2025 Starts The Way It Ended For SPX: Red. Is A Relief Bounce Coming? Jan 3rd Plan
The 2024 year ended on a unique note for ES: With 4 red days in a row, which is the longest red streak to end a year since 1966. Even within the 2024 year, this was a large selloff, being the third largest red day streak of the year exceeded only mildly on two occasions. 2025 started with more of the same; another deep flush. Its important to note however that there was nothing random about this recent weakness and it was caused by one of the most time timeless technical analysis principles.
What happened exactly 4 trading days before the end of the year and before the 4 day sell started? We hitthe 6100 level, which was the back-test of a 1.5 week flag pattern that Failed on FOMC Day December 18th (which generated the largest red day of the year). What on average happens when a major Breakdown like what happened on Dec 18 occurs. Two predictable things:
1. A rally to back-test it. Its why I wrote back on December 20th: “My general lean is that ES can make its way up to the back-test of 6099”. We rallied over 100 points there by Christmas Eve/Christmas Day.
2. A selloff there. Its why I wrote Tuesday December 24th: “The obvious zone to try shorts would be the 6098 major backtest zone to grab some points.”
After the back-test, we sold 4 days straight. Of course though, no sell goes in a straight line, and ES always needs to intersperse its sells with squeezes. I wrote in my last newsletter: “If we can put in a failed breakdown of today’s 5917 lows (perhaps down to 5912) and recover, I’d be interested in longing”. About an hour after the open last night, we got **exactly **this, dipping to 5912, recovering 5917, and squeezing 70+ points into this morning. Like all squeezes though in this environment of bearish control, this was also sold into new lows.
I also wrote in my last newsletter that:
“Possible zones for high risk knife catches though would be 5870-75 (as always don’t rush, wait a little to see the reaction)”. We sold there, and rallied into the close.
2025 started much as 2024 ended, but is a relief rally on deck? In today’s newsletter I’ll talk this, I’ll do a deep dive into the Back-Test setup, this time utilizing a more recent example of the sell we saw Monday/Tuesday this week. Finally, I’ll discuss the actionable trade plan for Friday.