Has SPX Capitulated; or More Selling To Come? August 6 Plan

The past few days have been nothing short of historic with ES putting in a 225 point flush just since the open last night, making it the largest downside range day since September 2022. This was preceded by two days of similar (but less severe) selling, culminating in what was a 485 point, 3 day flush: The largest since the COVID crash (with June 2022 being a very close runner up).

While the magnitude of this selling event was a truly unique, once-every-5 years event, the “cause” was fairly routine from a technical perspective. Back on Thursday at 4pm when we were 5450s, I wrote the following: “5448-52: Support of the large purple channel structure that caused the recent macro leg up. This is a massive support now, and bears resume control for the next macro leg down below here. We closed here today”. “Macro leg down” it certainly was, and the selling commenced. In this case, the 5448-52 level was the driving channel support that controlled the entire rally we had since Aprils low. It failed, and therefore, the rally ended.

Last night the selling resumed off the open. I wrote in my Friday 4pm: “Bear case Monday: Resumes on the failure of 5343”, and bears got to work right off the open. Then by 10am today, we saw what always happens after a major cataclysmic melt-down like we had: A proportionately violent short squeeze today. Was today’s flush capitulation? In today’s newsletter I’ll talk this, I’ll do a deep dive into the setups that triggered these monster sells (breakdown shorts). These are your best friend in downtrends/bear markets. Finally, I’ll discuss the actionable trade plan for tomorrow.