A Tariff "Tape Bomb" Forces SPX To New Lows. What Now? March 4 Plan
Heading into last Friday ES had done something it had not done since April 2024: Put in 6 red days in a row and this was very unusual for ES. Remember that when ES is selling, we get counter-trend rallies/short squeezes in one circumstance only: When ES puts in my core setup, the Failed Breakdown. Heading into Friday, I was looking for this and anticipating ES would snap its 6 day red streak.
I wrote on Thursday at 4pm that: “We are 6 red days in a row in ES and probably overdue for a bounce soon. Getting a bounce, and sustaining a bounce are two different matters though.” I also wrote: “Below is 5850. Once again I am not overly interested in knife catching in this context but I will be watching the reaction here and if we are selling into it in a more organized, slow manner, and price sees a good reaction there, I’d consider taking this.”
What did we see on Friday? ES spent overnight Thursday into Friday testing 5860 over and over again. Then at 1:15PM on Friday, we sold down to 5850 exact, put in a monster Failed Breakdown of 5860 to trigger longs, then went parabolic to 6000 by this morning. However, as I wrote above, getting a rally and sustaining one are two different matters.
After tagging 6000, by 1pm today, ES had sold back to 5938-40. I wrote on Friday at 4pm: “There is a more advanced short available below 5938-40 as well. As always I’d need to see a bounce here, then one could short below the lows of that bounce. Likely lower 5930s.” This short triggered around 1:15PM and while this was a great technical short, it alone was not responsible for what came next: A vicious meltdown of around 100 points from 5938 down to 5830s by 3pm. This was caused by another Tariff related “Tape Bomb”, of which we’ve become very accustomed. I wrote on Friday: “Bear case Monday: The real bear case begins if 5870-75 fails. This is obviously far down now though, but we can get there in one headline.” One headline it was.
With the entire rally retraced, now what? In today’s newsletter I’ll talk this, I’ll do a deep dive into the the picture perfect Failed Breakdown (one of the best this year) that caused Friday’s squeeze, and I’ll discuss the actionable plan for Tuesday.