Is This A Dead Cat Bounce For SPX? Or Bottoms In? March 20th Plan

This past two weeks - and arguably - the last 4 months, have been all about 1 level in ES which I have discussed at huge length: 5755, which was support of a massive, multi-month “megaphone pattern” which contained all price action from November until March 10th, last Monday. Every single major bounce in that time period, came off support of that pattern. On Monday March 10th, we broke it down, and sold 200 points into last weeks low.

Readers know that technicals in ES are extremely repetitive (which is why we can trade it profitably). After a deep selloff ES does two things: 1) It puts in my core setup - the Failed Breakdown - which generates a short squeeze. 2) These short squeezes typically back-test major breakdown zones. 3) ES then typically rejects at that back-test point on the 1st test. This is exactly what we saw last week into this week. I wrote last Friday at 4pm: “Friday at 4pm: “Bulls got that elusive green day, but now is the hard part: Follow through. My general lean is bulls can correct/consolidate on Monday and ideally bulls want to defend 5651. This would setup the next leg up to 5706, 5710, then 5755”.

Last Thursday, ES flushed the last Tuesday low, trapped shorts, recovered, and triggered longs for a nearly 200 point move up. The target for that long was 5755, to back-test the megaphone. The megaphone hit exactly on Monday at ~5755. What happened from there? I wrote on Friday at 4pm: “5755-57 is an obvious zone to try short being the megaphone backtest. Big spots like this do like to overshoot first before rejecting.” We hit that Monday and sold over 100 points yesterday into today.

Heading into FOMC today, I was looking for another back-test of that megaphone. I wrote yesterday: “My general lean is we can do a little back-testing. First up to 5699-5704, then back to the megaphone in the 5750s. ES can squeeze hard above there to 5797+. If 5620-25 fails, we get another leg down.” By 10am, we tagged 5699-5704, then after FOMC, we tagged 5750s.

Can bulls clear it this time? In today’s newsletter I’ll talk this, I’ll discuss the difference between a high quality Failed Breakdown and a Low Quality Failed Breakdown (and will also touch on some recent shorts the last few days). Finally, I’ll talk the actionable trade plan for tomorrow.