FOMC Day Tomorrow. Volatility Incoming, Can Bulls Keep The Bounce Going? March 19 Plan
The past week or so has been an absolute masterclass in the efficacy of simple technical analysis principles. As I’ve discussed at enormous length, about one week ago - last Monday March 10th - ES broke down support of a massive “megaphone pattern” which had contained and controlled all price action since November. We saw a 190 point sell afterwards. The back-test point for this megaphone was 5755-62 heading into this week.
Here’s where simple technicals come in. What happens after deep “elevator down” selloffs like last week? Price always puts in my core setup, the Failed Breakdown, and we saw last Thursday, we got just this at 2pm where we flushed the last Tuesday low at 5585, sold down to 5564, then recovered. This got us long last Thursday at 2pm. I concluded last Thursday at 4pm by writing: “We have an active Failed Breakdown. My general lean is we can re-test 5610. If bulls can clear, we can work up the levels to 5636, 5710, then 5755-62.” After a hugely lucrative 170 point rally, we tagged 5755-62 target exactly yesterday afternoon.
Why 5755-62? Here’s the other simple technical principle: When major structures breakdown (like the megaphone) they back-test. It did so yesterday, and we sold deeply into this morning, and as I’ve discussed for days, bears retain full control until that recovers. I wrote on Friday at 4pm: “5755-57 is an obvious zone to try short being the megaphone backtest. Big spots like this do like to overshoot first before rejecting.” We hit that yesterday and sold over 100 points into today.
Can bulls buy this dip? Much of that will depend on FOMC tomorrow, and FOMC’s can introduce significant volatility. In today’s newsletter I’ll talk this, I’ll do a deep dive into some of the quality Failed Breakdowns (my core setup) we had both Thursday and yesterday which allowed us to enter for this recent move, and add exposure to it. Finally, I’ll discuss the actionable trade plan for tomorrow.