Is the Current Pullback In SPX Just Fuel For The Next Big Leg Up? May 26/27 Plan

This week, ES was tested with its first significant, multi-day pullback since April 21st. Given we had put in six green days in a row in advance of this, a pullback this week was not surprising. Early this morning though - with the help from an old friend (Presidential Tariff Tape Bombs) - we got the type of vertical event-driven flush we had not seen since early April selling hard from 5850 to 5760 within an hour.

Zooming out a little first though before getting into that, every single day since April 6th, I’ve started this newsletter by reminding readers that ES has been in what I’ve called buy dips mode. We’ve had dips of varying sizes, but there is an underlying bid and they get bought without being able to cleanly follow through. I’ve also discussed the practicalities of how institutions go about buying dips (via my core setup, the Failed Breakdown/Level Reclaims). As shared back on Tuesday, the first big test for bulls during any pullback this week would be the 5850 level. This was a massive support shelf from early October, early November, and early January this year. Its failure in March caused the deep sell we saw, and it was incumbent on bulls to hold it this week.

For yesterday at least, they did, and was business as usual. I wrote on Wednesday at 4pm: “On an even shorter-term basis, if bulls are extremely motivated to buy this dip they won’t even lose 5850 from here (or if it does fail, just a quick failed breakdown and recovery).” We saw exactly that yesterday morning. We flushed 5850 by 30 points, rapidly recovered by 8:50AM, triggered longs, and we were off to 5890 target/high of day.

Today - given that bulls put in a massive bullish Failed Breakdown at 5850 - the job for bulls was to defend it, and until 730AM, they were doing just fine. Then, ES got slammed with a Tariff tape bomb, to trigger a hard sell. I wrote yesterday: “Bear case tomorrow: Begins below 5850, but realistically 5836 must fail to really see a sell.” This morning, we hit that 5836 short trigger and sold hard to 5760.

While this was a sharp sell, it ended in the usual dip buy/Failed Breakdown and as tweeted at 9:25AM, the recovery of 5788 would give us the dip buy/squeeze back up the levels and we got to 5843. Is this dip just charging ES for more upside? In today’s newsletter I’ll talk this, and I’ll overview some extremely good examples of my three setup types we saw this week (all were provided in advance to readers). This includes yesterdays 5850 Failed Breakdown long (my core setup), this mornings Breakdown Short, and then a Level Reclaim Long after the open today to trigger back up. Finally, I’ll discuss the actionable trade plan for Monday/Tuesday. Monday is a holiday.