CPI Day Tomorrow. Expect Volatility in SPX. September 11th Plan
September started off with a bang, putting in the largest single red weekly candle since March 2023. Last weeks selling culminated with its own capitulatory session and we saw an open to close trend day to the downside Friday, with ES flushing to 5393 in the final minutes of trading.
As I’ve discussed at length though, there is something close to a law that exists in ES in which every significant “elevator down” move has a correspondent short squeeze. It is the market equivalent of “for every action there is an equal an opposite reaction”. There exists no selloff, without a short squeeze, and I was looking for it to start this week, writing in my Friday 4pm newsletter: “Obviously a short squeeze is around the corner…. My general lean for Monday is we resume down to 5400, perhaps 5372-78. Those are both possible pivots to bounce us, with 5474-78 being an obvious backtest magnet”. We flushed to 5393 around 430PM Friday, then tagged 5478 yesterday.
After yesterdays big rally day, I was expecting what typically comes after rally days today: Chop. I wrote yesterday: “Generally the bull case for tomorrow would see ES building out structure. This could mean “Mode 2” chop. 5492 to 5438-41 would be the possible chop zone but ideally bulls won’t even go lower than 5458. We could ping pong this zone and it would just setup another leg back up”. We spent today ping ponging this range, with a quick trap above the range in the morning, then a quick trap below around noon, before resuming up.
Tomorrow is CPI day, however. Can bulls keep this rally going? In today’s newsletter I’ll talk this, I’ll do a deep dive into what causes short squeezes and how to trade them. Finally, I’ll talk how I trade CPI days, as we have one tomorrow and they are the singular most volatile sessions in ES.