Is the PullBack in SPX Already Done? Oct 25th Plan

The past few days have been a treat for technical analysts and when volatility picks up (a rarity as of late), traders get to see how well technicals function in real-time. Yesterday, ES saw the deepest selloff since September 6th. It is not a coincidence that ES saw a selloff yesterday and as readers know selloffs occur when - and only when - major supports fail. We saw this yesterday when ES lost the 5860 support level.

I provided this to readers in Tuesdays 4pm newsletter, where I wrote: “Bear case tomorrow: The real bear case does not start until ES loses 5857-60 and breaks down this range..After this, I’d consider short below wherever the structure is, probably 5855”. After this trigger hit, down we went to 5800. As we know from basic technical analysis though selloffs in ES are always followed by face ripping short squeeze, and those short squeezes have a tendency to backtest the zones where the selloffs originated. I wrote yesterday at 4pm: “We had a deep sell today, and then a short squeeze. My general lean is we can backtest the breakdown zones now. This means 5855-57, then 5864. This is the dip zone, and if that dip gets bought, a more sustained low is likely”.

We saw this today and after yesterdays deep sell, we saw a strong overnight short squeeze that took us right to 5864 by the open today, from where we sold off 40+ points, before an afternoon bounce. This is very classic: Breakdown, Back-Test, Reject.

Ultimately though yesterdays dip was bought. Is the pullback already done? In today’s newsletter I’ll talk this, I’ll do a deep dive into yesterdays short setup: This was a rare example of my core short setup type (The Backtest Short) and you’ll need to know these for when we get a bear market. Finally, I’ll discuss the actionable trade plan for tomorrow.