Does This SPX Relief Bounce Have Another Leg In It? April 25 Plan

Last week concluded with the largest stretch of red days since September 2022 - 6 in a row. It should then come as no big surprise what this week started off with: A violent, 2 day short squeeze. Remember that in ES, sells never just end: They violently short squeeze, often with significantly greater momentum and speed than the sell that lead into it. The short squeeze is always triggered by a major level reclaiming, and we got this Monday when we reclaimed 5040.

I was looking for this to start the week, writing Monday “My general lean is as long as 5040 defends (or recovers quickly on any losses), ES can squeeze a little more out of this recovery leg to 5081, then 5102”. We got to 5102 yesterday morning. Overnight, we stretched higher to 5126, then began a dip. This however, created a seriously overbought RSI, and I warned yesterday: “It is also worth noting the RSI is significantly overbought” and we spent the first part of today cooling it off, building a complex, messy base. I wrote yesterday: “Post-trend days are ripe for trapping - longs with FOMO are easy to trap, and shorts trying to top pick are easy to trap, and there is tons of liquidity for the taking. For this reason, I like to scale back on these days and give price some time to underdo discovery again”. We saw this today, ping ponging in a 30 point range all day.

So far, bulls have averted a deep retracement. Does this mean this leg has more to come? In today’s newsletter I’ll talk this, go into more detail on the setup that got me long ~5044 on Monday for what turned into an 80 point rally, then discuss the actionable trade plan for tomorrow.