Tuesday 1st October – ES_F Review

Morning Traders,

Trade yesterday told us an awful lot about the sell-off we experienced on Friday afternoon. We opened in range, and inside value, and traded 3 ticks below the open before driving higher throughout the day. It tells us that during all of the most recent sell-offs have been bought with significant size, so now we have the opportunity to retest the top of the recent balance zone to the up-side, an area which bears have defended 2988-92 very strongly over the course of the last few weeks. Yesterday was a tough day to trade, particularly late in the day when we saw the gradual grind higher. Personally speaking, I didn’t trade the ES at all as it was month-end and wanted to let the institutions get their books in order.

This market has traded very oddly of late, and we’ve stopped trying to predict what direction the market is going to take, we’ll only making trading decisions based on what happens on the profile, supported by strong or weak internals.

New month and new quarter kicking off today, so we can expect some new order flow and new agendas coming to the fore. Overnight we’ve had a mixed bag of inventory leaning towards the long side by c.70%, which appears to have mostly corrected in the run-up to the open. Today we’re look like we’ll open above yesterday’s range and above yesterday’s value, so the first thing we’ll look for is if we trade back into yesterday’s range. The overnight low is at a very key level in the ES of 2982.25 so we’ll look to see if this area is defend by the bulls. To the upside, we have single prints between 2990-94 which we were rejected out of last Wednesday and have yet to revisit.

Given how strongly this zone has been protect by the bears, albeit in the face of relatively weak buying, I’d like to see how it resolves itself during the first 30-60 mins of trade before taking anything on. There’s been weak conviction across both bulls and bears over the last month, so we’ll look to see if either can take this market by the scruff of the neck and give us some clear direction.

Acceptance over 2982 is key for the leg higher, if we fall back into yesterday’s range, we have the usual levels to work off, marked up below. We have a very small gap at the open to the upside, so gap rules will apply – we either see if the gap closes, and if it doesn’t we use a ‘go-with’ approach.

Good luck and happy trading.