A Rare Red Day For SPX. Buyable Dip, or More Red Coming? Oct 22 Plan
Last week concluded the 6th green week in a row for ES and during this 6 week span ES only put 9 red days (10 including today). Incredibly, each one of these red days was bought the next day, with ES unable to string together two red days in a row since the September pullback ended. In other words, every single dip has been bought, and promptly. Much of the recent strength has to do with the fact that on October 8th, ES broke out one of the most picture-perfect bull flags I’ve seen this year, which formed from September 26th to October 7th.
If you zoom out to a 4hr or 6hr chart and contrast this structure with any textbook Bull Flag image you can find online or in a technical analysis resource, you will note an almost perfect overlap. The “flag pole” from Sept 9th to Sept 25th. The “flag” itself - structurally perfect - downsloping from Sept 25th to October 8th. The breakout on October 8th. Readers of this newsletter were of course well prepared for this and October 7th when were 5734 I wrote: “Bull case tomorrow: No change. 5734 to 5805 is a large consolidation, and this consolidation is a bull flag. If this flag breaks out, we see a new ATH to 5846+”. We have been running since.
Heading into this week, ES was building a new consolidation from 5915 to 5850ish around the all time highs. I was looking for this to fill out today, and its exactly what we did. I wrote on Friday: “This zone is generally 5915 to 5850, but there is an even tighter consolidation within it between 5892 and 5915. If we fill out the range more to the downside Monday (which hopefully, we can) the levels are slightly firmer. If 5892 fails Monday, we probably get a Monday selloff (a very common phenomenon)”. Last night we tagged 5915 exactly, then today, began to fill out the range downward to 5865, before the dip was bought as usual and we consolidated around 5892 into the close.
As a result, ES put in a rare red day today. Can it crack its 6 week long streak of no two red days in a row, or is another huge green day incoming? In today’s newsletter I’ll talk this, I’ll go into some nuances on my core setup (the Failed Breakdown), specifically on how to seperate a high quality Failed Breakdown, from a low quality Failed Breakdown. Finally, I’ll discuss the actionable trade plan for tomorrow.