SPX ES SPY Setups for 1/19/24
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Trading Doggy Style
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In Wednesday’s action we had quite a bearish day, but ended the move lower with a giant trap of sellers. This is one of my favorite setups, the failed distribution. If you aren’t familiar with Volume Profile or this term the bottom line is that price trades most of the day within a given range. An aggressive move out of this range is made, often late in the day, but is ultimately rejected. ES Traded between 4758 and 4775 the first half of the day. At 1:15PM sellers tried to expand this range to the downside taking price to the bottom of the balance range we’ve been watching for a month, and our key level of 4747.5 (46.25 low of day). Within an hour this move had been rejected lower, resulting in a massive short covering rally and the index closed just under a major resistance in the 4771-4775 range. Here’s is the commentary from 2:03 EST as this failure on the part of sellers looked imminent.
With futures session open and ES at this key resistance, the dollar hit a major resistance and began to sell off hard. The dollar (and yields) has a reasonably strong inverse correlation with indices. This happening with ES at resistance was exactly what was needed to break out.
There was a small liquidation and trap into our first trade setup that involved trading lower:
The low of the session was 4763.5 well within the stop for this trade, and ES never looked back
Our last line of defense for sellers was 4783.5-4786.25. The cash session opened right at 4786 and there was a rather ferocious battle to hold this spot. Buyers ultimately gained the upper hand, but once again were unwilling to initiate buying at higher prices to drive a trend day up. It was very difficult trading the first two hours and I personally sat on my hands and watched the action closely.
It was rather strange that buyers had not initiated a trend day up given the power of the setup into the day. If you recall a previous post where I discussed paying close attention when what you fully expect to happen does not, and this was my reasoning for taking the 4793 short.
Within 3 minutes ES buyers liquidated in a rather nasty looking sell that took price right to our first long setup for the day. It was a rather strange way for this setup to play out, consolidating for so long in the 80s-90s range first. Our major spot of 4771-4775 was tested (73-76 given as the range to hold for today) and there was another battle as this was last line for buyers in my opinion. I posted on X how I would have executed this long (I was busy covering the short) so I’ll share that here as well. If this spot held, the squeeze was sure to be ferocious.
Here is the balance range referred to in the discord post and you can see the move out of it. Take the breakout from this balance, be prepared to stop out if it pulls back in range, and certainly a hard stop at LOD is the way to play this:
For tomorrow we have a huge test. This entire range can be heavy. Buyers can’t afford to fail the top of this range again, and can’t afford to lack initiative on the breakout. We will be on watch for both, along with dip buy opportunities for longs.