Biggest Crash For SPX In 2 Months. Buyable Dip? Or More Red Ahead? Nov 1 Plan
My newsletter yesterday was entitled: “13 days of Basing For SPX. Huge Moves Ahead. Can Earnings Trigger It?” and the answer was yes. ES had spent the last week week or so stuck in the same range between 5838-42 and 5890-5900. Everyday was the same: Sell to the bottom of the range, trap shorts. Sell to the top of the range, trap longs, rinse and repeat.
Yesterday at 4pm we got a combination of Meta and MSFT earnings, and this finally shook up the cycle, and also gave us the 1st short setup in a full week in ES. A core component of my system is that we don’t engage in guesswork as to when sells occur. I do not fight uptrends, or short strength with fingers crossed hoping price will reverse. I short when price tells me to short; by losing a major, previously tested, well defended support level. There is no guessing, a support fails, and I *react* with shorts. That level was 5843 range support last night.
I wrote yesterday in my newsletter sent out at 3pm: “Bear case tomorrow: Begins below 5843. As always, I’d need to see ES test 5843 and try and put in a Failed Breakdown of todays 5846 low. After this setup fizzles out, I’d look short, perhaps 5841”. Last night after 4pm we saw exactly this: We tested 5843, put in a Failed Breakdown of yesterdays 5846 low, rallied to 5860, then after 6pm last night, ES lost the cluster of support. From there, down we went for the deepest selloff in over a week down to 5750.
I wrote yesterday: “Remember we are in a 10 day range, if this range breaks down - we will sell hard and the selling won’t relent. Every support will fail until we get the routine post “elevator down” short squeeze”. We flushed non-stop for almost the entire session today.
The question now is, will this dip get bought, or is this the start of something more? In today’s newsletter I’ll talk this, I’ll discuss the setup that triggered last nights short (its my rarest trade type: The Breakdown Short), and contrast that with my most common setup, the Failed Breakdown. Finally, I’ll discuss the actionable trade plan for tomorrow.