Is Capitulation Near For SPX? March 11 Plan
Last week into this week has been one for the record books in ES. We had three red weeks in a row, for the first time since the July into early August 2024 correction. Not only that, but in the last 14 trading days, only 3 were green, and those three green days (which included last Friday), were all isolated, with ES unable to stack back to back green days since February 19th.
The amount of red daily candles however conceals the massive intraday volatility we’ve had, with everyday last week (excluding today which was a trend day) having at least one 100 point squeeze higher, which typically faded as we’ve been in sell the bounce mode. Friday saw one of those squeezes as well, and its no coincidence at all where or what happened after. For months, I’ve discussed how ES had formed a massive “megaphone pattern”. The last test of megaphone support was on Jan 13th, from which we rallied into the Febuary 21st high. On Thursday at 4pm, I wrote: “For tomorrow, the bull case is that the 5720-23 multi-month megaphone pattern defends.” This was the battleground all day Friday. ES flushed to 5720-23 exact at 9am Friday, rallied to 5777, then from there flushed to 5675. What happened from there? What frequently happens around major macro structures, ES put in my core setup: The Failed Breakdown, and we recovered 5725, and squeezed into Friday’s 5780ish high.
Today, the sole mission for bulls would be to continue to defend 5720. They dropped the ball on this right off the open, which meant today, the path was down and what followed was carnage. I wrote on Friday at 4pm: “Bear case Monday: Begins under 5720….As always, we don’t simply rush in headfirst short below 5720. I’d need to see a strong bounce here, and/or Failed Breakdown. After this, you can short below wherever the lows of that bounce is. If its at 5720, then one can short below that. If its at 5700, then one can short below that.” We lost 5700 at 8am, and down we went to ~5570. Today was the first open-to-close trend day for ES since February 21st and as readers know, open-to-close trend days to the downside are extraordinarily rare.
As stated above, its been quite the run and ES is now only 3 days green in the past 14. Are we close to short-term capitulation? In today’s newsletter I’ll talk this, I’ll do a deep dive into the setup that caused Friday’s late day 100+ point short squeeze and subsequent failure today. Finally, I’ll discuss the actionable trade plan for tomorrow.