Jan 25, ES Plan and Missal: Wait for the Beep
Not through with balance.
Image 1. Diving can strengthen a market
Yesterday’s Missal was subtitled Sprint the Marathon and subtitled ‘4900 is Sweetest’. The first was a good allegory for the overnight run into new highs - nearly into our last target for the day - before selling off to the siren’s subtitle of 4900. The close was just over a point below this significant level.
The action was similar to Monday with a gap open, however with some churn at the open finding bids into the overnight LVN. Recall that a net long or short overnight inventory has a 70% chance of correction at the open. This only strengthened the buyers, as corrections indeed strengthen a market. It did seem strong, maintaining the gap most of the day. However…
Image 2. Wednesday ES ETH and RTH profiles
Minister’s Missal
Buyers pushed through the ONH and into our first daily target of 4927 which acted as a magnet for trade in the morning. Price initially broke to 3930 temporarily, then retested IB high until a second attempt was made in the afternoon at a new high. This time buyers fell a couple of points short of our final target 4935.
The congestion was becoming apparent and a lack of follow through saw aggressive sellers step on the bid.
The turn in the tape was decisive, with a net flow of -35k contracts from the highs into the lows. Despite earlier strength in the day sellers managed to close the gap, leaving behind a ‘p’ shape profile indicative of absorption. Indeed price settled at 4893.25, below the key psych level of 4900.
With so much euphoria at the new highs above 4900, low volume, and aggressive buyers - we have left a ragged profile behind with little structural support. True, short-term value has moved to 4882 from 4792, and this will be our key area of support for longs. Sellers will look to trade below and then defend from a close above to potentially see a repair of structure below. Note the pockets of singles that act as natural targets in case of continued sell.
We remain OTFU on all timeframes.
Image 2. ES short-term (5D) profile
Finally, observe the massive effort by sellers to initiate below the IB low (and LOD). This will serve as a key level heading into Thursday’s session. Will sellers be willing to defend this zone, or will buyers use the dip opportunity to strengthen their positions?
Image 4. Initiation below IBL - the makings of a pivot
Trade Analysis of the Highs
Remark on the trade opportunities at the highs. Note the usual sings of heavy buyer absorption into a passive offer (blue deltas). The slowing progress of price on rising delta, or delta divergence, is another way to gauge absorption. Delta shifts as sellers enter the picture. Finally, a strong seller initiation sees price break below the area of balance (two-way auction). A retest of the auction zone from below finally exhausts buyers, and sellers once again step in. This is an ideal location for a short trade, with stop above the previous highs.
Image 5a. Anatomy of a sell, ES Wednesday highs
Image 5b. An look at the same area using a candle chart
Thursday Plan and Levels
Pivot 4909. See Image above for context. Buyers defending the 5D POCT at 4882 can gather strength for another shot at the highs. Sellers want to capitalize on momentum by defending the pivot and targeting a traverse of the prior two day balance.
a) Buyers maintaining above 4882 look for an hourly close above 4900, which can set up a retest of the pivot from below. Offers may be found to 4915, a break then targets Wednesday open 4923 and PDH 4933.
b) Sellers defending the pivot look to break 4882, targeting Friday high 4875 and VPOC 4868, where bids may be found. Further below is the area of singles to 4858, our final daily target.
c) Buyers can remain supported with VIX below 12.65, while lower targets may open up with the index above 13.40. AAPL below 194 and TSLA sub 200 can translate to weakness in the market. TSLA with an hourly close over 212 could target a break of 216.50 leading to a retest of 220.50.
Image 4. 4H TF, Critical ES levels
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