hi friends,
Tomorrow is a big day as it is the option expiration date for January 2021 leaps that were purchased 1 or more years ago from market participants as well as a record-breaking day for GEX being the most negative in history.
Today’s sell and/or the sell this entire week has been rather orderly, meaning there isn’t too much panic on the tape as opposed to everyone scrambling for the doors.
A good contrast example would be how prices flowed when Powell turned hawkish 1-2 months back which was when Omicron Headlines dominated the market (market wasn’t selling hard off omicron but rather Powell, omicron was the red herring)
With this in mind, it is important to be aware that it is very possible prices have not yet seen a bottom.
This post will be centered around ES as ES is a representative tool for market conditions. However price flows on ES will influence the price movements for moderate-to-high beta securities.
The chart you see above is a weekly market & volume profile view of ES or spy futures.
On the right-hand side, I have highlighted high volume nodes (HVN) which serve as liquidity areas of interest for when prices rotate higher or lower.
A | 4520-30
B | 4430-4440
C | 4390-4400
D | 4340-4360
E | 4230-4240
These will serve as my areas of interest moving forward as long as we remain bound within the 4200-4500 zone.
As you can see in the diagram, there’s decent amount of support around the B-D area (44340-4430) with some gaps in between.
The major gap is under 4340 (D) and with confidence, opens the door to 4230 (E).
Use these zones as areas of reference when prices begin rotating from one zone to the next.
For tomorrow, my primary pivot will be 4440 (zone B | 4430-4440) which will serve as my ‘home base’ if you will. If this area holds, look for a structural repair above which is diagrammed below.
The diagram above depicts the daily market profile view which I have highlighted the single prints in Thursday’s structure that are areas of interest to be repaired if price rotates towards them.
Single prints just represent when prices move quickly and do not spend too much time at that price level & viewed as short covering or long liquidation depending on context and location.
In the example above, it is long liquidation.
Three zones of interest for the single reparation
4465.50 —> 4469
4478 —> 4509
4515 —> 4537
The stacked prints represent resistance areas that price will likely encounter if/when it begins to repair the structure but the 3 above highlight the main zones to be looking for when monitoring for continuation.
What is GEX?
GEX is gamma exposure, a second order price sensitivity of certain
Gamma is how much delta changes as the underlying prices change.
High GEX = Positive Gamma = volatility is crushed which is why you’ll see price action and flows grind slowly and feel lethargic
Low GEX = Negative Gamma = high volatility which is the environment you are seeing now.
Historically, when GEX is this extremely negative, the market tends to rebound.
In this context, with prices being quite unfair & liquidating many longs from Thursday’s close & the historical nature of extreme negative GEX, there is a probable outcome for prices to look higher from the 4440 base.
What Else?
Been noticing this pattern of algo stop run in globex to collect inventory cheaper which can be seen in the 2 diagrams underneath.
(Thursday Globex)
(Friday Globex)
I took a small bet on this as there was confluence with location and wanted to see if my thesis made sense.
+12.75pts
Just wanted to share this pattern in the event you see stops ran only for prices to come up.
When I see this, I’ll look to buy the stop if there’s confluence with a zone and/or context and my stop will be around the swing low w/ some margin of error.
I’m not going to get too much into the order flow itself but the only thing I want to highlight is that there is a very good amount of shorts in the market as well as put-held options.
Trade Plan/TLDR
My pivotal zone is 4430-4440, I want to be bullish above it and cautious below it.
Below targets 4390-4400
I want to look to these zones of interest for repair
4465.50 —> 4469
4478 —> 4509
4515 —> 4537
I want to say if we do go bid, the first area of interest is 4492-4500, max I see it going is 4520-30 but anything is possible in MOPEX. As I always say, take it level-by-level.
I am aware that we have extreme negative GEX which historically leads to a rebound in the market which combined with the heavy amount of shorts and put held options currently in the market can lead to a ripper but this will be confirmed only through time, price and tempo.
Price: hold over 4440
Time: Morning and Power Hour
Tempo: High
Expect heavy volatility
There will be a lot of good opportunities but your primary goal is to defend your capital if you are a less experienced trader.
This is my plan overnight. I typically incorporate where the auction has gone before premarket and observe the first 15-30minutes of the open to add or subtract any variables from my thinking.
Good luck
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Hi chika. New fan here. For the first chart, did you use the continuous contract or the current H contract? I can't tie out to the last area of interest. I'm using the ES1! continuous contract in TradingView. Thanks.
Great thesis and analysis