Is SPX Priming For A Santa Claus Rally? Dec 23 Plan
Starting this week, ES was in the middle of an ultra low volatility, tightly coiled base between 6115-05 and 6070, in which we had spent a week. ES was patiently waiting for a catalyst to take us out of it. As I discuss in this newsletter, our job as traders is not predict what price will do, but rather to let price make its choice, and follow along. After FOMC Wednesday, ES made its choice: Down. I wrote Tuesday at 4pm: “Bear case tomorrow: Begins on the fail of 6105”. We lost 6105 and sold. What nobody knew however was this sell would result in the largest red week of the year, the largest FOMC sell in the history of the S&P 500, and also the largest red day of 2024.
Of course though, selloffs of any type in ES don’t come for free. They must be paid back, in the form of vicious short squeezes, and these occur after 100% of sharp sells in ES. They are triggered by my core supet: The Failed Breakdown. I warned about this originally on Wednesday, writing: “As readers who followed closely during previous sells this year or during the 2022 bear market know, elevator down days like today have a close sibling: The short squeeze, and they are often just as ferocious as the leg down, but it only occurs when a significant resistance reclaims”.
We got one short squeeze on Thursday, and today, we got another one. I wrote yesterday at 4pm when ES was 5930s: “If 5927 fails, we should make a new low. Readers will know what setup I’d be tracking here: The Failed Breakdown of Wednesdays 5907 low.” Overnight into this morning, we got this full sequence. We lost 5927, made a massive new low to 5866 support, then started today with a huge Failed Breakdown of the 5907 low. What followed was a major short squeeze. Longs were triggered, and we rallied 120+ points in under an hour.
We are now entering into a week of holiday trading. Can bulls keep it going? In today’s newsletter I’ll talk this, I’ll do a deep dive into what caused the selloff from the 6001-03 level yesterday into today’s low which was over 140 points. This short was provided to readers on Wednesday, and is an unorthodox example of my secondary setup type: The Back-Test Short. Finally, I’ll discuss the actionable trade plan for Monday.