no one can), it is about well-placed bets and measured risk. Trade only when probabilities are in your favor and off setups that are repeatable and give you an edge. I’m not saying we break the highs here, but if I were to bet there are some excellent levels to lean on, below.
Image 2. ES prior weekly profiles
Minister’s Missal
In the meantime I want to illustrate the first two weeks of 2024 trading side by side. Note the sellers in the first week among even pockets of buying. While shorts were getting overly excited for a major sell off, the astute trader could speculate based on available information that the selling was mainly due to tax harvesting/deferred profit taking at the start of the year.
Sometimes it’s that simple. In other words, no initiative selling to lower levels. It was important to understand the quality of the sell, as opposed to merely direction. This led to a lot of traders potentially caught on the wrong side.
So on to the weak sellers, which were easily swept aside in Monday’s 65 point rally easily clearing 4800 that same day. A new high on the year however failed to challenge last year’s high, accumulating more unfinished business above.
Note the heavy blue delta in last week’s profile above, as well as the symmetry of selling around 4785, with the VPOC at 4792 and the TPOC at 4813 further above. I characterize our current profile as a four-day balance within a larger 20 day balance. This is a lot of pent-up energy which will likely result in the next 200 point move (in either direction).
Last week the 4756 level was indicated as the level to observe for clues on direction. More specifically the level buyers needed to clear to be considered ‘ok’. As we blew past this on Monday the evidence should have been clear within IB. This level will make an appearance in this week’s plan as well, however there are more immediately critical levels above. Read on below.
Image 3. ES 20D balance profile
Closer to home is 4792 which buyers had shown an interested in defending last week, especially in the ETH sessions. This could use another test in RTH, and renewed interest at this level may finally be enough to clear unfinished business above, as mentioned. This is a great weekly pivot to reference.
Data Watch
This is a data light week, with a focus on the health of the consumer.
Weds, Jan 17: US retail sales 8h30EST
Thurs, Jan 18: unemployment claims 8h30EST
Fri, Jan 12: consumer sentiment 10h00ESTWeekly Outlook
If traded, activity at 4792 or PW VPOC is a good indicator of strength or weakness. Once again we have the sellside liquidity at 4772 which can act as a buyer LIS before levels below open up. To the upside I can suggest 4830 (medium term VAH) as a seller corollary.
Expectations this time are for a range of 90 points with potential for a 20 point overshoot.
This Week’s Levels and Plan
Pivot 4792.
Levels to mark:
4871
4849 PSX high
4830 20D VAH
4792 weekly pivot
4772 sellside liquidity
4755 HVN
4720 sellside liquidity
Image 4. Current ES levels
a) Buyer defense of pivot or strong bids at 4772 in a look below and fail scenario can see trade back into 4830 where sellers may step in once more. A daily close above opens a resolution of ETH high 4841 with 4850 as the next stop. A strong impulse could carry on to 4871, my last target for the week. However consider 4890 further above into 4900.
b) Sellers must defend from a close above the congested highs which can trigger short covering. A daily close beneath 4772 may see weak longs exit the picture. This scenario can target 4755, 4729 selling delta, and 4719 selling liquidity, my last seller target for the week.
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