Dead Cat Bounce Today In SPX, Or Bottom? April 1st Plan
Friday was a special day in ES, and I alluded to why in the title of my newsletter Thursday, which was called: “Tomorrow Decides If This Relief Rally Has Legs In SPX. Here's Why.” The reason was that on Thursday last week, ES closed at an extremely important inflection point. ES spent Wednesday and Thursday testing a key zone comprising two levels: 5735 and 5720. This was the support of a massive “megaphone” pattern from last November. ES recovered it at the start of last week and rallied to 5836, commencing a relief rally. It back-tested last Wednesday, and the ability for bulls to hold this would determine the next 100+ point move (and for bulls, determine if the relief rally continued directly into April).
Its why I wrote on Thursday at 4pm: “Since yesterday, we’ve been backtesting 5735 from above and so far defending. I very simply consider it bulls control above, bears below (though ES can underthrow it to 5720 lowest). The capacity for the relief rally that began on March 13th to continue depends on this 5735 zone holding”. Suffice to say, at around 9:45AM Friday morning, ES made its choice: Down. We sold all day Friday, and this morning all the way down to 5536.
After a deep sell though - as readers know - ES *always* puts in a massive short squeeze, and its *always* triggered by my core setup: The Failed Breakdown. For today, that would mean flushing and recovering the big March 13th low. I wrote on Friday at 4pm: “Below 5585 we retest the major lows at 5565. A Failed Breakdown here would be very much of interest and this remains a strong zone.” At around 10am this morning we flushed 5565 (March 13th low), put in a big wick down to 5536, and recovered to trigger a monster 100+ point squeeze.
Is this relief rally a dead cat bounce, or something a little more? In today’s newsletter I’ll talk this, I’ll do a deep dive into the conditions that caused Friday’s sell, because its a typical sequence before major sells (we see my core setup, the Failed Breakdown multiple times, then we see a Breakdown Short and ES goes elevator down). Finally, I’ll discuss the actionable trade plan for tomorrow.