After A Parabolic 9 Green Days, SPX Puts In A Red Day. More Dip Next Week? July 7 Plan
The past two weeks were for the record books, with ES putting in a staggering 9 green days in a row for 350+ points of upside, before going red today. As readers know (and as I’ve updated each day at the close in a fully transparent manner), we have been in a continuous long since the Sunday June 22nd bottom and move was the byproduct of a perfect storm of technical factors, interacting with my trade methodology. Moves like this (9 green days) are rare and we may get it once or twice a year if lucky.
As I’ve said daily this rally was not a surprise, or a coincidence. While those trading based on “news”, or “macro” or any of the various other things that have 0 to do with price action may be surprised by this run, technical analysts weren’t. Its because it was the predictable outcome of a simple fact that I’ve discussed daily for weeks: On Monday June 23rd: ES broke out of a two week bullish triangle with support at 5979 and resistance (it declines since its a triangle) now down at 6025. What happens when a two week chart pattern breaks out? Most commonly, two weeks of rally and interestingly, today completed the two weeks. I provided this setup way back on Friday June 20th at 4pm, when we were 6020, by stating: “My general lean is always to defer to the trend, until it ends. 5978-82 to 6081= a range (descending triangle) with 6050 a key magnet inside. My lean is we work back up to 6050, then 6081. Above there, we can try breakout to 6099, 6124, 6143+” We rallied all last week after this, into this Monday.
Of course though, chart patterns are useful, but they don’t help us 1) Pick our entries and 2) Stay onboard for the trade. For this, we need an entry setup, and a trade management system. My entry setup is the Failed Breakdown which mirrors institutional accumulation patterns. Institutions long when bearish news hits (US bombing Iran in this case), price flushes a low, providing access to a large liquidity pool for institutions beneath the low (trapped shorts). From there, they buy, I follow, and up we go. This is what we saw right off the open Sunday June 22nd. After that, I begin to trail my stop up beneath the prior days low, and since we had not lost a prior days low for two weeks essential, the trade survive.
After a 295 point rally heading into this Monday though, it was time for ES form a new chart pattern, and give us fresh entries. The pattern to start the week was a bull flag. I expanded on this at the close Monday stating: “My general lean is always to defer to the trend until it ends. I’ve been doing this for the last 1200+ points since the April low, and we never fight the trend or “try to be first” into a reversal. 6227-32 to 6250=a flag. This sets up 6271, 6280, then ATHs to 6315, 6320-25.” What did we see this week? We held 6227-32 exact on Tuesday morning, and rallied to 6281 by this Thursday morning, then onto 6320-25 by Thursday high. It could not have played out better. Finally from there, we pulled back
We have now concluded two days of holiday trading and next week is back to normal. We also snapped the 9 green day streak and with ES completing a two week rally following the two week triangle breakout, can next week bring more dip? In today’s newsletter I’ll talk this, I’ll do a deep dive into some of the quality Failed Breakdowns we have had over the last week. These were provided in advance. We get 1 per day on average, and you need to be able to recognize them in real time. Finally, I’ll discuss the actionable plan for Monday.