A Rare Two Red Days In A Row For SPX. Will The Dip Get Bought? May 22 Plan
After 6 green days in a row into yesterday, ES finally snapped that green streak with yesterday’s daily candle, putting in a mild red day. Today, bears followed up with another, putting in the first proper red day arguably for a full month and making it two in a row. As I’ve discussed everyday at the start of this newsletter since April 6th though, ES has been in what I’ve called a buy dips regime. The dips vary size and duration, but they get bought.
How do dips get bought? Institutions do so via my core setup: The Failed Breakdown, and my task as a Failed Breakdown trader is to wait for these. Typically this means price will flush a single low, or a shelf of major lows, trap shorts, then reverse. For the last week, the level to watch in this regard was 5925. 5925 had been a critical magnet level for a week now. Its was a massive support since last Thursday: Tested 5-6x that day and also set the low of day there Friday.
Back on Friday at 4pm, I wrote that Failed Breakdowns of 5925 would be the actionable setup, stating: “Below 5945 we work back down to that 5925 level again, and this is a big one… Ideally, I’d look for a Failed Breakdown of today’s low to long here.” On Monday we flushed 5925 down to 5890s, recovered it, and longs were triggered for a monster leg to 5990 which is the weekly high.
For today, 5925 would be critical again. As a Failed Breakdown trader, this means I would be watching for that level to flush and recover to initiate longs, stating yesterday at 4pm: “[5925] has been tested to death now as mentioned above…For this reason if we head down there again I’ll say the same thing as yesterday. It would be best to see it flush and recover for a Failed Breakdown.” What did we see overnight? Its Deja Vu again from Monday: We flushed 5925 down to 5905, by 10am today, had recovered to trigger long to 5957.
From there, ES finally got slammed with a strong sell. I wrote yesterday at 4pm: “5957 backtest is a possible short” and for those who like the short side, we flushed hard here right back through that tired 5925 level and to 5850.
Today was two red days in a row. Of course, this is an absolutely a normal, uninteresting thing in regular markets, but in the context of the recent parabolic rally, this is only the second time it has happened since the April 6th low. Will it get bought? In today’s newsletter I’ll talk this, I’ll do a deep dive into the monster Failed Breakdown we had on Monday of 5925 that resulted in a 65 point squeeze into the current weekly high (this is an important setup to know). Finally, I’ll discuss the actionable trade plan for tomorrow.