Is "Buy The Dip" Temporarily Back In SPX? Jan 15th Plan

As I’ve discussed at length, on December 18th ES underwent what I call a regime change and since then I’ve devoted every newsletter to bringing readers up to speed on how to trade this new regime. The regime of course, is a high volatility, sell bounces regime that is characterized by ES alternating between deep sell offs (elevator down), and vicious short squeezes (which are then typically sold).

This week - after selling off 250 points from last Mondays high to this Mondays low at 5809 - I was looking for another one of those short squeezes. I wrote on Friday at 4pm: “If I had to give a general lean its that ES can test the lows (perhaps down to megaphone support 5828-31) then try another squeeze”. Right off the open Sunday we sold down to 5828-31, flushed it, then recovered yesterday to commence the squeeze. The end result of this is that ES put in a green day yesterday, and this green day also happened to be a bullish daily hammer candle, which was located at support of a massive, 2 month megaphone pattern.

For this reason, I was looking for more upside into today and I wrote yesterday at 4pm: “This time though we do have a bullish daily hammer candle at support of a 2 month megaphone. For tomorrow the bull case is bulls can keep it going. The first order of business is to get through 5880 which is where we are into the close….From there, the next leg up would target 5893, 5918, then 5928-31.” ES got right to work on this after the 6pm futures open last night and this played out: By 830AM this morning, we had hit 5918 target, set the high of day, then sold.

I wrote yesterday: “The next spot to try shorts is a large cluster at 5918 and 5928-31. A recover there would be a substantial success for bulls.” While we did get a deep sell off 5918, bulls nonetheless were able to continue buying the dips throughout the day.

We see here how powerful confluences can be: In this case, the confluence between a daily hammer candle, and a macro, two month megaphone support. Can bulls keep this going? CPI tomorrow will decide. In today’s newsletter I’ll talk this, I’ll do a deep dive into the final two short setups we had on Friday and Sunday (which ultimately took us from 5928 down into Sunday evenings low). These were great examples of my third setup type: The Breakdown Short, and are critical to know for when/if we resume back down. Finally, I’ll discuss the actionable trade plan for tomorrow.