FOMC Tomorrow. Expect Volatility in SPX. May 7 Plan
ES kicked off this week doing something fairly incredible: Putting in - for the first time since 2004 - 9 green days in a row. This run has been an extension of what I have called (since the April 6th low one month ago), the buy dips regime. For one full month, we have had a variety of dips of various shapes and sizes, but they were all bought and promptly so. ES snapped this streak yesterday, putting in its first red day and as I wrote on Friday at 4pm: “We are 9 green days in a row and its not uncommon to see what I call “hangover Monday”. As I have discussed at length, we don’t need to guess or predict when or where any dip will be bought, as all dip buys are caused by my core setup (and footprint of institutional accumulation), the Failed Breakdown.
My general macro target for this leg up since the April 6th low has been one level: 5672. I re-affirmed this again one week ago last Monday (when we were down at 5550), by stating: “Next leg up targets 5600, 5620-23, 5650, then 5672 which remains the macro target (back-test of the red megaphone structure in the below chart that we trapped above and lost on April 2nd).” This was a key trendline support connecting the November-January lower lows, which Failed in early March and the onus was on bulls to recover it. Last Thursday, we finally tagged this, cleared it on Friday, and then this general zone had been support all day yesterday. The job for bulls today, would be to defend it, and for bears, to lose it.
Price made up its mind early in the evening last night. We lost it, and down we went overnight into this morning. <5650 would be needed to confirm the loss and I wrote yesterday that “Bear case tomorrow: Begins under 5650.” We sold to 5607 low of day after. By mid-day, we spiked to back test 5672, then rejected down for the day.
Tomorrow is FOMC day, and volatility is likely ahead. Bulls will need to get back above that ~5667 shelf. Can they? In today’s newsletter I’ll talk this, I’ll do a deep dive into three quality Failed Breakdowns we had over the last three days (one on Thursday which produced a 120 point squeeze from 5600 to 5720), and one yesterday which produced a 35 point squeeze into the high of day. These were all provided in advance, and we have generally seen one Failed Breakdown per day. Finally, I’ll discuss the actionable trade plan for tomorrow.