Biggest Melt-Down Since August For SPX. Buyable Dip, Or More To Come? Dec 19 Plan

Today was FOMC day, and as I wrote yesterday: “FOMC days (and CPI days) are the singular most volatile, complex, impactful and difficult days to trade of the year for ES and there are few catalysts annually that can provoke both the magnitude and complexity of moves these two days can.” I also wrote: “FOMC has the ability to produce nearly any outcome (+100 or -100 instantly is very likely as are deeply complex and volatile pathways). We have to size down, and be ready to flexibly react.

Today’s FOMC certainly delivered on this front, with an FOMC drop of over 150 points. Notably, this move was caused by the break down of a large base that ES had been constructing for the last 1.5 weeks, mostly between 6168-75 and 6105-6115. As readers know, as day traders we don’t predict what way bases will break. The job is not to have a crystal ball. We wait for the market to show its hand, then just follow. I wrote yesterday that “Bear case tomorrow: Begins on the fail of 6105”. Immediately after FOMC, ES chose down, we broke 6105 to the downside, and sold. This was 1.5 weeks of energy being released in a single flush.

ES took the bear case very literally and as I wrote yesterday: “If 6105 fails, then the bull flag also fails (6105 is support of the flag). On a regular day, this would mean we could flush quite substantially and I’d be very cautious about “knife catching” any longs”. Substantial flush it was, and we got down to 5900 near the close. The question is, now what? Will this dip get bought, or is the start of more to come? In today’s newsletter I’ll talk this, I’ll discuss the setup that resulted in today’s sell, then I’ll provide the actionable trade plan for tomorrow.