Jan 19, ES Plan and Missal: Lessons Never Learned
J turn.
Image 1. Waking the Spirit. Princess Mononoke (1997)
Yesterday’s note stressed the fact that sellers “need[ed] to step on it” or risk a trap. Titling the note ‘whistling past the graveyard’ was appropriate as sellers were perhaps not in the comfortable position they wanted to convey. For more context on clues in Wednesday’s close, check my Twitter (X) feed.
While I favored the short side initially ahead of globex open (remain with the trend, in this case daily OTFD), this was on the strong condition that 4780 was not broken to the upside. This was not only achieved ahead of open, but this resistance was later support, by just one tick off. Also, not only was 4780 the day pivot, but it offered multiple bounces with decent profits - and more importantly tight risk - each time.
If that’s not a level to lean on I don’t know what is.
Suffice it to say that the quality of the recent sell was eerily similar to the one at the start of the year (which we already established was deferred profit taking). I was OK with a continued sell in the short-term however if OTFD was intact. But the European open I saw no initiative selling, so with new context we change our assumptions.
Which is why we trade with scenarios, and not certainties.
Image 2. ES looking left: 5D, daily, and balance profiles
Minister’s Missal
The day opened with a gap to the upside in what was initially shaping up to be an island reversal, much like the ideal buyer scenario mentioned in Wednesday’s note. The IB seemed to promise this initially, with a poor low holding the gap as selling dried up. This was the first sign of overall seller weakness.
A run at the ONH however found renewed selling, and buyers quickly tired out as absorption was evident on the tape.
Image 3. Absorption at/below ONH
Sellers managed to break the IBL, ultimately achieving a gap fill. This suggested seller strength initially. The test however was for sellers to initiate into the PD value area and find acceptance (preferably a 30m close) there. Seller exhaustion was becoming apparent, and the lack of initiative and interest saw volume taper off. A failure of the test could mean a hard reaction in the opposite direction. The test was failed and buyers once again stepped in.
Image 4. Absorption at the day’s lows
So about that 30m close in the prior day’s value? Not only the tape but market structure showed a clear rejection. That one point was enough context for the astute long. Look where H period closed (blue letters)…
Image 5. Rejection of PD value and trapped sellers at the lows
This major ‘look below and fail’ indeed took us through the day’s value and a break of the ONH on a strong short covering. Remember, a failed move in one direction can result in a stronger counter-reaction. Indeed enough force was in the move to break Tuesday’s high, closing the day near a key level 4812. This will now be an important area going into tomorrow’s session. Indeed, it has implications for the ATH in SPX. Read on.
Friday Plan and Levels
Pivot 4820. This is the short-term balance (5D) VAL, as well as December balance POC. While shorts look to defend the 4812-16 zone, I think the major fail of defense comes with an hourly close above the pivot. A hard defense could see another attempt at 4785 however. In all, momentum favors the longs and a resolution of the unfinished business at 4841.
a) Buyers defending ONL/4797 look to break 4820 on volume. Momentum targets 4834 and then on to the ETH high at 4841, before potentially continuing on to SPX ATH 4849 ES equivalent. Further above are 4857 and 4871.
b) Defense of pivot can test 4805 and then 4797, where patient buyers may emerge. A break here on volume can shake out weak longs, targeting 4785. Strong sell volume will be needed to break through to another test of 4770, with 4755 further below.
c) Buyers can see favor with VIX falling below 13.90. Sellers arguably have the harder job but need to see VIX above 14.90 for any attempt at recent support levels.
Image 6. Critical ES levels
Bonus Mentions
I think TSLA is at some interesting medium-term levels. I had posted about 210 as a potential spot for a long, and I think as long as 200 holds this can potentially offer a trip to 250. The key here would be a daily close above 223, after which dips may be bought. While the area around 210 is risky, it can potentially have a good payoff.
Arguably gold (GC) looks weak, but these are critical tests of the 2000 level from above I think acceptance (consecutive monthly closes) over 2000 ultimately signals the beginning of a paradigm shift not only regarding the price of gold but the use of it as well - perhaps associated with a global monetary regime change. For now, keep an eye on dips to 1990 and the volume at this level. Bulls want to see daily closes above 2095 for a stronger move to the upside - targeting 2250 and then 2400. Any major clash between Iran and the US, for example, could catalyze a move higher.
Image 7. Gold (GC) support and resistance levels
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