Is Buy The Dip Back In SPX? Not So Fast. April 26 Plan

The “theme” in ES last week was that we were in the middle of the deepest consecutive day selloff (6 days in a row) since September 2022. The “theme” therefore for the first half of this week, has been a relief bounce and short squeeze and we rallied an incredible 165 points in a two day stretch. This is what relief bounces and short squeezes look like in ES. They begin on the recovery of a major resistance, which we got on Monday at 5033-36.

I used word relief bounce intentionally, because as I discussed at length yesterday, until proven otherwise, that is all this weeks rally could be considered as. Today, ES put in the first real retracement leg of that relief rally, putting it to the test. I wrote yesterday: “Bear case tomorrow: Begins on the 5077 fail….After this acceptance is present, I’d consider short perhaps 5074 for a move down the levels”. I added: “If 5077 fails, we could see quite a hard flush down, perhaps even knife catch mode”. ES wasted no time on this, and after META earnings last night, we tested 5077, based there all night, then hit the short trigger and we free fell this morning 50+ points

This sell took us back to what I have called “ground zero”: That 5033-36 zone that has been a contested battleground for the past week and after a brief flush below, bulls held it, retaining control and bouncing. Does this mean dip buys are back? In today’s newsletter I’ll talk this, discuss the setup that triggered this mornings sell (it is the rarest, but highest R/R of my three setup types), then discuss the actionable trade plan for tomorrow.