Is the Relief Rally Done In SPX? March 31 Plan

NOTE: This is a resend of the newsletter for Monday March 31st, originally sent on Friday 4pm, for those who did not receive.

Heading into today, ES found itself at an important inflection point. Recall that since November, only one level has mattered in ES: Support of a massive “megaphone” pattern. We set the November, December and January lows at this structure at last week, it was located at 5755. Since its a declining line, it would fall into this week to 5735 or so. On March 10th, we lost this structure, sold 200 points, then spent last week back-testing it from below 4x. Heading into this week, I was looking for ES to recover it and doing so would give bulls a shot at a more sustained relief rally.

One week ago last Friday at 4pm (when we were 5710), I wrote “The pathway here would look something like defend 5699 then work back up to 5745-57. Perhaps 1 final dip there, then breakout. 5782, 5795, 5809, 5824, then 5850 are the targets for the next leg.” Last Sunday, we gapped up from 5720 to 5755, tested it one more time, then squeezed to 5836 this Wednesday morning, before rejecting lower to back-test the “megaphone” which was now located down at 5735. We spent Wednesday and yesterday testing it over and over. One can obviously see that today would be extremely important, and bulls would need to defend it. Decision Time.

First thing this morning, price made its decision: Down. I wrote yesterday: “If 5720 fails, bulls dropped the ball and we sell to 5699, then 5686 1st stops.” We got to 5686 1st stop very quickly, and much lower. As written yesterday, the short trigger today would go under 5720 or wherever the overnight low was. This would confirm the failure of the megaphone. Shortly after the open this morning, we got this, and down we went first to 5686, then significant lower, selling into the close. As I always say, we never need to guess where ES will go, or when. We plan our zones, then react.

Is that it for the relief rally? In today’s newsletter, I’ll talk this, I’ll do a deep dive into some of the action we saw at 5735 on Wednesday/Thursday. We saw all three of my of my core setup types (Failed Breakdowns, Back-Tests, Breakdown Short) and I’ll discuss the relatively standardized manner that price cycles through these setups with repetitive tests of a single level (price often starts with Back-Tests, then sees Failed Breakdowns, then Breakdown Shorts into deep sells like today.). Finally, I’ll discuss the actionable trade plan for Monday.