Thursday 3rd October – ES_F Review

Good morning all,

Another day, another sell-off albeit very orderly. We opened just above the gap from early August and traded straight through it during A period and never looked back. Internals got steadily worse for much of the morning before finding something of a recovery late in the day. It was clear from our perspective that other time-frame traders were in the market yesterday, due to the nature of some of the liquidating, smashing through very technical levels which would have seen some bounces had it only been technical traders in the market. These clues were evident early on, and told you that if your strategy was to go counter-trend at technical levels, it wasn’t going to work for you. This is why we usually let A & B periods play out before doing anything, although in this case a couple of us got short early, and stayed short. We failed to get near the gap close to the upside, so the gap rules dictated to ‘go-with’ the gap, looking for areas to get short as early as possible. Another opportunity was offered to us in D period, after C period had left some single prints 2896.75-98.50 were you could average into a short position with a stop above B period low.

What is interesting about yesterday is the single prints, and yet again we’re here talking about single prints and how they become very relevant on the day, but also in the days following. Single prints should be treated like a gap in the market, and failure to fill them in during the session, in this case, was bearish and was a trigger to get short. But if you look at the lower half of the profile from yesterday in isolation, we almost have complete balance, albeit with not a huge amount of excess at the low of G period, which we could categorize as weak (not poor) with a probability of being repaired at some point. The wider context of the July / August balance zone of 2820-2945 is that the lower end of that zone is built on really poor structure – the most glaringly obvious one is that low of the move was put in during a globex rather than a cash session, which tells us that it’ll need to be repaired at some point.

Overnight inventory is 95% long, with only a small dip below the close, so we can expect some inventory correction after the open. Trading below the overnight low at 2878 is very bearish, and opens up significant targets to the downside. Given we’re opening close to the overnight low, it’s entirely plausible that we take this out early and sell-off for the day if no buyers can be found. We have some data on the slate at 3pm (GMT) which may be the catalyst for further selling. Ultimately there’s very little structure to the downside if we sell off, so the trade will be to sell the rallies. If we don’t find any acceptance below the overnight low, we have the point of control at 2888.25 which is 9 x TPO’s wide, as the first targets for longs. Breach of the single prints targets the top of the A singles from yesterday, as well as the gap from Tuesday (albeit it’s unlikely).

The opening prints will tell us WHO is in the market today, bounces off technical levels, tell us technical traders are in the room and hands are slightly weaker, meaning they’re likely to liquidate quickly. Smashing through key levels (like 1/2 back) tells us bigger traders are present.

Good luck, and happy trading!