After a 200 Point Rally This Week, A "Tape Bomb" Tanks SPX. Will It Get Bought? Feb 3rd Plan
This week was a master class in just how powerful simple technical principles can be to cut through the enormous amount of noise out there, and this week, there was more noise than ever between FOMC, earnings, and multiple what I call Trump Tariff “Tape Bombs”. I’ve discussed these at length, and they refer to sudden 50-200 point flushes that occur a few times a week when the President comments on tariffs. Throughout all of it though, the technicals helped us navigate.
I started this week on Monday at 4pm (when we were 6040s), writing: “For now though, the bull case is that we got a short squeeze trigger on the Failed Breakdown of 5997 this morning at 8am, which triggered longs. The bull case ES can now begin back-testing with 6068-71 1st up. React there, then onto 6082, then 6115-20 to fill the gap.” What did we do this week? Exactly this. We rallied to 6120+ overnight last night to fill the large Sunday opening gap that we started the week with. What propelled this 150+ point rally? As stated above, it should be no surprise as its the same thing that propels every single rally: A large Failed Breakdown (my core setup). This Monday we flushed the last Monday ~5997 low down to 6040s, recovered it, and were off to the races.
A huge Failed Breakdown + a large open gap made the pathway this week quite evident: That ES would squeeze to eventually fill the gap, and I’ve been long all week for it. After the gap fill though, things get less certainly. I was leaning that ES had more rallying to do. I wrote at 3pm yesterday: “My general lean is always just to defer to the trend. This means that 6056 to 6105 is a consolidation and its setting us up to fill the Sunday opening gap at 6127. Above there, we head to 6136, then 6155, then new ATHs.” By 10AM today, we got to 6136, creeped a little above, before getting a Tariff Related “Tape Bomb” that tanked ES.
The other Tape Bombs got bought. Will this one too? In today’s newsletter I’ll talk this, I’ll do a deep dive into the multiple quality Failed Breakdowns we had this week (we have had one per day since Monday, sometimes two. This is true most weeks). Finally, I’ll discuss the actionable trade plan for Monday.