2 Red Weeks In A Row For SPX; 1st Time Since July. Election Week Bounce Coming? Nov 4 Plan
NOTE: This is a resend of the newsletter for Monday November 4th, originally sent on Friday at 4pm, for those who did not receive.
This week was a major change of pace for ES. Since Septembers low, ES has been stuck in a predictable rhythm. The vast majority of days were green and pullbacks were limited in size: Typically 70-80 points maximum and from September 6th until mid-October, ES was unable to put in more than 1 red day in a row. That changed this week, and yesterday ES saw a 170 point selloff, making it the largest pullback since the Friday September 6th.
As discussed yesterday, while many traders had tried to catch a dip like this all September and October by shorting every high (with many likely attempting dozens of failed shorts), professionals don’t guess when sells will occur. Sells occur when major, previously defended supports fail. On Wednesday evening, we got this when we lost the 1 week 5843 support. I provided this setup to readers in Wednesdays 3pm newsletter where I wrote: “Bear case tomorrow: Begins below 5843”. After 6pm on Wednesday, we lost this level, and sold 110 points, for 30+ hours of straight selling.
Of course though elevator down sells in ES are always accompanied by its sibling: The Short Squeeze/relief bounce. I wrote yesterday in my 230pm newsletter: “My general lean is that ES can try its first post-selloff short squeeze. Ideally, bulls want to see ES go no lower than 5741, 5721-26 on any earnings flushes (and if bulls are really motivated, that won’t even happen). We can then bounce to 5788, 5802, 5820-28”. We got right to work on this, hitting 5788 by 10am, then to 5802 by 1030AM from where we set the high of day.
The question is, now what? ES has put in 2 red weeks in a row now, and we are heading into one of the most extreme weeks of the year with an election coming up. In today’s newsletter I’ll talk this, I’ll do a deep dive into the setup that triggered yesterdays short. This is my core short setup (The Breakdown Short) and it will be essential to have mastery of before a downtrend begins, we don’t see it much in uptrends. Finally I’ll discuss the actionable trade plan for Monday.